Delaware’s Proposed Online Gambling Regulations in a Nutshell

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Delaware released the initial version of their regulations covering online gambling activity this week.

What follows is a quick synopsis of what I think are the interesting / important aspects of the regulations on first read.

You can read the full version of the proposed regulations here.

Remember, these are proposed regulations, not final regulations. The public comment period closes July 31st, 2013.

You can send comments to Rebecca Goldsmith, Delaware Lottery Office, 1575 McKee Road, Suite 102, Dover, Delaware 19904. I’m not aware of a way to make comments online.

With that out of the way, here’s a section-by-section walkthrough.

2.0 Definitions

Pretty standard, with a few definitions worth noting.

Authorized game

The definition provides the Director with broad latitude to authorize just about any game imaginable: “any other game which is determined by the Director to be compatible with the public interest and to be suitable for use after such appropriate test or experimental period as the Director may deem appropriate.”

Tournaments involving approved games – including multiple games within a single tournament – are also allowed at the Director’s discretion.

Gaming employee

A relatively narrow definition that excludes affiliates:

“Gaming employee” means a person employed in the operation of an Internet lottery and determined by the Director to have employment duties and responsibilities involving the security, maintenance, servicing, repair, or operation of Internet lottery equipment, or is employed in a position that allows direct access to the internal workings of Internet lottery equipment.

There is also a definition for “Key employee,” a designation generally applied to those “acting in a supervisory capacity or empowered to make discretionary decisions with respect to Internet lottery operations.” The Director has the discretion to apply this designation as they see fit.

And there’s a definition for “Service employee,” a designation applied to “a person employed in the operation of an Internet lottery and determined by the Director to have employment duties and responsibilities involving direct access to player and gaming information stored on Internet lottery equipment.”

That could apply to affiliates, but the specific condition of “direct access to player and gaming information” provides an easy potential loophole.

Internet Lottery

This is sure to cause a bit of confusion, but the term “Internet Lottery” refers to all online gambling activity, “including Internet ticket games, the Internet video lottery and Internet table games.”

Each individual game type does have its own definition; poker seems like it would fall under “Internet table game.”

Technology Provider

Lot of room for interpretation in this definition. And that matters, because those who fall under it are required to be licensed. Per the proposed regulations, technology providers are “any person or entity who proposes to contract with an Internet lottery agent or the agency for the provision of goods or services related to an Internet lottery”

Section 5.2 further clarifies who qualifies as a Technology Provider, but still leaves plenty of ambiguity.

3.0 Minimum Internal Control Standards

This section directs the Delaware State Lottery Office to create and adopt basic standards for online gambling. The section does not articulate specific standards; instead, it outlines the areas where such standards are required (security, accounting, money laundering and so on).

4.0 Agent Licensing

Agents include “any person licensed by the Director of the agency to conduct Internet lottery games including Internet ticket games, the Internet video lottery and Internet table games.”

Entities that already hold a Delaware Video Lottery license do not need to apply for an online license – they’re already in (after updating some information with the state).

Note that this license is distinct from other licenses required to be a Technology Provider or Service Provider (more on that below).

4.2 outlines the information required to apply for a license. There’s not much surprising here, but one line in particular could be an issue for companies that accepted online bets from Delaware in the past: Section requires a disclosure if the applicant has been “in default of any taxes, fees, or other obligations owed to the State of Delaware, local or federal government.”

The Director can require more information from applicants at his or her discretion.


Section 4.7 lists the factors that Director should consider when evaluating a license application. There is only one automatic disqualification: a conviction “within 10 years before the filing of the application, of any felony, a crime of moral turpitude or a crime involving gambling.”

If an applicant is denied a license, they have a right to a hearing.

The Director can issue “conditional” licenses.

License conditions

Nothing odd or surprising here. One nice change for players from the status quo: The DGE can enter the premises of a license holder at any time and request any information related to Internet lottery without notice or a warrant.

Licenses cannot be sold or transferred. If a licensee comes under new ownership, their license automatically terminates 90 days after sale. If an owner dies, the estate gets a 1-year period without having to submit an application (and the Director can extend that indefinitely).

