At Stake

January 26, 2017Newsletters

The Illinois Gaming Board (IGB) held its monthly meeting on January 26. As is often the case, the first meeting of the new year covered many important, controversial and impactful topics. Please read carefully. You will likely have questions or concerns. If so, please reach out to us.

Specifically, on the Video Gaming side, the IGB proposed many new rules and amendments to existing rules. We will be following up with an email to specifically cover the proposed rules discussed in the Video Gaming Meeting, however, there are three items we would like to highlight for Terminal Operators (TO) and Video Gaming Licensed Locations (Locations). A more detailed discussion is in the body of this meeting summary: 

Important Highlights

  1. There are four new proposed rules that, if passed, will directly impact video gaming:
    1. Specific designated areas for Video Gaming Terminals (VGTs) and additional requirements of licensure (Rule 810);
    2. Changes to the minimum standards for location use agreements (Rule 320);
    3. Changes to responsible gaming, including but not limited to a self-exclusion list (New Subpart O); and
    4. Amendments to the relationships of TOs, locations and Persons with Significant Influence or Control (PSICs) and inducement related items (Rule 250).
  2. Please review the summary of disciplinary complaints that were issued to avoid similar situations for you and your locations.
  3. TOs: Please remind locations that illegal gaming is never permitted. This is particularly important with the upcoming Super Bowl.

Below is a summary of the Riverboat Meeting and the Video Gaming Meeting.

Riverboat Meeting

At the start of the meeting only Chairman Tracy, Member Alejandre and Member Dolins were present. Member Robinson joined via telephone after the approval of December’s open session meeting minutes and Member Dunn was not present until midway through the Video Gaming portion of the meeting. The Chairman’s brief opening comments thanked IGB staff for their continued hard work. The other Board Members declined to make additional comments, while the Administrator used his time to mention “key points” of 2016. Below are some of the statistics mentioned. If you are interested in full analysis the IGB’s Annual Report can be found here.

Since 2015:

  • Riverboat tax transfers decreased 1 percent;
  • Video gaming tax transfers increased 26.8 percent;
    • The Administrator commented that this is a significant increase in revenue
  • IGB staff has made 562 arrests and conducted 16,878 investigations (8,078 regarding video gaming and 8800 pertaining to Riverboat);
  • Approximately 1,452 occupational licenses were issued under the Riverboat and 42 denials were issued and 53 key persons were approved;
  • There are 12,366 total enrollees in the current self-exclusion list with 613 new enrollees in 2016;
  • There are 5,767 live Video Gaming Locations with 25,069 VGTs; and
  • There were 1,322 of video gaming licenses (manufacturers, distributors, suppliers, TOs, terminal handlers, terminal technicians and locations) issued in 2016.

The IGB heard initial consideration presentations for the license renewal of Southern Illinois Riverboat Casino Cruises, Inc. d/b/a Harrah’s Metropolis Casino (Harrah’s Metropolis) and the reorganization plan of Caesars Entertainment Corp. (Caesars).

The IGB approved Christopher Pidruzny as a Level 1 occupational licensee for Harrah’s Metropolis, Larry Ferguson as a Level 1 occupational licensee for Des Plaines Development Limited Partnerships d/b/a Harrah’s Joliet Casino Hotel (Harrah’s Joliet), James Venuti as a Key Person of both Harrah’s Joliet and Harrah’s Metropolis, and granted AGS, LLC an initial supplier license.

The IGB further issued 72 Level 2 and 142 Level 3 occupational licenses. There were no occupational licenses denied, nor were there any disciplinary complaints issued.

The Riverboat Meeting concluded with a motion to award RFP FY17 IGB ITL Riverboat Independent Testing Laboratory (PBC#22039514) to Gaming Laboratory International LLC to act as the independent testing laboratory.

Video Gaming Meeting

The Chairman began his opening comments by stating that the video gaming agenda is more intense than the Riverboat agenda and that the packet of information is three times the size for the Video Gaming Meeting. He stated that he believes this is the case because the Video Gaming Act is very sparse on how to regulate this industry and thus it requires more work on the part of the IGB. The Chairman went on to say that he is imploring legislators to put restrictions on video gaming, especially so-called “nontraditional” locations and gaming parlors.

