United States: Pennsylvania Legislation Introduced To Authorize Online Gaming

Gaming

Action Item: Casino licensees and vendors should be aware of important proposed amendments to Pennsylvania's Gaming Act.  For further information, please contact a member of Blank Rome's Gaming group.

On February 26, 2015, Pennsylvania State Representative John Payne, chairman of the Gaming Oversight Committee, and several other sponsors introduced HB 649, a bill that would amend the Pennsylvania Race Horse Development and Gaming Act to authorize online or "interactive" gaming in the Commonwealth. Shortly thereafter, on March 3, 2015, an alternative online gaming bill—HB 695—was introduced and referred to the Gaming Oversight Committee. HB 695 differs from the prior legislation in that it would authorize poker only, and as it contains a "bad actor" clause which deems "presumptively unsuitable" any person who knowingly or willfully accepted or made available wagers on interactive games using the Internet from persons located in the United States after December 31, 2006" unless they were operating pursuant to a valid state or federal license.

Both of the proposed bills seek to further expand the fiscal benefits and economic development that licensed land-based casino facilities have already delivered to the Commonwealth. Both bills empower the Pennsylvania Gaming Control Board ("Board") to implement the introduction of online gaming, and establish a regulatory system for overseeing the industry.

Important provisions of HB 649 include:

• Casino Licensees Responsible for Online Operations. HB 649 provides that licensed slot machine entities are to "retain responsibility for the interactive gaming software and hardware which shall remain under their ultimate supervisory control [.]" Vendors providing interactive gaming platforms "must depend solely on, and be tied to, the status of the licensed entity for which they are providing their services."
• HB 649 No Longer Poker Only. While the original version of HB 649 would have authorized only interactive poker games approved by the Board, the bill was subsequently amended to permit all gambling games approved by the Board, as well as non-gambling games not subject to regulation.
• "Significant Vendors" Required to Be Licensed. The bill's definition of "significant vendors includes: (1) persons involved in the management, administration, or control of wagers or of the interactive games; (2) interactive gaming platform providers or operators; (3) sellers of i-gaming customer lists; (4) providers of products or services to licensees or significant vendors in consideration for a share of interactive gaming revenue; and (5) licensors of trademarks or other intellectual property under which authorized games are identified to customers, the website or equivalent hosting the authorized games, and any interactive gaming skin or platform, other than persons providing only art or graphics.
• Suitability Qualifications for Significant Vendors. The suitability of significant vendors for licensure will include consideration of whether the applicant: (1) has the requisite experience and skill to perform the functions consistent with requirements of the Act; (2) is a person of good character, honesty and integrity; (3) is a person whose prior activities, criminal record, if any, reputation, habits, and associations do not pose a threat to the public interest or the effective regulation of interactive gaming, or create or enhance the dangers of unsuitable, unfair or illegal practices in the conduct of interactive gaming. Suitability determinations will be made of owners and officers significantly involved in the management or control of the applicant and all key employees.
• Institutional Investor Waivers Available. Institutional investors having ownership interests of up to 25% of the equity securities of a licensee or significant vendor can be waived from licensure requirements so long as their investment is passive, and they certify that they have no intention to control the licensee. Waivers may be available to institutional investors holding more than 25% of a licensee or significant vendor under certain circumstances.
• Internet And Mobile Gaming Approved. Interactive games may be offered through any available communications technology, meaning that interactive gaming could be offered through Internet, mobile, and private networks.
• Licensing Applications to Be Accepted 90 Days from Effective Date of Amendment. Applicants seeking interactive gaming licenses would be able to file their applications 90 days from the effective date of the legislation. Temporary authorizations would be available during the first 18 months following the adoption of these amendments to applicants whose applications were complete, who have paid all licensing fees, and who have cleared a preliminary background investigation.
• License Fees. Requiring a licensing fee of $5 million per online gaming license or $1 million per significant vendor license.
• 14% Tax Rate on I-Gaming, Payable Weekly. A tax rate of 14% of daily gross interactive gaming revenue will be imposed on licensees, payable on a weekly basis. The maximum tax rate which may be imposed on wagers placed by Pennsylvania residents with out-of-state interactive gaming operators pursuant to an interactive gaming agreement shall be 14%.
• Inter-State Compacts Authorized. The Board would be authorized to enter into "Interactive Gaming Agreements" with other states or U.S. territories enabling participants in either jurisdiction to play authorized games.
• Players Must Be Physically Present in Pennsylvania or a Jurisdiction Where Gaming Is Authorized. In order to be eligible to participate in online gaming, players must be physically located in Pennsylvania, or a jurisdiction in which the commonwealth has negotiated an interactive gaming agreement.
• Internet Café Prohibition. The operation of facilities offering computer terminals or other devices "to be used principally for the purpose of accessing interactive games" is prohibited.

HB 695 is largely identical to HB 649, but contains the following differences:

• Poker Only. HB 695 would only authorize interactive poker, like the original version of HB 649.
• "Bad Actor" Provision. HB 695 includes a "bad actor" clause which deems "presumptively unsuitable" any person who knowingly or willfully accepted or made available wagers on interactive games using the Internet from persons located in the United States after December 31, 2006" unless they were operating pursuant to a valid state or federal license.

Aspects of these bills are similar to the Internet gaming laws in New Jersey. For example, HB 649 is similar to New Jersey in that there is no specific "bad actor" provision contained in the suitability standards. On the other hand, both of the proposed bills differ from New Jersey as they do not contain any restriction on the number of gaming platforms or skins each casino licensee may operate. Finally, the cost of entry for slot machine licensees in Pennsylvania is significant.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.