Table Games Legislation: What’s The Deal in Pennsylvania?

Senate Bill 711 (SB 711), an amendment to the Pennsylvania Race Horse Development and Gaming Act of 2004 (Gaming Act) was first referred to the Senate Community, Economic and Recreational Development Committee on June 22, 2009. After more than six months of hearings, debates, amendments and considerations, the 230-page legislation was passed by the House of Representatives and the Senate and was signed into law by Gov. Edward G. Rendell on Jan. 7, 2010.

The legislation, among other things, makes modifications to the Gaming Act on the operation of and distribution of gross terminal revenue from slot machines in the Commonwealth; specifies reform measures related to political contributions; limits outside employment and adds post-employment restrictions for employees of the Pennsylvania Gaming Control Board (PGCB); and provides for new misdemeanors and felonies related to legalized gambling. Most notable, however, is the authorization of table games at licensed slot machine facilities.

Authorization of Table Games and Slot Machine Modifications
Pursuant to the Gaming Act, the seven Category 1 (Racetrack)1 and five Category 2 (standalone) facilities are permitted to operate up to 5,000 slot machines each, while the two Category 3 (Resort)2 facilities are permitted to operate up to 500 slot machines. The legislation permits Category 1 and Category 2 licensees to petition the PGCB to obtain a table games certificate to operate up to 250 table games—no more than 30 percent of which may be utilized for non-banking poker games—for the initial six months of operation and grants permission for them to petition the PGCB thereafter to increase the number of table games.

On a smaller scale, the legislation permits the Category 3 licensees to seek a table games certificate to operate up to 50 table games—no more than 30 percent of which may be utilized for non-banking poker games. Category 1 and 2 facilities may operate an unlimited number of additional tables for poker tournaments while Category 3 facilities may operate a maximum of 15 tables for poker tournaments.
The legislation permits an increase in the number of slot machines operated at Category 3 facilities to 600 after the table games certificate is obtained. It reopened until April 7, 2010, the application period for the Category 3 license that has not been awarded, and authorizes the addition of a third Category 3 license after July 20, 2017.

In order to petition for a table games certificate to be able to operate table games, Category 1 and Category 2 licensees must pay a one-time fee of $16.5 million (which increases to $24.5 million for current licensees if not paid by June 1, 2010) and $7.5 million for the Category 3 licensees (which increases to $11.25 million for current licensees if it is paid after June 1, 2010). Once a table games certificate is issued by the PGCB, the legislation requires certificate holders to operate a minimum number of slot machines in addition to the table games. For Category 1 and Category 2 facilities, the minimum number of operational slot machines is 1,500.3

The legislation imposes a state tax of 14 percent on the table games revenue of each facility for the first two years of operation, after which it will decrease to 12 percent. Additionally, a local share assessment of 2 percent of the table games revenue will be collected and returned to the local government(s) that hosts the facilities. Finally, there is a 34 percent tax rate for “fully automatic electronic gaming tables.”4 These taxes are in addition to the taxes currently imposed on slot machine gross terminal revenue, which is 55 percent.

One of the stated goals of the legislation is for the PGCB to promote and ensure the availability of employment opportunities for Commonwealth residents. The legislation requires that residents comprise at least 85 percent of the certificate holder’s table game-related employees by the end of the third year following commencement of the conduct of table games at the facility.

Requirements of the PGCB
The passage of the legislation that permits licensed gaming facilities in Pennsylvania to offer tables games does not mean that those casinos may immediately begin to offer table games. Instead, it signals the beginning of a complex and thorough process by the PGCB to promulgate regulations, train employees and conduct background investigations on prospective gaming and non-gaming employees, suppliers, manufacturers and vendors in order to continue to responsibly and fully regulate legalized gaming in the Commonwealth. The length of this process will probably take six to nine months requiring a significant amount of resources by the PGCB, supplier and manufacturer licensees and gaming facilities.