5.0 Technology Providers

Here we get a bit more guidance regarding who is / isn’t a Technology Provider:

5.2.1 It provides the hardware, software or operational services required to operate the Internet lottery gaming platform; or

5.2.2 It provides game content to the Internet lottery gaming platform using one or more connections from an external gaming platform; or

5.2.3 The operation of the person’s products or services contributes directly to the outcome of Internet lottery games.

But note that 5.2.3 is still very vague and broad. And “operational services” has plenty of room for interpretation.

Technology Providers are subject to a separate license application process, described in 5.3. Most of the process echoes the process for Agent licensing. A few aspects worth noting include:

5.3.3 Require the applicant to disclose the identity of all customers to whom it has furnished Internet lottery systems within the three years immediately preceding the date of the application.

5.3.4 Require the applicant to disclose whether the applicant, or any of its present or former officers, directors, owners, partners, key employees, or Internet lottery operations employees, is or has been the subject of an investigation in another jurisdiction, the nature of the investigation, and the outcome, if any, of such investigation.

It costs $4,000 to apply (or apply for a renewal) for a Technology Provider license – plus (if I’m reading it right) you have to cover the cost of your background check.

Licenses from other states can transfer

Section 5.9 basically allows the Director to let potential Technology Providers skip the application process: “the Director may determine, on review of the licensing standards of another state, that such standards are so comprehensive, thorough, and provide similar adequate safeguards, that the license of an applicant in such other state precludes the necessity of a full application and background check.”

Can’t be an agent and a technology provider

Per Section 5.10.8: “A license shall not be issued to a technology provider if the applicant technology provider has any direct or indirect financial interest in an agent licensee or the real or personal property of an agent licensee.”

6.0 Service Providers

Service Providers are those who provide “ancillary” services that do not “contribute to the outcome of Internet lottery games.”

Service Providers generally need to apply for a license. But there’s an important bright line separating those who do from those who don’t: transacting “regular and continuing” business with an operator.

Section 6.3 defines that as doing $100,000 in transactions with a single technology provider in any 12 month period (so rolling 12 month, not calendar year?) OR $150,000 total with any number of technology providers.

Like Technology Providers, Service Providers can potentially skip the licensing process if they’ve already gone through it successfully in another state.

Service Provider licenses are good for 5 years. Filing an application or renewal costs $2,000.

7.0 Employee Licensing

This section covers the license application process for all employees involved in Internet Lottery. Working in a position that requires a license without holding one is a Class A misdemeanor.

Effectively, all employees involved in Internet Lottery operations must apply for and hold a license. The comprehensiveness of the licensing process is directly related to the sensitivity / importance of the position.

For licensing purposes, there are three levels of employees: Key Employees, Gaming Employees and Service Employees.

8.0 Approval of Gambling Equipment

This section lists the requirements for equipment involved in Internet Lottery. Among other things, the Technology Provider must furnish the Office of the Lottery with:

  • A liaison.

  • “Internet lottery schematics, network diagrams, technical and operation manuals, program source code and object code.”

  • A working test environment replicating the equipment.

No equipment or game can go live without the Director’s certification. Technology Providers are responsible for all testing and compliance costs.

“Play for free” games can bypass many of the requirements on a conditional basis.

Primary gaming servers must be located in the United States – but not necessarily Delaware. And the Director can waive this requirement. That’s quite a departure from New Jersey’s regulations, which require servers to be in-state.

Backup servers can be located outside of the United States.

9.0 Changes to Approved Gambling Equipment

No “assembly or operational functions of any Internet lottery system” can be changed without explicit approval from the Office of the Lottery.

10.0 – 11.0 Internal Control Systems

Agents and technology providers must establish – and the Director must approve – internal control systems. Any changes to these controls must also be approved by the Director.

12.0 Incomplete Games

If a game fails to complete due to connection issues or issues on the player’s end, licensees must establish a system for resuming the game or cancelling the game if resumption is not possible. The manner of cancellation is left up to individual sites and must be detailed in the terms.

