COMMONWEALTH OF PENNSYLVANIA HOUSE OF REPRESENTATIVES
GAMING OVERSIGHT COMMITTEE HEARING
STATE CAPITOL HARRISBURG, PA
MAIN CAPITOL BUILDING ROOM 60 EAST WING
THURSDAY, FEBRUARY 12, 2 015 9:30 A.M.
PRESENTATION ON ELECTRONIC GAMING DEVICES
BEFORE: HONORABLE JOHN PAYNE, MAJORITY CHAIRMAN HONORABLE RUSS DIAMOND HONORABLE GEORGE DUNBAR HONORABLE GLEN GRELL HONORABLE MARCIA HAHN HONORABLE AARON KAUFER HONORABLE JERRY KNOWLES HONORABLE TEDD NESBIT HONORABLE DAVID PARKER HONORABLE NICK KOTIK, DEMOCRATIC CHAIRMAN HONORABLE DOM COSTA HONORABLE TINA DAVIS HONORABLE SID KAVULICH HONORABLE WILLIAM KORTZ, II HONORABLE MARK ROZZI
* * * * * Pennsylvania House of Representatives Commonwealth of Pennsylvania 2
COMMITTEE STAFF PRESENT: JOSIAH SHELLY MAJORITY EXECUTIVE DIRECTOR SHAWNE LEMASTER MAJORITY LEGISLATIVE ADMINISTRATIVE ASSISTANT
CHARLES MILLER DEMOCRATIC EXECUTIVE DIRECTOR LISA KUBEIKA DEMOCRATIC RESEARCH ANALYST ROSE KEPP DEMOCRATIC SECRETARY FOR REPRESENTATIVE KOTIK 3
I N D E X
TESTIFIERS
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NAME PAGE
JOHN MILLIRON, ESQ. EXECUTIVE DIRECTOR, MILLIRON & GOODMAN, LLC, on behalf of PENNSYLVANIA AMUSEMENT AND MUSIC MACHINE ASSN...... 6
STEVE FRITZ PRESIDENT, PENNSYLVANIA AMUSEMENT AND MUSIC MACHINE ASSN, OWNER OF STAFF MUSIC AND AMUSEMENTS...... 31
PAUL JENSON, ESQ. PARTNER, TAFT STETTINIUS & HOLLISTER, LLP, and COUNSEL TO IL GAMING MACHINE OPERATORS ASSN...... 36
SUBMITTED WRITTEN TESTIMONY
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(See submitted written testimony and handouts online.) 4
1 P R O C E E D I N G S
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3 MAJORITY CHAIRMAN PAYNE: I ’d like to call this
4 public hearing to order, please. W e ’d like to stand, do
5 the Pledge of Allegiance.
6
7 (The Pledge of Allegiance was recited.)
8
9 MAJORITY CHAIRMAN PAYNE: We have roll call,
10 please.
11
12 (Roll was taken.)
13
14 MAJORITY CHAIRMAN PAYNE: Thank you, and thanks
15 to the Members for the turnout today. We do have a very
16 aggressive agenda laid out on the gaming hearing scheduled
17 for informational purposes. W e ’re trying to get up to
18 speed on a variety of issues, this being the first issue
19 today, and I want to thank the Members for their
20 attendance. I know it’s a Thursday. I know a lot of you
21 have things back in the districts, so it was a matter of
22 trying to get scheduling done between the presenters in the
23 room, and I personally want to thank you very much for your
24 attendance.
25 My Chairman, Mr. Kotik. 5
1 MINORITY CHAIRMAN KOTIK: Thank you,
2 Mr. Chairman. It’s a great opportunity for me here to be
3 here today as the Democratic Chairman of the Oversight
4 Committee. I thank the Democratic leader for giving me
5 this position.
6 I think there’s a lot of opportunities for us
7 here in Pennsylvania. You know, w e ’re dependent on a lot
8 of gaming to supplement the General Fund and to do a lot of
9 good things for the citizens of this Commonwealth, so I
10 welcome this opportunity.
