Call to Order and Roll Call
The 3rd meeting of the Interim Joint Committee on Licensing and Occupations was held on Tuesday, August 30, 2016, at 10:00 AM, in Room 169 of the Capitol Annex. Representative Dennis Keene, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator John Schickel, Co-Chair; Representative Dennis Keene, Co-Chair; Senators Joe Bowen, Julian M. Carroll, Denise Harper Angel, Jimmy Higdon, Paul Hornback, Christian McDaniel, Dan "Malano" Seum, and Damon Thayer; Representatives Tom Burch, Denver Butler, Larry Clark, Jeffery Donohue, Daniel Elliott, Dennis Horlander, Joni L. Jenkins, Adam Koenig, Charles Miller, Jerry T. Miller, David Osborne, Darryl T. Owens, Ruth Ann Palumbo, Sal Santoro, Arnold Simpson, and Susan Westrom.
Guests: Nick Rellas, CEO, Drizly; Heather Calio, Director of State Government Relations, Wine and Spirits Wholesalers of America, Dan Meyer, Executive Secretary and General Counsel, Wine and Spirits Wholesalers of Kentucky; Derek Hein, Manager for Government Affairs, Draft Kings; Cory Fox, Counsel, FanDuel; Marc Wilson, Partner, Top Shelf Lobby, LLC.
LRC Staff: Tom Hewlett, Bryce Amburgey, Jasmine Williams, Michel Sanderson, and Susan Cunningham.
Approval of minutes of July 8, 2016 meeting.
A motion to approve the minutes of the July 8, 2016 meeting was made by Senator Julian Carroll and seconded by Representative Jeff Donohue. The motion was adopted by voice vote.
Home delivery of alcoholic beverages.
Nick Rellas, CEO of Drizly, said Drizly is a simple consumer application that can be downloaded from its website. The consumer is connected with local package liquor stores and can order from them. Retailers can deliver orders in as little as 20 minutes. There is no increased charge through the application; the consumer pays the same price charged in the store. The retailer charges a $5 delivery fee. Drizly is not involved in delivery.
The consumer provides Drizly with a delivery location; however, a consumer in a dry area, college campus, or with an otherwise restricted address receives a message indicating that the product is not available in that area. The company is located in about 26 cities and works with hundreds of large and small retailers. The service allows retailers to use the internet to expand their businesses and allows consumers the convenience of online shopping.
Mr. Rellas said that Drizly has worked to ensure that taxes, consumer safety, and underage drinking are taken care of within the system. Retailers are operating within the three tier system, and regulators across the country agree. The internet is changing the way people do business. Massive companies like Amazon take money from local retailers. Drizly, however, ensures that local retailers are making money from this revenue stream.
In response to a question from Senator Schickel, Mr. Rellas said he has not yet spoken to the Kentucky Department of Alcoholic Beverage Control, but generally speaking this is a very benign evolution of regulations. He is not asking for wholesale shifts.
In response to a question from Senator Thayer, Mr. Rellas said Drizly started with small businesses and believes that any business can make money with this model. The agreements are nonexclusive. Drizly only works with alcohol sales and not in grocery sales.
In response to a question from Representative Koenig, Dan Meyer said KRS 244.310 prohibits retailers from delivery of distilled spirits or wine. Delivery of malt beverages is allowed. Mr. Rellas said his company charges a monthly software license fee.
In response to a question from Representative Clark, Mr. Rellas said that ensuring that delivery drivers are of a legal age is the responsibility of retailers.
In response to a question from Senator McDaniel, Mr. Meyer said a 16 year old employee cannot handle alcohol transactions. Employees must be at least 20 years old to handle alcohol transactions. Mr. Rellas said Liquor Barn is on Drizly in Canada.
Senator Bowen commented that the idea is creative, and the free market should be allowed to prevail.
In response to a question from Representative Osborne, Mr. Rellas said the territories are chosen by the stores. Stores may have multiple fulfillment areas.
