Duane Morris Attorney Adam Berger Writes About the P.A. Gaming Industry

Associate Adam Berger in the Cherry Hill office wrote an article for the Philadelphia Business Journal titled “P.A. Gaming Industry at a Crossroads: Lessons from Atlantic City.”

As the song goes, Atlantic City didn’t know what it had until it was gone. In 2006, the city’s casinos brought in more than $5.2 billion in gaming revenue. In 2014, that number was down almost 50 percent, to $2.7 billion, and expected to fall even further in 2015, the first full year of operations following the closures of four casinos – Atlantic Club, Revel, Showboat and Trump Plaza.

Pennsylvania casinos, on the other hand, experienced their highest total gaming revenue of $3.15 billion in 2012. Gaming revenues declined slightly in the Keystone State during each of the next two years, down to just over $3 billion in 2014, but despite the recent declines, Pennsylvania remains the second largest gaming market in the nation, next to Nevada. It is from this point of strength that Pennsylvania needs to recognize what it’s got and not repeat the mistakes of its neighbor to the east.

So how did New Jersey allow its casino market to fall so far? Clearly the loss of New Jersey’s East Coast monopoly on gaming — as a result of the advent of casino gaming in Connecticut, Delaware, Maryland, New York and Pennsylvania — did not help. But this increased competition did not seal Atlantic City’s fate; rather, its fate was sealed during the preceding decades when Atlantic City casino operators failed to improve their properties and make Atlantic City a true and viable destination. Instead of making necessary capital expenditures and adding resort amenities, casino owners upstreamed profits while their properties slowly became outdated. The result was a city full of mostly unexciting casinos that offered little more than the slots-in-box style options found in neighboring states.

To read the full article, please visit the Philadelphia Business Journal website.

Pennsylvania Considering Video Gaming Machines Again?

On February 12, 2014, the Pennsylvania House of Representatives’ Gaming Oversight Committee held a hearing to receive testimony regarding the prospects of legalizing electronic gaming devices, i.e video gaming machines, in the Commonwealth. The hearing focused on gaming along the lines of what was raised in a prior session’s bill, (2014 House Bill No 1932), which sought to legalize video gaming machines for bingo, keno, blackjack and other games for use in establishments with valid liquor licenses, such as restaurants, bars, taverns, hotels and clubs.

With a looming budgetary deficit Pennsylvania legislators are exploring various ways to increase gaming related tax revenue, including potentially moving forward with internet gaming through its existing bricks and mortar casinos. This recent Gaming Oversight Committee hearing revisiting the video gaming machines issue would be another means through which to generate gaming based tax revenue. The hearing’s witnesses touted the jobs and tax revenues generated by Illinois which implemented video gaming machines in bars, restaurants, taverns and truck stops several years ago – (projected IL tax revenues in excess of $250 million in 2015). While Illinois has had success generating tax revenue and producing jobs with its video gaming machine roll out, the machines do compete, on a low end basis with the states’ existing casinos. While local municipalities in Illinois can opt out of the video gaming program that option may not exist in a Pennsylvania bill and opposition from Pennsylvania’s casino industry remains to be seen.

Also, if considering video gaming at bars and taverns Pennsylvania may be well served to learn from some of the mistakes made with the passage of last year’s Tavern games legislation. Tavern games, with its gaming regulatory scrutiny focused on the bars/tavern owners, rather than through the games’ owners and route operators, lead to cost issues and a reluctance to move forward which hampered widespread implementation of tavern gaming. In addition, while Illinois has had relative success with its multi-tiered system of manufacturers, distributors, operators and establishments, that system has one too many layers to operate as effectively as it otherwise could. Few recall Pennsylvania’s short-lived requirement of local suppliers of slot machines layered between the industry’s manufacturers and end user casinos. The removal of the local supplier requirement opened the way to the implementation of Pennsylvania casinos in 2006. Finally the Pennsylvania Gaming Control Board and its agencies are more than capable of regulating and rolling out video gaming should it become law. Bringing in other, less experienced state agencies, such as Liquor Control or the Department of Revenue would only further complicate and delay implementation should the law pass.

Kentucky Senate Approves Shared Lottery Games Measure

The Kentucky Senate today approved a measure to amend Kentucky’s lottery laws to add “shared lottery games” tying lottery ticket sales and horse races together. Senate Bill 74 permits proceeds from lottery ticket sales to be used to place pari-mutuel wagers by the Kentucky Lottery Corporation on future live races.