11 At this time I ’d like to introduce a couple
12 people on our staff that we just had appointed: My
13 Executive Director is Chuck Miller, my Assistant Lisa
14 Kubeika, and my Legislative Assistant Rose Kepp. They’re
15 all an important part of the team and w e ’ll be working
16 together closely with Chairman Payne and his staff to
17 ensure that this Committee functions very well and very
18 efficiently.
19 And also at this time I ’d like to introduce on
20 the Democratic side the Vice Chair of the Committee,
21 Representative Costa from Allegheny County, and the
22 Secretary, Representative Davis from Berks.
23 With that, I ’ll turn it over to you, Mr. Chairman
24 Payne.
25 MAJORITY CHAIRMAN PAYNE: This reminds me of 6
1 yesterday when the freshman on the Democratic side passed
2 out the Hershey bars to all the female legislators, and I
3 was like, you know, wait a minute. I ’m from Hershey and
4 for 12 years I didn’t do that so I know the feeling. I
5 probably should do the same.
6 Josiah is ours, Shawne is the AA, the Vice Chair
7 is Brown and the Secretary is Helm. And they're not here.
8 Any questions for the staff, feel free to see
9 them after the hearing on either side of the aisle.
10 Let's get started. The first testifier this
11 morning is John Milliron. John, you're up.
12 MR. MILLIRON: Mr. Chairman, do you mind if we
13 all who sit here will go in the order that you have listed?
14 MAJORITY CHAIRMAN PAYNE: Yes, that's fine, John,
15 Steve, and Paul. I'm fine with that. It's all yours.
16 MR. MILLIRON: I've been down here either as a
17 Member or a lobbyist since the early '70s and this is like
18 only the third time I've ever spoken to my peers and
19 colleagues and now I know how people used to feel. You
20 know, you get nervous sometimes. You see all these
21 familiar faces so I -
22 MAJORITY CHAIRMAN PAYNE: Well, we appreciate you
23 using your time limit for that. The next presenter?
24 MR. MILLIRON: I told you guys this is going to
25 be quick. 7
1 Good morning, Chairman Payne, Chairman Kotik, and
2 Members of the House Gaming Oversight Committee. On behalf
3 of my client, which is the Pennsylvania Amusement and Music
4 Machine Association, I wish to thank you for the
5 opportunity to discuss the legalization of operator-based
6 video gaming in our taverns and clubs throughout the
7 Commonwealth. I ’d like to first give you some background
8 on what video gaming is and how it could work here in the
9 Commonwealth.
10 Modern video gaming terminals are not the old-
11 fashioned poker machines that many of us have seen over the
12 years in the bars. As a matter of fact, according to
13 Federal and State police statistics, there could be as many
14 as 40,000 illegal poker machines already in Pennsylvania.
15 These machines are unregistered and untaxed. They are set
16 to very low payout percentages to winners, and therefore,
17 they basically cheat the players who play them. They have
18 no maximum play amounts or prize awards.
19 Video gaming terminals, however, are high-tech
20 machinery. They're capable of playing any type of legal
21 gaming that you the Legislature and the Gaming Control
22 Board would determine to be feasible here in the State.
23 That could be poker or blackjack. It could be bingo or
24 wheels that spin with fruit, numbers, symbols. The machine
25 has the capability, but what would be legal would be 8
1 determined again by you and the guidelines that you give to
2 the Gaming Control Board.
3 These machines are wired to the Lottery's central
4 computer to ensure absolute accountability. Every penny
5 placed in that machine or paid out is recorded. Winnings
6 are set at a minimum of 85 to 92 percent, which is
7 basically the industry standard.
8 The games are intended for the local neighborhood
9 player, the player who's basically playing a lot of these
10 machines now. They are not a destination game, which is
11 our casinos. Each play is limited to a maximum of $2 with
12 a maximum prize of $500. The terminal does not dispense
13 cash but rather issues a ticket that can be taken to what's
14 called a safe bank. You take it and the players are then
15 paid by putting it in the machine. I don't want to compare
16 it to an ATM but it doesn't have to tie up the tavern or
17 the club paying the tickets, again, complete accountability
18 by having this -- again, it's called several things. Mr.
19 Jenson can be much more specific. But then the player is
20 paid by placing the ticket into the bank and the prize
21 money is then dispensed. They're similar to ATM machines.