In response to a question from Representative Jerry Miller, Mr. Rellas said Drizly has a closed feature application. The retailer will have an app that will scan a customer’s ID to ensure that it is valid and not expired, and that the customer is over age 21. It allows the driver to enter the forensic features that are available on Kentucky IDs. There is no photo ID provided. The consumer is able to track the driver and rate the transaction.
In response to a question from Representative Santoro, Mr. Rellas said Drizly is active in 23 states.
In response to a question from Senator Thayer, Mr. Rellas said that Drizly stands behind the three tier distribution system.
Fantasy Sports.
Cory Fox, Counsel, FanDuel, said the first fantasy teams were formed in 1980 in New York by a group of sports writers creating “teams” using real baseball players’ statistics. By the mid-90s, the first trade association was formed. Fantasy sports took off in the late 1990s with the growth of the internet. Search engines, news stories, and analyses made statistics available. Today there are over 55 million fantasy players in daily and seasonal leagues.
In 2009, FanDuel launched a daily fantasy company. In traditional fantasy sports, the person picks a team at the beginning of a season. A problem is that, if a player is hurt in week two of the season, the team could be out of contention for the rest of the season. The idea of a new team at the beginning of every week was found to have popularity, and it enhanced the part of the fantasy experience that consumers enjoyed.
Derek Hein, Manager, Government Affairs, DraftKings, said DraftKings started in Boston in 2012. Major League Baseball and the National Hockey League are equity stakeholders in the company. The Professional Golfers Association and NASCAR have marketing partnerships. Members in the Fantasy Sports Trade Association include companies providing analytics, research, and tools to become better at looking at statistics and analyzing teams and matchups.
Both FanDuel and DraftKings require age verification when a person registers for an account. Both companies offer free games and games that can be played for money. The most popular game on the DraftKings site costs $3. Players select a team of real-world athletes and accumulate points based on real-life statistics in real-life games. Points are accumulated by individual performance. The goal is to assemble a team of athletes that will score the most possible points. Players can compete against each other or in leagues.
Cory Fox, said last year, due to growth, FanDuel began to advertise. This enabled it to acquire new customers. By last fall, FanDuel operated in 45 states and began to look to verify regulatory status. FanDuel has pending legislation in 38 states. There are three components of the legislation: legal clarity, consumer protection requirements, and regulatory oversight. There are eight states that have passed fantasy sports legislation.
In response to a question from Representative Clark, Mr. Fox said the companies are losing money on advertising. Mr. Hein said that DraftKings and FanDuel are currently operating in Kentucky. Both companies believe that it is important to have legislation that covers the consumer for compulsive behavior, that verifies age, and that keeps the consumer’s money separate from the company funds.
In response to a question from Senator Bowen, Mr. Hein said there is a way to factor team defense, but the companies only allow players to draft offensive players.
In response to a question from Senator McDaniel, Mr. Hein said a player winning more than $600 on DraftKings is issued a 1099 form. There are no corporate state taxes paid since the companies are not located in Kentucky. Mr. Fox added that players are generally younger, with a different demographic that horse racing.
In response to a question from Representative Jerry Miller, Mr. Fox said the companies have an agreement with the NCAA to not offer betting on college sports.
In response to a question from Senator Higdon, Mr. Fox said there are some states that have put in place a mechanism to collect taxes.
In response to a question from Representative Koenig, Mr. Fox said five states have gambling laws so expansive that it was believed that fantasy sports did not need legislation. Some states have Attorney General opinions permitting the playing of fantasy sports within their current gambling laws.
In response to a question from Representative Osborne, Mr. Hein estimates about 100,000 Kentuckians play FanDuel and DraftKings. The most popular game costs $3.
In response to a question from Representative Thayer, Mr. Fox said that, in other states, race tracks are not competitors with fantasy sports. Regulation of fantasy sports differs from state to state.
There being no further business to come before the committee, the meeting was adjourned at 11:05 AM.