Neither the Administrator, nor other members made any additional comments.

Rule Changes

As mentioned previously, IGB legal staff proposed changes to four rules: Rule 250; Rule 320; Rule 810; and Subpart O. Each of these are discussed below:

  • Rule 250
    • The rulemaking will prohibit a TO from employing or contracting with owners or PSICs of a licensed video gaming location with which it has entered into a use agreement to act as sales agents or brokers, licensed terminal handlers or licensed technicians.
    • The rulemaking also will prohibit a TO from owning, leasing, having an option to purchase, holding a security interest in or managing, either alone or through an affiliated entity, a licensed video gaming location, if the TO has entered into a use agreement with that location. We know that the IGB has specifically allowed operators to do this in the past and that there is a question as to whether this is retroactive. We believe as a matter of law this cannot apply retroactively, but only prospectively if and when the proposed rule takes effect. We have already discussed this issue with IGB staff and will continue to flesh out and clarify the issue.
    • Finally, the rulemaking will prohibit a TO from providing any compensation to, or receiving any compensation from, a licensed video gaming location with which it has entered into a use agreement other than the after-tax profits from video gaming provided by subsection (c) of Section 25 of the Act.
    • According to the IGB today, the statutory language of the Video Gaming Act reflects a legislative intent to protect the integrity of video gaming by requiring an arms-length contractual relationship between TOs and licensed video gaming locations. According to the IGB, such an arms-length relationship is violated when a TO hires an owner or PSIC of a licensed location with which it has entered into a use agreement to act as a sales agent or broker, licensed terminal handler or licensed technician or when a terminal operator assumes an ownership, management, security or landlord-tenant relationship with a licensed location with which it has entered into a use agreement.
  • Rule 320
    • The proposed rulemaking imposes three new requirements for all use agreements entered into on or after its effective date, namely:
      • A use agreement must now state which sales agent, broker or other person, if any, procured the use agreement on behalf of the TO;
      • It must not provide for automatic renewal in the absence of cancellation; and
      • It must not be for a length of time exceeding five years.
    • The rulemaking also requires the IGB to promulgate a standard form for use agreements. All new and renewed use agreements entered into after the rulemaking's effective date shall incorporate the language of the standard form and shall be consistent with the standard form in all respects.
    • Under the procedures established by the present rulemaking, the Administrator shall render a recommended decision to the IGB on a petition brought by a TO or licensed video gaming location alleging that a use agreement, or portion thereof, is invalid or unenforceable. Issues which the IGB proposes to have the authority to decide include, but are not limited to:
      • Where two or more use agreements between a licensed video gaming location and one or more TOs have overlapping effective dates, which of the agreements is valid during the period of overlap.
      • Whether a use agreement, or portion thereof, complies with the requirements of the Video Gaming Act and rules.
      • Whether an automatic renewal provision in a use agreement poses such obstacles against nonrenewal, or confusion about the procedures for nonrenewal, as to constitute an undue burden on the licensed video gaming location that has entered into it.
      • Whether a TO has used coercion, deception or improper inducement to persuade a licensed video gaming operator to enter into or renew a use agreement.
    • Persons challenging the validity or enforceability of a use agreement shall file a petition to be decided by the IGB. The petition shall include detailed facts and reasons upon which the petitioner relies in arguing that a use agreement, or portion thereof, is invalid or unenforceable. Petitions may include documentary evidence and affidavits.
    • Following submission of a petition meeting these procedural requirements, the Administrator shall promptly send by certified mail a complete copy of the petition, including supporting documents, to each non-petitioning TO or licensed video gaming location named in the petition. Non-petitioning parties named in the petition shall have 21 days to file a response.