22 We petitioned the Attorney General to permit us
23 to bring a machine to Harrisburg so you, the taverns, the
24 clubs, and our members could actually see and play one.
25 And no, Glenn, you won't be able to win on it. It'll be a 9
1 prototype only. W e ’ll keep you informed of our progress.
2 W e ’re hoping to get a response from the Attorney General
3 fairly soon.
4 Six other States have legalized video gaming in
5 their taverns and clubs. South Dakota was the first back
6 in the mid-’80s, Montana, Louisiana, West Virginia, Oregon,
7 and most recently, Illinois. I ’d like to first discuss the
8 Illinois law since that is the most recently passed and the
9 State is so very, very similar to Pennsylvania in
10 demographics.
11 Both States have close to 13 million people.
12 Illinois has approximately 15,000 eligible taverns and
13 clubs. Pennsylvania has about 13,500. Both States have
14 major urban centers, sprawling suburbs, and considerable
15 rural population. It’s a good comparison and it’s been up
16 and running there for two to three years.
17 The attachment, I ’ll just skim very quickly,
18 Attachment 1, this is a comparison from what’s happening in
19 Illinois and what we project will happen in Pennsylvania.
20 I’d love, Mr. Chairman, to be able to give this sometime I
21 hope in the next week to Chairman Adolph. I spoke to Bill
22 months ago about gaming and he said whatever your number,
23 is I ’m dividing it by nine because I ’ve never seen a bunch
24 of gamers and there were able to come up with accurate
25 numbers. These are accurate because they’re based on a 10
1 State our size that’s been running it for three years.
2 In Illinois, there’s about 15,000, like I said,
3 eligible establishments. Six thousand of them, however,
4 are in Chicago and Chicago has not approved it. And w e ’re
5 expecting that to happen hopefully the next few months but
6 right now there are 9,000 potential locations and 4,540
7 have been licensed by the State. These are numbers as of
8 the end of December 2014, just last month.
9 The Illinois law has a local opt-out and that’s
10 why Chicago is not part of it. They’re in the process of
11 changing that decision. The councilmen, they’re aldermen I
12 guess they’re called out there, have it on their agenda.
13 But basically for our purposes today 50 percent of all the
14 bars eligible have machines. That’s 45, 40 out of the
15 9,000. At the end of December there were 19,182 video
16 gaming terminals, VGTs, in operation in those 4,540
17 locations. That’s approximately four machines per
18 location. Their law has a max of five. Illinois is using
19 numbers for their estimates based on approximately 55
20 percent of all bars, and if Chicago comes on board, they
21 expect that estimate to go up to 80 percent of all bars who
22 will apply. Mr. Jenson will have more info.
23 W e ’ve always dealt with liquor-licensed
24 establishments, bars, clubs, hotels. In Illinois they
25 allow several other entities. They allow truck stops. 11
1 They've got some what we would call nontraditional places
2 so their numbers are a little bit higher but they're not
3 all liquor-licensed establishments as we're trying to
4 control here in Pennsylvania. Therefore, if Chicago would
5 opt in, that would mean probably about 9,000 out of their
6 15,000 locations would participate. That would mean
7 approximately 36,000 video gaming terminals.
8 As at the end of December, these machines are
9 netting $116 a day, which translates into $41,796 a year.
10 Talking to other people, they say that's a low number but
11 we're talking small games, small gaming, small awards,
12 small prizes in the local taverns. So these are the
13 numbers that have been holding very well in Illinois and we
14 feel that they would be very comparable here Pennsylvania.
15 If you use that number and multiply it by what would be
16 anticipated, and that is 9,000 machines, that would bring
17 in approximately $1.5 billion in the State of Illinois.
18 It's currently bringing in over $800 million.
19 In Pennsylvania, we have 13,500 R, C, H, and E
20 licenses; basically they're the liquor licenses, a club
21 license, a hotel license, and an E -- boy, I think there's
22 about 3 or 400 -- they're the eating licenses that are beer
23 only and they're remnants of the prohibition and there's
24 very few of them, but all four would qualify. If 65
25 percent would participate, as is the number estimated in 12
1 Illinois, that would be approximately 8,775 eligible
2 taverns and clubs. If we use the Illinois, five terminals
3 are permitted and the statewide average is four, that means
4 there’d be about 35,000 legal video gaming terminals, much
5 less than what are out there currently illegally, untaxed
6 and unregulated.
