Proposed Delaware Interactive Gaming Regulations

John Mehaffey July 4, 2013 895 Reads

Delaware named 888 Holdings, Scientific Games and Williams Interactive as its online gaming partners.  These partners must still qualify under Delaware’s terms to provide interactive gaming to its residents and players.

Delaware released its interactive gaming regulations this week.  These are only the proposed regulations.  Public comments, which will be accepted through July 31st, will be considered before the regulations take effect.

The first part of the regulations ban anyone that has been convicted of a felony or gaming related crime from participating in the regulated online gambling industry in Delaware.  The regulations also exclude any person or company that:

Failed to follow any applicable tax laws of the federal, state or local governments.

This term is interesting because it may exclude any offshore company that did not file taxes with Delaware, other states, or the federal government.  This is not a bad actor clause in itself, but it leaves companies that failed to pay state or federal taxes open to additional scrutiny.

Technology Requirements

Any entity that is contracted by a licensed Delaware interactive gaming company must apply for a license if its business is required to verify player identities or if the company is involved in the outcome of a wager.  This term may exclude a company like iovation from entering the Delaware interactive gaming market.  At the very least, it will force a company to open its books and officers to the State.  Companies that have something to hide may be unwilling to apply for a license knowing that its past will be open for all to see.

Exception to Companies Licensed in Other States

One interesting exception to the licensing requirements in Delaware states that a company that has already received an interactive gaming license in a jurisdiction with the same stringent requirements as Delaware may be able to receive a waiver for some of the background requirements that other potential licensees may be forced to provide.  For example, if a company has already received an interactive gaming license in Nevada or New Jersey, and Delaware finds that those states have a similar licensing requirement, some steps may be skipped in the Delaware licensing process.

Bad Actor Clause

Some states have a clear bad actor clause that forbid certain companies from entering the market.  Delaware has no such term specifically, though it has language that allows its Division of Gaming Enforcement (DGE) to approve or restrict an applicant.  Any applicant or its officers may be excluded if they are found to have been convicted of a felony or gaming related crime in the previous ten years.  Latitude is also granted to the DGE if an applicant is found to be associated with individuals or companies that are not of high moral character.  Any applicant that has ever been investigated by any jurisdiction must disclose this, as well as the outcome of the investigation.

Licensing Fees

Delaware is not offering any operator licenses.  That is because the Delaware Lottery will operate all interactive games.  Delaware will only license technology and service providers.

A licensed technology firm will be required to pay a $4,000 application fee.  A company that is already licensed to offer games in Delaware’s Video Lottery casinos will not be required to pay this fee.

Service providers are required to be licensed, even if the company has no interest in the outcome, if their annual revenue is $100,000 from a single licensee or if its annual revenue is $150,000 among all Delaware licensees.  Payment processors are exempt from licensing.  Any service provider requiring a license will be required to pay a fee of $2,000 to the State.

Delaware Location Not Required

The proposed Delaware regulations do not require licensees to be located in the State.  Primary employees and servers must be located in the United States.  Non-essential employees and servers may be located in other countries.

Employee Licensing

Delaware interactive gaming laws recognize three types of employees.  There are key employees, regular gaming employees and service employees.  Key employees, which include officers and 5% owners, are required to pay a $500 application fee to receive a license.  Key employee licenses are issued for two years.  Key employee license renewals are issued for three years.

Standard gaming employees are required to pay a fee of $200.  The initial license is valid for three years.  Renewals are valid for four years.

Service employee licenses do not have a fee.  These applicants may be required to pay for a criminal background check.  Service licenses are valid for five years, with renewals valid for six years.

Requirements at Launch

Licensed companies will be subject to a 60-day trial period.  The approved platforms will operate for 60 days unless otherwise approved by the DGE.

Delaware Online Gaming Servers

Primary gaming servers, which compute wager results, must be located in the United States, but these servers are not required to be in Delaware.  Secondary servers that do not affect game play, or store personal information, may be located outside of the United States.

Disconnection Policy

Each licensee must post a disconnection policy in their terms and conditions.  Casino games are required to pause if a disconnection takes place and a player must be allowed to login and finish the hand.  Poker games have their own difficulties and a disconnection policy must be in place and disclosed.  This is especially important for tournaments.  If the loss of connection is due to the licensee’s server failure, it must refund the player, notify the DGE of the resolution, and remove the game if it is likely to fail again.

Player Registration

Players may register a free play account from anywhere.  No player verification is required for free play, but these players must enter personal information including a player’s date of birth.