    • After the expiration of the 21-day response period, the Administrator shall issue a written recommended decision on the validity or enforceability of the contested use agreement, or contested portions thereof, based on the contents of the petition and any responses. The Administrator's recommended decision shall set forth the reasons the Administrator is recommending granting or denying the petition. Where the petition asserts more than one claim as to the use agreement's validity or enforceability, the Administrator shall separately decide each claim. Prior to rendering a decision, the Administrator may require the parties to attend a conference to attempt to settle their disputes.
    • After the parties have been served the Administrator's recommended decision, any losing party may file written exceptions within 14 days. The IGB shall review the entire record, including the petitions filed, the Administrator's recommended decision and any exceptions filed, and shall render a written order including the bases for its decision.
    • Any relief given by the IGB shall be limited to deciding which use agreement, or portion thereof, is valid for any given licensed video gaming location. The IGB shall have the express authority to order a TO to remove its VGTs from a licensed video gaming location if a use agreement, or portion thereof, is invalidated. The IGB shall not award monetary damages of any kind. Any failure by a party to abide by the Board's decision shall subject the licensee to discipline.
  • Rule 810
    • The new subsection provides that all VGTs located in a licensed establishment, licensed fraternal establishment or licensed veterans’ establishment shall be placed in an area where alcoholic liquor is drawn, poured, mixed or otherwise served for consumption on the premises. The designated area shall have seating facilities for customers or members apart from seating at the VGTs. The service of liquor within the video gaming area shall be done by the licensee. As many of you know, this was not required in the past and the IGB has inspected and approved hundreds of locations that are not configured as such. We believe legally this can only apply prospectively and we will work closely with IGB staff to clarify this issue.
  • Subpart O
    • A new Subpart O within the Video Gaming (General) Part will provide the following:
      • Declare a right of licensed video gaming location owners, PSICs and persons employed in any capacity relating to video gaming operations to engage in conversations about responsible gaming with any person engaged in video gaming play.
      • Establish an online training and education course on responsible gaming and require completion of this course by all video gaming location owners, PSICs and persons employed in any capacity relating to video gaming operations as a condition for license issuance and renewal. The IGB shall prepare the contents of this course, which shall be offered free of charge to enrollees. The course of study shall define responsible gaming and provide instruction on conversational techniques with customers whose behavior indicates they may have a gaming problem. The recommended conversational techniques shall be informative and nonjudgmental, provide players with helpful information about the random nature of video gaming play and long-term prospects of winning and recommend appropriate means of providing information to video gaming players concerning problem gambling resources. Completion of the course shall be required within 30 days of the date the course is made available to the public or the person becomes an owner, PSIC or employee of the location in a capacity related to video gaming. The rulemaking gives the IGB authority to contract for and use materials and programs offered by any public or private entity, including but not limited to those prepared by other state governments (Oregon has prepared such a course of study).
      • Establish a voluntary, confidential problem gambling IGB registry for video gaming. The purpose of this registry is to encourage problem gamblers to pursue needed gambling prevention and treatment initiatives. Persons enrolling in the registry will be issued regular emails exploring issues relating to problem gambling and be provided with links to problem gambling prevention and treatment resources. Individuals enrolled in the registry may cancel their enrollments at any time.
      • Allow the IGB to utilize technology to include a message on the interface of the VGT to assist players in responsible gaming and prevent problem gambling from occurring.