7 If each machine does in fact the same amount of
8 play that is in Illinois, 41,796, that means the total
9 dollars that could be generated in the Commonwealth is
10 $1.44 billion. These aren’t numbers pulled out of the air.
11 They’re numbers based on Illinois and what they’re doing
12 now. If Pennsylvania receives a third of that, that’s $500
13 million. That looks nice for whether it’s the pension or
14 education or whatever decision the Legislature would want
15 to make.
16 One last major thing, a major question that would
17 have to be considered by this Committee and this
18 Legislature is if in fact they legalize video gaming
19 terminals, are they going to choose the private-sector
20 operator or what’s called the sole-source vendor? In every
21 State except Oregon they use the private-sector operator.
22 It is the most efficient, it brings in the most revenue,
23 and it gets the systems up and running quicker than the
24 sole source.
25 These are local businessmen and women, about 150 13
1 of them throughout the Commonwealth, that currently have
2 games. They have the dartboards, they have the trivia
3 machines, they have the -- I love to say pinball but my
4 industry tells me that pinballs aren't very common anymore,
5 but they're the ones that put out games of amusement, the
6 jukeboxes currently. These are the people who have local
7 employees. These are the people who make the capital
8 investment. They're the ones that buy their trucks
9 locally, pay local property taxes. They're the ones that
10 would have to provide the safe bank, meaning keeping in
11 many times upwards of $10,000 available for a place with a
12 lot of play to be able to pay out the winning tickets.
13 This model has been successfully used in every
14 State except Oregon. In Oregon they chose a one statewide
15 vendor, a sole-source contract, to supply the mainframe
16 computer and to own, install, and service all 35,000
17 terminals. There are only two or three companies in the
18 world that have the ability to do that, none of them of
19 course in Pennsylvania, and only one that's based in the
20 United States.
21 But private-sector operator again provides the
22 capital outlay, bears all the financial risks. These
23 terminals cost between 12 and $15,000. This includes bill
24 collectors, the cabinet, the monitors, the game software.
25 It does not include the cost of maintaining that safe bank, 14
1 nor the thousands of dollars needed to be stocked in it.
2 These are the companies from back home.
3 In the five States where private-sector operators
4 are the main cog to make the game run, the number of
5 locations that participate are about 75 percent. Illinois
6 is projected to go to 80 percent if in fact Chicago comes
7 in. In Oregon, the only State where sole-source is used,
8 only 35 percent of the taverns and clubs participate. It’s
9 a system that doesn’t work with one statewide vendor.
10 What you’ve got to remember if that machine is
11 not working on a Saturday night because nobody wants to pay
12 overtime, that means that’s lost income for Pennsylvania,
13 for Illinois, as it is in Oregon. It has become so much
14 grief out there, literally 20 years later they have less
15 than 35 percent of their taverns and bars participating,
16 which is only about 40 percent of what’s happening in every
17 other State.
18 In summary, Mr. Chairman, there would be fewer
19 machines with absolute accountability. They’d be taxed and
20 regulated by the Pennsylvania Gaming Control Board, local
21 governments would receive tens of thousands of dollars in
22 brand-new revenue, and the Commonwealth would have a half-
23 a-billion dollars a year to fill gaps in its pension or
24 other financial responsibilities that the Commonwealth has,
25 all of this while saving thousands of jobs at locally owned 15
1 companies and neighborhood establishments.
2 I wanted to be able to put a face on who these
3 operators are, and the President of the Pennsylvania
4 Amusement and Music Machine Association for the last three
5 years, we haven't let him go because we make him work so
6 hard, is a gentleman by the name of Steve Fritz. He's to
7 my right. Steve is a partner in Staff Amusements, which is
8 based down in York, Hanover County area and this is a local
9 operator with local employees and I'd like for Steve to
10 tell you something about him and his background.