The bill further allows the Kentucky Horse Racing Commission to approve shared lottery games developed in collaboration with the Lottery Corporation.

Under the measure, the lottery’s electronic ticket purchase system will be able to interface directly with the totalizator system to place and accept wagers.

The results of the race on which the pari-mutuel wagers are placed are then used to determine winners of the shared lottery game.

Proponents of the measure argue shared lottery games will bring a needed boost to the horse racing industry and create an exciting new lottery game which could generate new revenue to the state. The measure would allow for unique games as proposed by EquiLottery.

Kentucky Attorney General: Internet Sweepstakes are Illegal Gambling

This past Friday, the Kentucky Attorney General issued an opinion (OAG-15-005)  concluding Internet sweepstakes machines meet the definition of illegal lotteries under Kentucky law and computers used at Internet sweepstakes cafes constitute illegal gambling devices.

In 2007, the Kentucky AG similarly found phone card sweepstakes machines to be illegal gambling devices.  Last week’s decision concludes that “[e]ven if a person receives fair value for a purchase, if the value received is merely incidental to the underlying game of chance, it is a forbidden lottery.”

The AG Opinion recognized several other states with similar conclusions – i.e. Ohio, Alabama.

Legislation (SB 28) was also recently introduced to ban Internet sweepstakes cafes in Kentucky.

Legislation Would Legalize eSports Competition in Iowa

Much has been written recently about the Iowa Legislature’s progress toward “legalizing” fantasy sports competitions – just last week an Iowa Senate panel ok’ed the measure amending Iowa’s definition of “Bona Fide Contests” (Section 99B.11) to include fantasy sports.  Section 99B.11 provides that it is lawful to collect entry fees and award prizes on the specified bona fide contests.

But that may not be the only facelift Section 99B.11 gets this year. House Bill 165, introduced last week, would lead to a definition of “Bona Fide Contests”  which would include eSports competitions. Presently the only form of video game competitions considered permitted contests under Section 99B.11 are “video machine golf tournaments.” HB 165 would remove “golf” from the language and clarify that competitions involving video games controlled “by player-directed movement with a video or electronic gaming device” would be permitted.

Restoration of America’s Wire Act Reintroduced in Congress

Representative Jason Chaffetz (R-UT-3) reintroduced the Restoration of America’s Wire Act today in the 114th Congress. The bill is identical to a measure set forth by Rep. Chaffetz in the last session of Congress.

The bill, if passed, would amend federal criminal code to essentially make all forms of Internet gambling illegal. The bill would roll back the Internet gaming expansion since the 2011 Department of Justice opinion essentially limiting the Wire Act to sports betting.

The bill would exempt from the definition of “bet or wager” any activity similarly exempted from the definition of “bet or wager” under the Unlawful Internet Gambling Enforcement Act (UIGEA). Such an exemption notably includes “participation in any fantasy or simulation sports game or educational game or contest” meeting certain conditions – this is the exemption which has led to the recent explosion of the daily fantasy contest industry.

Bill Restricting Casino Gaming Operations in Pennsylvania Goes to Committee

Last week, a Pennsylvania bill, which would restrict the hours of operation of Pennsylvania casinos, was referred to the House Committee on Gaming Oversight. Specifically, House Bill Number 165 would require casinos in the Commonwealth to close between the hours of 2 a.m. and 6 a.m. In a memorandum accompanying the legislation, State Representative Will Tallman, a co-sponsor of the bill, suggested that closing the casinos for a couple hours each day would reduce the prevalence of problem gambling.

If this legislation were to pass, Pennsylvania would be an outlier in the region as casinos in neighboring states – including New Jersey, Delaware, Ohio and Maryland – maintain 24 hour gaming operations. Additionally, New York recently selected three upstate applicants to develop full-scale resort casino facilities, which are expected to open in the next couple years. Once open, each of these facilities will offer 24-hour gaming to patrons.

It will be interesting to see if the Pennsylvania House committee charged with overseeing the Commonwealth’s gaming industry will support this legislation – and add another hurdle to a casino industry that is already struggling to keep gaming dollars away from rival gaming markets – or if the committee will determine that the existing regulatory safeguards to prevent problem gambling are sufficient. Stay tuned for updates on this and other legislation affecting the Pennsylvania gaming industry.

