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.

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.