If the problem is with the game, the licensee must issue refunds, notify the Office and disable the game if further failures are likely.

13.0 Customers: Registration, Funds and Protection

Players must register to take part in free or real-money games. Identity verification only kicks in when players wish to play for real money.

Specifically, 13.5 requires that “Identity and age verification must be performed for players registering to play for real-money wagering.”


Players can deposit funds into a real-money account from anywhere. But only players who are “reasonably determined to be located within the state of Delaware” can play real-money games.

The regulations do not prescribe any further steps or minimum policies related to location verification.


Players cannot transfer funds between accounts at different operators. Players cannot transfer funds to other players.

Identity Verification

A single line: “The Internet lottery system must have a means to verify the identity and age of a registrant.”


Notable aspects of this section include:

  • Players already on the land-based exclusion list are immediately on the online list.

  • You apparently are required to submit a self-exclusion request in person. And you must sign a form saying that you are a “problem gambler.”

  • Not a lot of flexibility in terms of the length of your self-exclusion. You can opt for a minimum of 1 year, a minimum of 5 years or lifetime.

  • You lose your right and claim to any winnings once you choose self-exclusion.

  • It’s a Class A misdemeanor to “knowingly enter a gaming area” if you’re on a self-exclusion list. It’s not clear if logging on to an online gambling site would trigger this penalty.

Customer accounts

An operator cannot extend a customer credit, but credit card deposits are allowed. Bank transfers are the other pre approved method for deposits.

Bank transfer and bank draft are the pre approved methods for withdrawals. The Director has broad latitude to allow or disallow deposit and withdrawal methods.

Accounts are considered inactive after 5 years with no login. They then are subject to “Title 12, Chapter 11, Subchapter II of the Delaware Code related to abandoned or unclaimed property.”

Agents / technology providers are responsible for establishing “a process for resolving customer complaints and disputes, and this process shall form part of the internal control system submitted to the agency for approval.”

If customers can’t resolve their issue via those channels, the situation can be escalated to the Director. If either party disagrees with the Director’s decision, the regulations describe mechanisms for a hearing overseen by the Department of Finance.

14.0 Promotional Gaming Activities

Very broad clause at 14.1 requiring that “All advertising, marketing and promotional materials, related to the Internet lottery or referencing the Internet lottery, to be utilized by an agent or person acting on behalf of the agent shall be submitted to the agency for review and approval before use.”

This seems to clearly encompass affiliate activity.

Play-for-free games must be identical in odds and any other material way to real-money games to “minimize the risk that players are misled about the likelihood of winning due to the behavior of play for free games.” This includes:

  • The RNG.

  • Prize distributions.

It appears that players will be able to move money from an online account to a live casino account.

15.0 Gaming Records

This section describes the basic processes for logging and storing records of Internet Lottery activity.

The only part that jumped out at me: Records must be kept for a minimum 7 years. This seems too brief a minimum from my perspective, and I don’t see why there’s a minimum at all.

16.0 Accounting and Distribution Procedures

Most critical aspect here from a player point of view is 16.3: “The agency will maintain a separate bank account to hold funds deposited into registered player’s accounts.”

17.0 Monitoring of Operations

Among other things, this section requires that Technology Providers shall: Have the external interface of the website scanned for known vulnerabilities at least once every six months

by an expert third party” and “Have the external interface of the website subjected to penetration testing at least annually by an expert third party.”

The phrase “external interface of the website” is regrettable, as it suggests the actual gaming client is exempt from testing. And, of course, the “external” aspects aren’t really the points of concern. Hopefully this section will be clarified and corrected after comment.

18.0 Enforcement

The Director has a lot of power to rescind licenses for a wide variety of reasons. Should a licensee have their license revoked by the director, they can request an appeal hearing.

The remainder of the section describes various penalties for non-compliance.

- Chris is the publisher of Grove also serves as a consultant to various stakeholders in the regulated market for online gambling in the United States.
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