In many ways, establishing regulatory oversight for table games in Pennsylvania will involve much of the same tasks performed by the PGCB since 2005, which enabled Pennsylvania’s slot machine gaming industry to become operational. In fact, in anticipation of the passage of the table games legislation, PGCB staff has been working on draft regulations for each of the popular table games that are anticipated to be offered at casinos. Now that the legislation has been enacted, staff will begin to fine-tune those regulations and promulgate specific regulations related to the operation of table games, internal controls and the extension of credit.

Among the items that the PGCB will tackle during the coming months in order for table games operations to begin are:

• Obtain applications and perform background investigations on thousands of new employees to be hired at the casinos as the result of expansion into table games. New employee positions include dealers, table game supervisors, count room personnel, surveillance and other support staff.
• Conduct background investigations for licensing of new manufacturers, suppliers and vendors that will provide goods and services for table games.
• Inspect and approve new gaming floor plans.
• Assure that each casino will accommodate the higher level of necessary surveillance to monitor table game play.
• Hire and train additional PGCB staff to provide essential on-site compliance and auditing.
• Perform investigative work on each licensee’s petition requesting the addition of table games and hold a hearing in each municipality in which the casinos operate. Public hearings will include obtaining oral and written comments from citizens and public officials.
• Collaborate with Department of Health’s Bureau of Drug and Alcohol Programs and appropriate offices, agencies, treatment providers and other persons to implement a strategic plan for the prevention, education and treatment of compulsive and problem gambling.

Job Creation and Financial Impact
To date, with nine of a maximum 14 casinos in operation, legalized gaming in the Commonwealth has created more than 8,000 new living wage jobs—revenue that has provided property tax reduction in each of the past two years for all homeowners, and funds that have reinvigorated Pennsylvania’s horseracing industry. It is expected that with the addition of table games, more than 4,000 new casino jobs will immediately be created with that number increasing with the opening of additional facilities and possible expansion on the number of table games offered.

In addition, following an initial generation of $200 million from licensing fees, estimates are that Pennsylvania will collect another $200 million annually in taxes from table games. This is on top of the $2 billion annually that is being generated from legalized slot machine gaming.

Reform Measures
In addition to authorizing table games, SB 711 also made a number of important reforms to gaming in Pennsylvania. Among the reform measures are provisions for an abbreviated licensing process for manufacturers and suppliers of table games and table game devices. Also, the annual license renewal requirements have been changed to require a renewal every three years for all permits and licenses issued under the Gaming Act.

In the legislation, the general assembly specifies that all types of political campaign contributions by certain persons subject to the Gaming Act are banned. The penalties for violating the ban include fines for licensees, persons that hold a controlling interest, subsidiaries, officers, directors and management-level employees and can include license suspension and revocation for subsequent violations. The legislation also specifies any individual who makes a contribution in violation of the prohibition commits a misdemeanor of the third degree.

Also included are increased restrictions for PGCB board members and employees. Future members of the board will be prohibited from holding employment in which the compensation exceeds 15 percent of the board member’s salary from the PGCB. The protection of confidential information and requirements regarding ex parte communications are clarified in the legislation and PGCB employee post-employment restrictions will be increased from one year to two years beginning on July 1, 2010. Additionally, all PGCB employees and employees of the Department of Revenue and Pennsylvania State Police whose duties involve the regulation and oversight of gaming activities under the Gaming Act are not subject to furlough in the event of a budgetary impasse.

Misdemeanors and Felonies
In addition to the misdemeanors and felonies that had previously been addressed in the Gaming Act, the legislation provides that it is a misdemeanor for current and former PGCB members, employees, agents and independent contractors, the Department of Revenue, the Pennsylvania State Police, the Office of Attorney General and other executive-branch offices who have obtained confidential information in the performance of duties to intentionally and publicly disclose the information.

