Constitutional Amendments for Vegas-Style Gaming get Traction in Georgia and Tennessee this Week

Some movement this week in Georgia and Tennessee on proposed constitutional amendments to authorize full casino gaming.  We break it down for you here:

HR 807 in Georgia

On Wednesday, Representative Ron Stephens (R-Savannah) introduced HR 807, a House Resolution proposing an amendment to the Georgia Constitution to permit the General Assembly to authorize through legislation up to six casinos in the state.

The amendment would require a local public referendum approving the resort facilities. Additionally, the resort facilities would be spread throughout the state in five distinct licensing regions. Two license may be permitted in one region (Atlanta) with a “primary casino gaming license” and a “secondary casino license.”

The secondary license would be limited to 2,000 total gaming positions while primary licenses would have no restriction on total gaming positions.

State revenue derived from gaming will go to fund educational programs, support operational expenses associated with regulation of the casinos, to support problem gambling initiatives and to host municipalities of the casinos.

Rep. Stephens simultaneously filed HB 677, the proposed 127-page gaming legislation to be implemented upon approval of the constitutional amendment. HB 677 outlines the capital investment requirements for the “primary casino gaming licenses” in the various regions: $1 billion in Region One (Atlanta) and $200 million in Regions 2 through 5. License fees are proposed at $25 million for the primary license in Region One, $10 million for the secondary license in Region One and $10 million for the primary licenses in Regions 2 through 5. The facilities would be subject to a 12% tax on gross gaming revenue.

HJR 87 in Tennessee

The Tennessee State Government Subcommittee received House Joint Resolution 87 this week. This constitutional amendment would permit the Legislature to authorize casino gaming in Tennessee. Unlike the Georgia proposal, HJR 87 does not limit the Legislature in the number of casinos it can authorize.

HJR 87 would require state revenue derived from gaming to be allocated to K-12 education or problem gaming programs, as well as to administer and regulate gaming operations in the state.

HJR 87 was before the State Government Subcommittee on Wednesday and was deferred to a summer study.

We’ll keep you updated here if there is any movement on these bills.

Video Gaming Bill Reintroduced in Pennsylvania

Pennsylvania House Bill 808, introduced this week, would authorize video gaming machines for video poker, bingo, keno and other games in establishments with valid liquor licenses, such as restaurants, bars, taverns, hotels or clubs, in Pennsylvania. Similar legislation was introduced last year, and we provided an analysis of that bill here. In addition to providing an overview of the legislation, this Alert highlights the many similarities and distinct differences between House Bill 808 and last year’s legislation.

What’s Authorized

Licensed establishments with less than 2,500 square feet would be permitted up to five video gaming terminals. One additional terminal would be permitted for every additional 500 square feet, up to a maximum of 10 terminals. In comparison, last year’s legislation authorized up to only three machines at an establishment.

Maximum wagers are held to $2.50 with a maximum payout of $500 and a payout percentage of 85 percent. The only change from last year’s legislation is a reduction from $1,000 to $500 on the maximum payout.

To read the full text of this Alert, please visit the Duane Morris website.

Bill Calling for Special Lottery for Funds for Repayment of Bond Indebtedness for Mass Transit Introduced in Pennsylvania…Again

A new bill would authorize a minimum of 12 special purpose lotteries in Pennsylvania “for the purpose of providing a source of funds for the repayment of indebtedness on bonds issued for the development of mass transit as economic development projects” in the Commonwealth.

Under HB 799, introduced yesterday and referred to the Pennsylvania House Gaming Oversight Committee, the funds from the special lotteries would be placed in a special fund known as the Economic Development Fund for Mass Transit. The special lotteries would be earmarked for specific projects and advertising and tickets associated with each special lottery would identify which project that lottery benefits.

This is not the first time this bill has been introduced…or the second. The bill’s sponsor, Representative Harry Readshaw, is making his third attempt with the bill. In each of the previous two sessions, Representative Readshaw’s special lottery bill has died in committee. Could budget woes make this third time a charm? We’ll keep you updated here if this bill moves. Stay tuned.

Oral Argument on NJ Sports Betting – What Does “Authorize” Mean?

Today’s oral argument in the United States Court of Appeals for the Third Circuit, on whether New Jersey’s partial repeal of its prohibitions on sports betting, repeatedly came around to one question:  what does it really mean to “authorize” something?  No clear answer was apparent by the end of the argument.

To put the importance of this concept into context, it’s important to look at the Professional and Amateur Sports Protection Act (“PASPA”).  That statute makes it unlawful for a governmental entity to “sponsor, operate, advertise, promote, license, or authorize by law or compact” sports betting.  New Jersey’s first challenge to PASPA was its constitutionality – that it violated the Tenth Amendment to the United States Constitution because it commandeered the legislative power of the state.  The courts rejected that challenge, finding that the state was not commandeered because “we do not read PASPA to prohibit New Jersey from repealing its ban on sports wagering” and determining “what the exact contours of the prohibition will be.”

Against this backdrop, New Jersey repealed its criminal sports betting prohibitions to the extent that they prohibited sports betting at casinos, racetracks, or the sites of former racetracks operational within the last fifteen years.  The sports leagues sued, claiming that this partial repeal amounted to an authorization of sports betting at these facilities – which are heavily regulated by the State already.