The Chairman stated that he fully supports these new rules and again thanked the IGB staff for their continued work, particularly regarding the self-exclusion items.

The IGB issued initial licenses to Sparrow Gaming, Inc. (TO), AGS LLC (Distributor), AGS LLC (Manufacturer), AGS LLC (Supplier), 51 terminal handlers, 1 terminal technician and 196 locations.

Additionally, there were a number of license renewals granted. Andy’s Video Gaming Co., Illinois Gaming Systems, LLC, Illinois Gold Rush, Inc., Illinois Video Slot Management Corp., J&J Ventures Gaming, LLC, JHEY Enterprises, LLC, Midwest SRO, LLC and Quad Gaming, Inc. were all granted TO license renewals.

Renewals were also granted to terminal handers and technician licenses that were up for renewal this month that provided updated information to the IGB, timely paid their renewal fees and complied with all other requirements. While the IGB also renewed those location licenses up this month that provided updated information, timely paid their renewal fee and complied with all other IGB requirements, it did not renew the location licenses for one location, Neighbors at Ice House, LLC.

Two notices of disassociation were issued. LZ Entertainment was issued a notice of disassociation regarding Helen Fuller Hayes and J&J Ventures Gaming, LLC was issued a notice of disassociation regarding Jason L. Smith.

The IGB also issued notices of denials to the following:

  • William S. Stanford III (TO)
  • Luxe Group Corporation d/b/a Playbook (Location)
  • The Dead Tree Tavern, Inc. d/b/a The Dead Tree Tavern (Location)
  • Thomas R. Stelmaszek (Terminal Handler)
  • Karl Mobley Jr. (Terminal Handler)

The IGB granted the request for hearing for Global Gaming Industries, LLC. It denied the request for hearing for Aragona Corporation d/b/a Aragona Club for failure to state a prima facie case. Additionally, the IGB rescinded the denial of JEP Inc. d/b/a Hamilton’s Pub and placed it back on pending status. The IGB also granted the requests to reapply of Aerie #437 Fraternal Order of Eagles, Inc. and Stone County Saloon Inc.

The IGB issued a number of disciplinary complaints against video gaming licensees:

  • Awesome Hand Services, LLC was fined $5,000 for allegedly failing to notify the IGB regarding changes to the ownership of a location it services and obstructing the investigation.
  • Boo’s Burgers and Billiards Company was fined $5,000 for allegedly failing to properly monitor VGTs and allow illegal gambling on the premises.
  • The following locations were each being fined the total net terminal income during the period in which the locations were allegedly operating without a valid liquor license:
    • B.O.D, Corp. d/b/a Lacey’s Place
    • Marjon, LTD. d/b/a Maggie McGuires
    • Kim C. Frye d/b/a Bowl-Rite Lanes
    • Sophie’s LLC d/b/a Sarah’s
  • The following three locations were each fined $2,500 for allegedly allowing improper VGT play by the owners of the locations:
    • Anthos Corp. d/b/a Rusty Nail
    • Old Rich Tavern
    • Kishan Inc. d/b/a Marshell Station
  • The following two locations were each fined $1,000 for allegedly failing to disclose changes to ownership:
    • J.P.’Z, Inc. d/b/a Z J Mines
    • ZP Associates, LTD d/b/a Dwight House
  • The IGB is seeking to revoke the following four establishment licenses due to allegedly having active or long standing tax liabilities:
    • ANIMIK, INC. d/b/a Barrister’s Pizza and Pub
    • South Side Boat Club
    • Vera Lorraine Mitchell and Joseph Todd Mitchell Lowlife’s Lounge
    • 4 Shiva, Inc. d/b/a The Oasis
  • The IGB is seeking to revoke the following five establishment licenses due to allegedly having active or long standing tax liabilities and failing to cooperate with the IGB investigation:
    • Kilimanjaro Connection Corp.
    • Road House
    • SANDT Inc. d/b/a Wild Tales Bar & Grill
    • Speak Easy
    • BHB Berwyn, LLC d/b/a Big Hurt Brewhouse

The IGB rescinded the disciplinary complaint of Hooper’s Sports Bar & Grill, Inc. d/b/a Hooper's Sports Bar & Grill issued at the November 16, 2016, meeting. It also granted authority to the Administrator to enter into settlements with The Loft and CJS, LLC and dismiss the previously issued complaints.

As its final action of the meeting, the IGB concluded with a motion to award RFP FY17 IGB ITL VGA Independent Testing Laboratory (PBC#22039512) to Gaming Laboratory International LLC to act as the independent testing laboratory.

Look for our follow-up emails for more information! As always, if you have any questions about the recent meeting, please feel free to call us.

Donna B. More
Partner, Fox Rothschild
312.517.9215
dmore@foxrothschild.com

Bill Bogot
Partner, Fox Rothschild
312.517.9205
wbogot@foxrothschild.com