11 MAJORITY CHAIRMAN PAYNE: Thank you. I'm going
12 to ask Steve to just hold. I've served on so many
13 Committees that some Chairmen wait until the end and ask
14 all the questions and others do it as we go along. I would
15 like to do this for questions for you, John, if I can, and
16 then we'll go to the next one.
17 MR. MILLIRON: I was —
18 MAJORITY CHAIRMAN PAYNE: If you have a question
19 to ask, let Josiah know. He'll get your name; we'll put
20 you on the list. And with a large amount of freshmen
21 Members, I'd rather do it at least to start out as we go in
22 each person's testimony. I would ask all Members to keep
23 their questions specific and brief.
24 I do want to thank you, John, because you and I
25 met prior to this and I was very, very clear that any 16
1 gaming in Pennsylvania has to be overseen by the Gaming
2 Control Board. I was not interested in the model that let
3 the Secretary of wherever do the oversight. I ’m a firm
4 believer that we have gaming in Pennsylvania that’s being
5 overseen and controlled through the Gaming Control Board
6 and anything we do in the future should stay like that.
7 I have one question. Because in Pennsylvania
8 many of our convenience stores have figured out how to get
9 an R license, and so have the grocery stores for that
10 matter, under this model if a convenience store or grocery
11 store -- and I ’ll just use a Sheetz or a Giant grocery
12 store has an R license, would they be eligible to get these
13 machines?
14 MR. MILLIRON: Under the proposal that we have
15 had floating for the last seven or eight years, it’s been
16 introduced each session by Representative Paul Costa. They
17 would qualify because they have a license issued by the
18 Liquor Control Board. I think most of the grocery stores
19 have purchased an existing R license. They have to be
20 separated from the grocery store, they have to prohibit
21 minors, whatever. Under the way our proposal is they would
22 be eligible. Now, whether you want to refine that or not,
23 it would certainly be up to the Committee and the
24 Legislature.
25 But currently as we envision it, it is being 17
1 regulated both by the Gaming Control Board but also
2 indirectly by the Liquor Control Board because they do all
3 the background checks and investigations on licensees,
4 including future licensees. So we felt that those two
5 checks would be the most efficient. And again, this whole
6 thing with grocery stores, as we know, and God knows with
7 the privatization aspect coming, it's something we'd have
8 to look at to see how does that impact what we had
9 envisioned of it being in the local neighborhood taverns.
10 MAJORITY CHAIRMAN PAYNE: Thank you. Thank you.
11 Representative Knowles.
12 REPRESENTATIVE KNOWLES: Thank you very much,
13 Mr. Chairman, and I thank the three of you gentlemen for
14 agreeing to come here today and to testify.
15 The district that I represent is a very diverse
16 district when it comes to gaming. I represent a portion of
17 Schuylkill, a portion of Carbon, and a portion of northern
18 Berks County. While some of those areas are very, very
19 pro-gaming, there are others that aren't so crazy about it.
20 This is a difficult issue for me to deal with.
21 When you talk about the opt-out, that kind of
22 sparked my interest. I was wondering when you're dealing
23 with opting out, would you be talking about townships and
24 boroughs and cities having the opportunity or are you
25 thinking more along the lines of the counties? 18
1 MR. MILLIRON: Our proposals have never allowed
2 an opt-out, and one of the main reasons is there's the
3 State of Illinois that literally had a 10-year capital
4 budget program that has been slashed by 60 percent because
5 Chicago doesn't participate, although that again is
6 projected to change.
7 If you're going to look at programs that need to
8 be paid for, just put out -- honestly I don't care what you
9 do, it's your decision -- but if you would say pensions,
10 for instance, the pension money would then be scheduled to
11 be paid for by this, you can't make those kind of
12 projections when Philly could opt in this year and opt out
13 next year. Lancaster could opt in this year, opt out next
14 year.
15 We have always felt that we don't want to be
16 offensive with anyone. If they don't like gaming, the
17 machines are not scattered all through restaurants; they
18 must be in one central location within sight of the
19 bartender or an employee to prohibit minors, and plus, what
20 we've just said, our estimates are about 65 percent. In
21 other States, and I'm just using examples, Applebee's don't
22 have the games. The chain restaurants don't opt for the
23 games. So it has been our opinion that for it to work
24 financially statewide, the opt-out can be devastating. And
25 if people feel literally offended by them, either the 19
1 proprietors shouldn’t bring the machines in or they’re not
2 in an obtrusive way in every establishment.