Real money players must supply a cell phone number, email address and Social Security Number.  Player ID and age verification must be made for real money players.  Players that have self-excluded or are on banned lists will not get approved.

Deposits may be accepted from players located anywhere.  Players that are “reasonably determined to be located within the state of Delaware” will be allowed to play for real money.  Player to player transfers are not allowed and players may not transfer money from one licensee to another, even if the accounts are in their same name.

Players that wish to self exclude must physically go to the Delaware State Lottery Office with an opt out form, a State ID, and a player must have their photograph taken by the State.  While this prevents people from self excluding players other than themselves, it creates a psychological roadblock for those that wish to opt out of Delaware online gambling.  Players must also opt out of both live and interactive gaming at the same time.  Players may request a one year, five year or lifetime self exclusion.

The self-exclusion form in Delaware states:

I am voluntarily requesting exclusion from all gaming activities at all licensed Delaware Video Lottery Agent locations and their Internet lottery sites because I am a problem gambler.

I certify that the information provided above is true and accurate, and that I have read and understand and agree to the waiver and release included with this request for self-exclusion. I am aware that my signature below authorizes the Lottery and the DGE to direct all licensed Video Lottery Agents to prohibit my access to their premises and all Internet lottery sites in accordance with this request and unless I have requested to be excluded for life, until such time as the Lottery removes my name from the self-exclusion list in response to my written request to terminate my voluntary self-exclusion.

I am aware and agree that during any period of self-exclusion, I shall not collect any winnings or recover any losses resulting from any gaming activity at all licensed Video Lottery Agent facilities and Internet lottery sites, and that any money or thing of value obtained by me from, or owed to me by a Video Lottery Agent as a result of wagers made by me while on the self-exclusion list shall be subject to forfeiture. I am aware that during my period of self-exclusion I will be denied access to any player club promotions, offers or memberships relating to video lottery and internet lottery activities.

Note: any person whose name has been placed on the self-exclusion list, who thereafter knowingly enters a gaming area, is guilty of a Class A misdemeanor.

Players that choose a one of five year exclusion must reapply to enter a live or interactive Delaware casino; otherwise they stay on the self-exclusion list.

A player that wishes to opt back into Delaware interactive gambling must affirm:

I certify that the information that I have provided above is true and accurate. I am aware that my signature below constitutes a revocation of my previous request for self-exclusion, and I authorize the Lottery to permit all Internet lottery agents to reinstate my Internet lottery privileges at licensed Internet lottery websites.

Delaware Online Gambling Deposits and Withdrawals

Delaware players may deposit by credit card, bank transfer or any future method approved by the DGE.  Credit may not be extended to customers.  Withdrawals may be made by bank transfer or check.  Other methods may be approved by DGE.

Inactive Accounts

Inactive accounts are defined by five years of no login.  After five years, inactive accounts are subject to Title 12, Chapter 11, Subchapter II of the Delaware Code.  This law covers abandoned property in Delaware.

Player Disputes

If a player is unable to resolve a dispute with a licensee then the player may file a complaint with the DGE.  A preliminary resolution will then be made by the DGE.  Players and licensees have ten days to dispute a ruling.  The player or licensee must then submit a full explanation as to why they feel the resolution is unsatisfactory.

Promotions

All promotions must be approved by the DGE.  If an identical promotion has already been approved then it does not require an additional approval.  This should prevent promotional disputes that have been too common in online gambling over the years because the promotion will already be familiar with the State.

Play for Free

Any free play game must receive licensing.  Free play licenses are offered for 90 days and may be renewed.  Free play games must use the same random number generator and the odds must reflect its identical real money game.

VIP Programs

Player VIP programs will be allowed in Delaware.  Since these programs will affect the taxation of licensees, the procedures for player rewards must be disclosed to the DGE.  This includes how a promotion is administered and how and when funds are transferred.  It seems clear that rakeback and similar poker VIP structures will be allowed under this term.  Casino cash back and loss rebate programs would also fall under this section.

Banking Requirements

The standard banking requirements that demand licensees to hold player funds in segregated accounts is found in Delaware’s regulations.  Licensees will be allowed to transfer funds to company bank accounts on at least a monthly basis.  This may be changed upon DGE regulations.  This leaves flexibility if interstate gaming compacts are reached where funds may need to change hands more often.  Standard IRS regulations are also recognized.  These include issuing a W2G to players that win $1,200 in a single wager or a $5,000 net poker win.

Proposed Delaware Interactive Gaming Regulations

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