New York State Gaming Law

In October 2001, largely as a result of the economic problems resulting from the Sept. 11, 2001, terrorist attack, New York expanded legal gambling so as to allow six tribal state gaming compacts with Native American tribes. Three would be operated by the Senecas in western New York and three, which have yet to be developed, would be located in the Catskills tourist area. The government hoped the compacts would result in New York receiving a percentage of slot machine revenue. The legislation also allowed New York to participate in the lucrative multi-state Powerball Lottery and allowed certain specified horse racing tracks to have video lottery terminals (VLTs), which in effect meant that they would become racinos.

New York’s gambling oversight is essentially performed by two regulatory agencies: the New York State Racing and Wagering Board, established in 1973, and the New York Division of the Lottery, established in 1976. Notwithstanding their location in Schenectady, N.Y., they are totally separate entities. The Racing and Wagering Board supervises and oversees horse racing operations, including pari-mutuel betting, charitable gaming such as bingo, and Class III gaming in New York’s five Native American casinos. The Lottery Division is responsible for operating perhaps the largest and most profitable lottery in the U.S. In 2009, total revenues were about $7.6 billion. It has also established instant ticket lotteries, which account for roughly 50 percent of ticket sales, and participates, as of 2010, in the multi-state Mega Millions and Powerball Lotto. It has also developed a “subscription” lottery that allows the play of certain numbers over a period of time. The Lottery Division also oversees Quick Draw, which is essentially keno, mostly at taverns throughout New York. Basically, Quick Draw consists of a huge screen that displays drawn numbers and can be played for 13 hours every 4 to 5 minutes.

The Lottery Division also supervises VLTs pursuant to the October 2001 legislation that authorizes VLTs at specific New York racetracks, with vendor fees split among VLT operators, racetracks and horseman/breeder associations. Its effective VLT tax rate of 60 percent to 70 percent, after at least 90 percent was returned to the player, was among the highest in the nation. In 2008, legislation expanded the number of VLTs at racetracks and changed the percentage to operators, which differed from track to track. Yonkers, Aqueduct and Monticello were potential beneficiaries, while Belmont Raceway remains excluded from having VLTs. This is notwithstanding that, after a years-long bidding process, a successful Aqueduct operator is yet to be selected, even though there is consensus that $1 million per day in revenue would go to the state once Aqueduct VLTs become operational. As of July 2010, only one qualified applicant had successfully submitted a proposal in a process that has now become transparent.

The Lottery Division has also been proactive in plans for the sale of intrastate Internet lottery tickets. It also hopes to offer electronic roulette, blackjack and other casino games at racetracks that have VLTs. One potential legal problem would be an electronic game that contains an element of skill, such as electronic blackjack, which might not be considered a lottery or pure chance game and would thus be subject to costly litigation. It is also legally questionable whether “comp” payment vouchers (free play) at Monticello and Tioga Downs racinos might violate New York lottery law. Until recently, the Lottery Division insisted that VLT operations could neither use the term “casino” nor “slot machine.” Presently, this prohibition has been abandoned and racinos now use both terms in advertising.

Tribal Casinos
New York has about eight federally recognized tribes, but only three have casinos—the Oneidas, St. Regis Mohawks and Senecas—while the Shinnecocks are strongly pursuing the possibility of establishing a casino on non-tribal lands. The Oneidas have an extremely successfully casino in Turning Stone off the New York state thruway; the Mohawks have a moderately successful casino at Akwesasne near the Canadian border; and the Senecas have three casinos at Niagara Falls, Buffalo and Salamanca. The Salamanca casino is located on Native American land, while the Senecas’ other two casinos are located on restricted fee land, whereby the land was received as part of a land class settlement between the Senecas and the state.

Native American gambling requires no state approval if it is Class II, such as bingo, and the state has established legal Class II gaming. If a state operates Class III gaming, then it has to negotiate with a federally recognized tribe to determine the parameters of legal Class III gaming. In 1993, New York and the Oneidas reached the approval of a tribal state compact that allowed the Racing and Wagering Board to oversee all casino gaming, at the expense of the Oneidas, to certify or approve all casino employees, and to allow the tribe to operate casino table games such as blackjack. Subsequently, the Oneidas and New York underwent extensive litigation as to whether the tribe could operate instant multi games, which New York claimed were basically slots and thus not approved in the compact. Litigation on this issue was so complex that one federal court referred to the multi-games as a “Slotless Slot Machine.”