3 REPRESENTATIVE KNOWLES: Thank you, John.
4 Thank you, Mr. Chairman.
5 MAJORITY CHAIRMAN PAYNE: Representative Grell.
6 REPRESENTATIVE GRELL: Thank you, Mr. Chairman.
7 Thank you for your testimony.
8 If this question is more appropriate for one of
9 the later testifiers, just let me know, but I ’m curious how
10 you go about eliminating the illegal machines? If I have
11 an illegal machine and I ’m keeping all of it, how will this
12 encourage me to give up my illegal machine and what’s the
13 experience been in other States?
14 MR. MILLIRON: Mr. Jenson can answer about
15 Illinois, but five years ago there was a hearing by this
16 Committee and that same question came up by Representative
17 Randy Vulakovich, now the good Senator Vulakovich, who
18 happened to be a former policeman from out in Allegheny
19 County. I think he served with you, Paul, Dom. Bottom
20 line is he had insisted on language in our proposal that
21 would describe a machine that is no skill involved where it
22 is an illegal gambling device per se meaning no
23 investigations; they can come in, take the machine, and
24 that’s it.
25 The Commissioner of State Policeman then 20
1 testified at that hearing stating very clearly that the
2 amount of time they have to put in currently to prove
3 gaming, gambling, payout on a machine that looks like a
4 gambling machine is just so difficult and that’s why there
5 haven’t been a lot of pickups, number one; and number two,
6 he said it’s not a top priority of theirs. This was the
7 Commissioner under Governor Rendell. But he strongly
8 recommended that the language we put in the bill stay in
9 because it would allow law enforcement to walk in, see the
10 machine, and just take it. There wouldn’t have to be any
11 -- now, there would be a hearing follow-up but if it had
12 any aspects of chance, it would be illegal.
13 Now, I ’ll say this about my group and, like I
14 said, Mr. Jenson can give you firsthand experience, if 100
15 of my vendors pay $25,000 a year to get a license and they
16 know of any illegal machine, I guarantee you there will be
17 the best self-enforcement there is. You can’t do both.
18 And when I say you can’t, Mr. Jenson can tell you how it’s
19 happened in Illinois a, but the members of this
20 association, for what they’d have to pay -- and w e ’re
21 talking about it costs approximately $100,000 per location
22 for an operator to go in. That’s to set up the lines, to
23 buy the equipment, to do everything necessary, the
24 security, the safe bank. They’re not going to put $100,000
25 investment in a location and allow a competitor down the 21
1 street to have illegal machines. They’ll be turning them
2 in left and right to the Gaming Board.
3 MAJORITY CHAIRMAN PAYNE: Okay. Representative
4 Costa.
5 REPRESENTATIVE COSTA: Thank you, Mr. Chairman.
6 Thank you, Mr. Milliron. Good seeing you again.
7 It seems like Groundhog Day again.
8 I’ve been on the Committee for -- I ’m in my
9 seventh year, and I was there during the testimony of the
10 former attempt, and I think one of the things along the
11 enforcement issue is that we have to make sure that there’s
12 more money in the bill for our Gaming Board to do their
13 enforcement powers and the local police to do their
14 enforcement powers. This way we entice them to make sure
15 that they have a bone to go out and tease the illegal ones
16 out.
17 But along the lines of the States that did not
18 have them -- correct me if I ’m wrong; my memory may be
19 fading and I know how sharp you are -- back when we did the
20 initial hearing when Chairman Dante Santoni was our
21 Chairman, one of the braking points was, for us anyway,
22 myself and five of my Democratic colleagues who voted on
23 the Republican side against the State-run type of system,
24 was that there was four I believe or maybe five at that
25 time and three were opting to get back into the private- 22
1 owned because of the amount of business that they were
2 losing. And it made sense to us, my colleagues and I, that
3 if a business is already set up already serving a customer,
4 why are we going to have someone else -- and then Governor
5 Rendell couldn’t see our point. But I think that’s the
6 main sticking point with us, that the whole thing just
7 crashed and burned at that time.