It is also unlawful for an individual under 21 years of age to enter and remain in any area of a licensed facility where slot machines are operated5 or the play of table games is conducted, and individuals under 21 may not wager, play or attempt to play a slot machine or table game at a licensed facility. An individual who violates the prohibition commits a non-gambling summary offense and shall be fined $200 to $1,000 for the first offense. An individual convicted of a second or subsequent offense shall be sentenced to pay a fine of $500 to $1,500. Individuals may also be sentenced to perform community service. Additionally, a person who aids, abets, counsels, commands, induces, procures or causes another person to violate a provision of the Gaming Act is subject to the same penalties and sanctions.

The changes to the Gaming Act present new challenges to an agency that is still in growth mode. At the same time, just as the PGCB ably performed its duties in overseeing the legalization and growth of the nascent slots industry, it will again find success in regulating table games and meeting its statutory obligations to protect the citizens of the Commonwealth and will facilitate growth of revenue and jobs through strict but fair oversight.

Footnotes
1 Six of the seven Category 1 slot machine licenses have been issued.
2 One of the two Category 3 slot machine licenses available under the original Gaming Act has been awarded.
3 However, the legislation also requires that in its petition seeking to operate table games the licensee must agree that the number of slot machines in operation at its licensed facility on Oct. 1, 2009, will not be permanently reduced in order to install gaming tables.
4 “Fully automated electronic gaming table” is an electronic gaming table determined by the PGCB to be playable or operable as a table game without the assistance or participation of a person acting on behalf of a certificate holder. This is not the same as a table game-themed slot machine.
5 Under the Gaming Act, individuals who were 18 were permitted on the gaming floor, but were prohibited from wagering.

Nanette L. Horner is the Director of the Office of Compulsive and Problem Gambling for the Pennsylvania Gaming Control Board. Horner was elected to the Board of Directors of the IMGL in 2008 as the representative of the Regulators Affiliate Member classification and is a member of the IMGL’s Responsible Gaming Committee. Horner can be reached at nhorner[at]state.pa.us.

Gregory C. Fajt is Chairman of the Pennsylvania Gaming Control Board. He previously served as Chief of Staff to Gov. Rendell and Secretary of the Pennsylvania Department of Revenue and can be reached at gfajt[at]state.pa.us.

Table Games Suppliers Weigh In
With the passage of the table games bill in Pennsylvania, many changes to the state are coming. CEM spoke with three key table game manufacturers to get the scoop on what the legislation means to them.

David Lopez
Executive Vice President
Shuffle Master

“We are excited for both the casinos and our company as we believe that the legalization of live table games will improve the overall experience for patrons as the Pennsylvania venues transform themselves into more appealing gaming and entertainment destinations.

“We already have certain licenses that allow us to sell our electronic table games in the state of Pennsylvania. With the approval of live tables, we have already started the process to obtain the appropriate licenses.

“This presents a great opportunity for Shuffle Master to showcase both our traditional products, such as proprietary tables and shufflers, and some of our more recently released products such as the iTable. With the iTable, we look forward to the security and reports/data benefits it will provide in a state that will be hiring and training a number of dealers and supervisors that may have limited experience dealing live games.”

Roger Hawkins
CEO – The Americas
TCSJOHNHUXLEY

“TCSJOHNHUXLEY is very excited to be playing a part in the introduction of table games to the state of Pennsylvania. We are already working hard with the operators there to ensure timely delivery of products and services.”

Justin Woodard
Director of Sales and Business Development – The Americas
Gaming Partners International

“We’ve been watching the situation unfold in Pennsylvania closely and we’re very excited about the opportunities. We have been in contact with some of the operators out there. Some of the operators are current customers.

“This will give us a chance to expand our product line into a new gaming jurisdiction, and as far as our line is concerned, we plan to go out and promote our tables, our chips, our layouts, our dice and our cards. We’ve got a chance to go out and present our entire portfolio, and I like our chances.”