The Oneidas do not pay a percentage of their slot profits to the state, although they are one of the major employers in the region and claim its businesses, including gaming, have a direct economic impact of $450 million on the area. However, the Mohawks and Senecas, pursuant to tribal state compacts, pay a percentage of net slot win on a sliding scale ranging from 18 percent to 25 percent. These payments are purportedly in exchange for tribal rights of slot machine exclusivity in their area. Presently there are almost 11,000 slot machines at Native American casinos in New York, and there is no limit as to the number of permitted slot machines.

The 2001 legislation also authorized the establishment of up to three casinos in the Catskills tourist region, but despite intense interest and planning by the Mohawks, and federal environmental approval for the tribe, nothing has been accomplished. This is partly the result of the Bush administration’s unusual ruling that land-in-trust must be within daily commuting distance of a tribe. The Shinnecocks, meanwhile, have recently become a federally recognized tribe and have expressed serious interest in establishing a Native American casino in eastern New York. Gov. David Paterson has assured Aqueduct VLT applicants that any Shinnecock casino would have no adverse impact on Aqueduct development.

New York law is unclear whether poker is a prohibited form of gambling. In 1965, the legislature changed the definition of prohibited gambling from chance being the dominant factor to whether chance was a material factor. Yet judicial decisions continue to apply the dominant factor test. This may be significant because the federal prosecutor in New York City has brought criminal charges against transaction payment providers of offshore poker operators, alleging that they violated the Illegal Gambling Business Act (18 USC § 1955), which allows the federal government to prosecute entities connected with gambling if the purported gambling violates state law. The poker payment processor, however, pleaded guilty to an unrelated charge and, thus, the status of poker in New York is still uncertain.

It was also uncertain if an allegedly pure-skill game such as Moxie-Mania should be permitted at New York taverns. This slot-like game was described by Moxie-Mania experts as a skill game and thus not in violation of New York law, since chance is not a material factor. The New York State Liquor Authority opined (2-1) that it was a prohibited gambling device, but the trial court overturned the administrative decision on March 28, 2009. After about a year of play at taverns, an appellate court on April 1, 2010, concluded that the court should have deferred to the administrative agency’s decision and that thus Moxie-Mania was illegal and to be taken from taverns.

Horse Racing
As in many states, the New York racing market is not profitable. The New York Racing Association Inc., a non-profit entity that operates many of the state’s tracks, has recently emerged from bankruptcy, and the New York City Off-Track Betting Corp. is in Chapter 9 bankruptcy and on the verge of closing, notwithstanding huge payments to consultants to develop a viable plan to save off-track betting. A New York State Task Force Report has recommended drastic changes to New York’s off-track betting industry, including the centralization of account wagering services. It is legally uncertain whether out-of-state advance deposit wagering operators who accept New York customers are acting illegally and whether they should pay New York taxes. It would be an understatement to stress that VLTs have been financially helpful at those tracks where they are established, and it would be a potential goldmine for Aqueduct, should it ever become operational in establishing its authorized 4,500 VLTs.

New York is also seriously considering expanding the hours of Quick Draw and VLTs at racinos. The state Senate has passed a bill to amend the state constitution to allow casino table games at four racinos (Saratoga, Monticello, Tioga Downs and Vernon Downs), but few believe this bill will be successful.
Gaming development in New York has been accompanied by a continual stream of litigation, basically concerning three issues:

1. May the state set aside land in trust for the purpose of Native-American gaming? Presently the Senecas are still litigating whether their casino in Buffalo is legal;
2. Whether New York could constitutionally allow VLTs at specified racetracks; and
3. Whether the governor could enter a tribal state gaming compact without legislative approval.

Author’s Note: For further information see Elizabeth Cronin, “New York: A Regulatory Report,” GamblingCompliance.com, May 28, 2010.

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