8 So obviously by your testimony I see two or three
9 of these State-run gaming things went back to private. So
10 I think it proves your point. Can you elaborate on that,
11 please?
12 MR. MILLIRON: Well, two things. One, if there
13 is a legal video gaming terminal and it’s run by the State,
14 meaning a sole-source State operator, that machine sucks up
15 the entertainment dollars. You know, w e ’re talking a small
16 neighborhood tavern, but the money that would have gone
17 into a jukebox or a trivia game or whatever, I mean it
18 sucks up a lot of that entertainment dollar.
19 In Oregon there were 192 amusement operators.
20 When Oregon went sole-source, there’s only 23 of them now
21 in existence. The machine sucks it up and there’s not
22 enough money left to put in the pinball and what is put in
23 -- literally, a pinball machine cost 6 to $7,000. A
24 dartboard, you know, 5, $6,000. It takes one heck of a lot
25 of quarters to pay that machine off, especially when the 23
1 revenue is being split with the location.
2 So when sole-source went into Oregon -- and
3 again, that's the only one left now, by the way,
4 Representative -- but when it went in there, it decimated
5 the amusement machine industry.
6 On the other hand -- and again, Mr. Jenson could
7 tell you from Illinois a -- it has been a boom in
8 employment because the operators, the amount of equipment
9 that they need, the distributors that grow in employment,
10 we have a couple companies, just examples, we were talking
11 last night that are down to maybe 12 or 13 employees that
12 had 24 just as recently as four or five years ago. The
13 tavern industry is down. The smoking, whatever your views
14 are on it, the smoking has cut into the local tavern, the
15 consciousness of the BAC of drinking while driving, so it's
16 cut down everywhere. This would be a boom for local
17 businessmen and women and the money that they would spend
18 locally. But again, one of the other testifiers can give
19 you some real specifics on it.
20 REPRESENTATIVE COSTA: Yes, I agree. That was
21 exactly why it went down because myself and our colleagues
22 on both sides of the table here were actually concerned
23 about local businesses, keeping it for the local
24 businesses. And the Governor's Administration at that time
25 wanted to do it statewide and we just didn't feel, and 24
1 obviously it's true, that it would help local business and
2 create jobs and maintain jobs. So thank you.
3 Thank you, Chairman.
4 MAJORITY CHAIRMAN PAYNE: Thank you. And I would
5 just ask everybody to keep moving and brief. We have seven
6 more people that want to ask questions.
7 Representative Davis.
8 REPRESENTATIVE DAVIS: Thank you. Real quick,
9 for some reason when I read we were doing this, I was
10 thinking of handheld games. Could that be part of what
11 your companies operate? If I'm sitting at a bar and I want
12 to have just a handheld like they do with -- I don't know,
13 what are some of those games you play -- trivia games.
14 MR. MILLIRON: I mean, sure, you could still do
15 that. I mean this doesn't ban other -
16 REPRESENTATIVE DAVIS: No, I'm wondering, do your
17 companies offer that? Do they offer something like that?
18 MR. MILLIRON: Again, I think Paul would have to
19 answer that.
20 REPRESENTATIVE DAVIS: Okay. I'll wait for that.
21 The other question is all these States currently
22 have casinos in their -
23 MR. MILLIRON: Yes.
24 REPRESENTATIVE DAVIS: -- I believe? Are there
25 any studies of the effect of doing this expansion versus 25
1 the activity at the casinos?
2 MR. MILLIRON: I don’t know of any, and again,
3 Mr. Jenson may.
4 REPRESENTATIVE DAVIS: Okay.
5 MR. MILLIRON: The one thing you have to keep in
6 mind is this is not new gaming, and anybody from -- I don’t
7 care if it’s Mr. Knowles’ Schuylkill County area, whether
8 it’s Mr. Costa or Kotik’s area out west or any of the
9 people down east, there’s not a pizza shop -
10 REPRESENTATIVE DAVIS: Okay. I get it.
11 MR. MILLIRON: -- or bar you go into where
12 they’re not already there, and -
13 REPRESENTATIVE DAVIS: All right.
14 MR. MILLIRON: -- w e ’re cutting it back. But I ’m
15 not sure of any studies that have actually been done.