Today’s argument centered around that point-  what does it mean to authorize, and is there a distinction between authorizing something and repealing a prohibition on it?  The state argued that it was simply following the Third Circuit’s prior decision that said that the state was free to set the contours of its prohibition on sports betting.  The state also argued that there is a distinction between authorizing something by law and repealing a criminal prohibition on that activity.  Former Solicitor General Theodore Olson, on behalf of the state, said that the Court’s prior opinion said that to “authorize” requires some affirmative act, but the panel seemed to suggest that that statement was dicta and the precise question of whether authorizing requires an affirmative act was not before the Court at that time.

Interestingly, Judges Rendell and Fuentes observed that of all the things prohibited by PASPA, “regulating” is not one of them.  Judge Fuentes suggested that if the state prevails in this case, perhaps the state could still regulate sports betting and be consistent with PASPA, rather than have sports betting operate in an unregulated space.

Former Solicitor General Paul Clement, on behalf of the Leagues, also confronted the question of what it means to authorize, with Judge Rendell pressing him on whether “authorizing” required the implementation of some sort of scheme, or required the state to do more than just repeal a prohibition.  The leagues cited to the legislative history of PASPA, saying that Congress was concerned with stopping casino-style sports betting, and that New Jersey’s partial repeal does exactly that.  The leagues argued that a partial repeal that keeps the vast majority of the statute in place amounts to a state authorization.  Judge Fuentes asked how far the repeal had to go in order to comport with PASPA.  The leagues argued that the repeal cannot be limited to just a few licensed venues in the state.  The leagues suggested that it would be acceptable to repeal the sports betting prohibition to permit wagers under $100, limited to family members or acquaintances.  The leagues further suggested that at least half of a statute needs to be repealed in order for it to be a true partial repeal rather than an implicit authorization.

Despite the thorough, spirited argument, it was very difficult to predict which way this decision might go.  Each side can probably point to different comments by the panel to suggest leanings, but we won’t know the final outcome until the decision comes out – probably in several months.


UPDATE: Pennsylvania Internet Gaming

  • This is an update to the Duane Morris Client Alert issued here.

A second poker-only bill (HB 695) was introduced and referred to the House Gaming Oversight Committee for review.  The two bills contain many similar provisions but there are two key distinctions in HB 695:

(1)  Unlike the previous bill (HB 649), HB 695 is a poker-only bill authorizing “any interactive poker game approved” by the Pennsylvania Gaming Control Board.

(2)  HB 695 contains a “bad actor” provision.  The bill calls for a presumption of unsuitability for any licensee or significant vendor who has:

(1) At any time, either directly or through a third party whom it controlled or owned in whole or in significant part, knowingly or willfully: (i) accepted or made available wagers on interactive games using the Internet from persons located in the United States after December 31, 2006, unless licensed by a Federal or State authority to engage in such activity; or (ii) facilitated or otherwise provided services with respect to wagers or interactive games using the Internet involving persons located in the United States for a person described in subparagraph (i), if such activities or services would cause such person to be considered a significant vendor if those activities or services were provided with respect to interactive games pursuant to this chapter, and if such person acted with knowledge of the fact that such wagers or interactive games involved persons located in the United States.

(2) Purchased or acquired, directly or indirectly, in whole or in significant part, a third party described in paragraph (1) or will use that third party or a covered asset in connection with interactive gaming.

“Covered asset” is defined under the bill as

Any of the following categories of assets, if specifically designed for use and knowingly and willfully used in connection with wagers or gambling games, using the Internet and involving customers located in the United States after December 31, 2006, unless licensed by a Federal or State authority to engage in such activity: (1) any trademark, trade name, service mark or similar intellectual property that is used to identify any aspect of the Internet website or the operator offering the wagers or interactive games to its customers; (2) any database or customer list of individuals residing in the United States who placed wagers or participated in interactive games with or through an Internet website or operator not licensed by a Federal or State authority to engage in such activity; (3) any derivative of a database or customer list described in paragraph (2); or (4) software, including any derivative, update or customization of such software, or hardware relating to the management, administration, development, testing or control of the Internet website, the interactive games or wagers offered through the website or the operator.

Pennsylvania House Gaming Oversight Committee Introduces Bill That Would Allow Existing Casinos to Offer Internet Gaming

On February 25, 2015, John Payne, Chairman of the Pennsylvania House Gaming Oversight Committee, introduced a bill that would allow existing Pennsylvania casinos to offer Internet gaming to patrons in Pennsylvania. The Pennsylvania Gaming Control Board (PGCB), which currently regulates casino gaming in the Commonwealth, would be responsible for licensing and regulating Internet gaming, as well. Under the bill, only existing casino licenses, or their affiliates, will be eligible to offer poker and other casino style games over the Internet. The proposed legislation also calls for the licensing of “significant vendors,” which would include operators of interactive gaming systems on behalf of the existing licensees. Importantly, the proposed legislation does not include a “bad actor” provision that would bar individuals or entities previously associated with illegal Internet gaming activities from being licensed by the PGCB. However, applicants would still be required to satisfy Pennsylvania’s suitability requirements, and it remains to be seen what view the PGCB will take of applicants who may have previously engaged in unlawful Internet gaming activities.

Subject to the limits under federal law, the bill limits participation in Internet gaming to those physically present in Pennsylvania, or from states with which Pennsylvania negotiates an Internet gaming agreement. The bill contemplates a rapid implementation cycle by requiring the PGCB to decide a licensing application within 120 days of a proper application being submitted. The PGCB may also grant temporary authorization to any vendor upon the filing of a complete application.

To read the full text of this Alert, please visit the Duane Morris website.

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.