NJ Congressmen Introduce Federal Sports Betting Legislation

In another effort to allow New Jersey’s casinos and racetracks to offer sports betting, two New Jersey Representatives have introduced two bills in Congress that would modify PASPA.

The first, H.R. 416, sponsored by Rep. Frank A. LoBiondo (R-2),  would modify PASPA to allow all states a four-year window in which to modify their own state’s law to allow sports betting.  The second, H.R. 457, sponsored by Rep.  Frank Pallone (D-6), would exempt New Jersey from the provisions of PASPA to the extent New Jersey chooses to exempt itself from PASPA.

Both bills have been referred to committees.  It remains to be seen whether these bills will ever receive committee hearings or considered on the floor of either house; however, it is true that very few of the bills actually introduced in Congress are enacted into law in any given year.

Court Issues TRO Against California Tribe’s Online Bingo Efforts

Following up on our coverage here, on December 12 the US District Court for the Southern District of California issued a temporary restraining order against the IIpay Nation of Santa Ysabel’s internet bingo system.  The Tribe’s system sought to offer online bingo to customers located off of tribal lands.  Both the State of California and the DOJ have sued.  California has moved for an injunction, and it was only California’s request that the Court has acted on. California argued that the Tribe’s online bingo platform violates both the tribal-state compact and UIGEA.

The Court found that California has a likelihood of success on the merits of both of these claims.  As to the tribal-state compact claim, the Court analyzed whether the online bingo was considered Class II or Class III gaming under the Indian Gaming Regulatory Act.  IGRA defines bingo as a Class II game, and Class II games are regulated by the National Indian Gaming Commission and can be operated by a tribe without a tribal-state compact.  However, other gaming is Class III gaming and is allowed only under compact. The Tribe argued that its online bingo was a Class II game – bingo – using a technological aid.  The court noted that there is an analytical distinction between a technological aid for a Class II game or an “electronic facsimile” of a game – which would make the game a Class III game.  The Court rejected the tribe’s argument that online bingo constitutes a technological aid for a Class II game, instead concluding that the game being offered by the Tribe is a Class III game, which is not permitted by compact.

The Court concluded that although the breach of compact claim was enough to demonstrate that the state had a likelihood of success on the merits, it would still analyze UIGEA.  The Court noted that UIGEA requires consideration of the law both where a bet is made and where it was received.   The Court concluded that Indian gaming is permitted only on Indian lands, and therefore, reaching outside Indian lands would violate UIGEA.

The Court therefore enjoined the Tribe from offering any gambling game to anyone over the internet who is not present on the Tribe’s lands.  The Court further ordered the parties to confer as to expedited briefing as to whether a full preliminary injunction should be granted.

DOJ Seeks UIGEA Injunction Against California Indian Tribe

In early November 2014, the Iipay Nation of Santa Ysabel, an Indian tribe in California, began offering internet bingo over a website to patrons age 18 and older, regardless of whether they were located on tribal lands.  The State of California sued, claiming that the authority to offer online bingo off of tribal lands was not within the scope of the compact between the tribe and the state, was not permitted under California law, and violated UIGEA.  The tribe has stated its intention to expand beyond bingo and into poker.   The tribe has justified its activities by stating that it is authorized by IGRA to offer and regulate Class II gaming (poker and bingo) from its tribe.

Today, the Department of Justice filed its own lawsuit against the tribe, alleging that the tribe is violating UIGEA and seeking an injunction.  The DOJ argues in its complaint that the tribe is necessarily “engaged in the business of betting or wagering,” which is a UIGEA predicate.  As a result, the DOJ argues, when someone places a wager from outside tribal lands, the tribe is participating in “unlawful Internet gambling” as defined in UIGEA.  The DOJ argues that lotteries and bingo games are prohibited by California law unless authorized for charitable purposes, and that the bingo offered by the tribe is not a bingo game authorized for charitable purposes.  Accordingly, according to the DOJ, because the tribe’s gaming activities are not authorized by law, any gaming activity that crosses tribal lines violates UIGEA.

Because UIGEA relates primarily to payment processing, the DOJ seeks an injunction prohibiting the tribe from accepting any credit, EFTs, checks, or proceeds of other financial transactions to be used in any online bingo account by any patron.

This matter could ultimately be consolidated with the State of California’s lawsuit.  That case is set for a hearing on California’s motion for a temporary restraining order today (12/4) at 2:00pm Pacific.