16 REPRESENTATIVE DAVIS: Thank you.
17 MAJORITY CHAIRMAN PAYNE: Thank you.
18 Representative Kaufer.
19 REPRESENTATIVE KAUFER: Thank you, Mr. Chairman.
20 My question is in regard to does Illinois have
21 casinos currently?
22 MR. MILLIRON: Yes.
23 REPRESENTATIVE KAUFER: And my question was along
24 the exact same lines, but they have a lottery system as
25 well? 26
1 MR. MILLIRON: Yes.
2 REPRESENTATIVE KAUFER: I’m just wondering how
3 the numbers -- and I guess you’ll be answering that -- how
4 they have been -- so I ’ll wait for later on.
5 MAJORITY CHAIRMAN PAYNE: Thank you.
6 Representative Diamond.
7 REPRESENTATIVE DIAMOND: Thank you, Mr. Chairman.
8 Before I came to this building to work, I drove a
9 truck over the road and I noticed the truck stop gaming
10 rooms in Illinois, and I was very concerned about them
11 because there’s no oversight as to -- there’s a sign posted
12 on them that says you have to be over 21 to get in. There
13 seemed to be no oversight, no enforcement of that, so can
14 you just clarify that the numbers you gave us here are only
15 for like establishments in Illinois and doesn’t include
16 those truck stop numbers?
17 MR. MILLIRON: The numbers from Illinois do
18 include their truck stops because they have a certain
19 guideline of what’s considered a truck stop, and to my
20 knowledge they don’t break them down.
21 REPRESENTATIVE DIAMOND: Right.
22 MR. MILLIRON: But all the averages, all the
23 numbers are statewide in Illinois -
24 REPRESENTATIVE DIAMOND: Okay.
25 MR. MILLIRON: -- which would include -- and 27
1 again, Mr. Jenson could probably tell you how many truck
2 stops there are. I believe there are several hundred.
3 REPRESENTATIVE DIAMOND: So we don't know what
4 percentage of Illinois' total gaming is doing at truck
5 stops and non-liquor establishments?
6 MR. MILLIRON: No.
7 REPRESENTATIVE DIAMOND: Okay. There was one
8 other thing I wanted to ask you is I did notice in those
9 truck stops that, although Illinois has a stronger smoking
10 ban than we apparently do here in Pennsylvania in that
11 you're not even allowed to smoke within I think it's 20
12 feet of an entrance of the building, this seemed to be the
13 only place inside the building where you can actually
14 smoke. Does the legislation you've proposed address that
15 issue as far as closed off spaces, that sort of thing?
16 MR. MILLIRON: Yes, current law would apply.
17 REPRESENTATIVE DIAMOND: Okay.
18 MR. MILLIRON: If your tavern is no smoking, you
19 can't. I mean most of the clubs I believe allow smoking.
20 This doesn't tamper at all with the Clean Indoor Air Act.
21 REPRESENTATIVE DIAMOND: Okay. Thank you so
22 much.
23 Thank you, Mr. Chairman.
24 MR. MILLIRON: And it does not also propose for
25 truck stops here. 28
1 MAJORITY CHAIRMAN PAYNE: Thank you.
2 Representative Kortz.
3 REPRESENTATIVE KORTZ: Thank you, Mr. Chairman,
4 and thank you, John, for your testimony.
5 I understand one of the impediments to putting
6 this through may be the casinos that we have in the State.
7 Apparently, when they paid their $50 million license fee,
8 there was some language crafted in there that they could be
9 the only ones that had the slot machines. Can you address
10 that situation?
11 MR. MILLIRON: When the casinos came back to this
12 body and asked for expanded gaming into table games, the
13 refund of their $50 million was taken out. I wasn’t
14 involved in that but the deal was from the State’s
15 viewpoint, w e ’re not about to give $50 million or $30
16 million, depending on the price of the license, back if
17 we ’re going to go and give you table games when the pledge
18 was there’d be no more expansion of gaming. So if in fact
19 this would be legalized, the refund of all license fees is
20 no longer a viable threat because it was taken out of that
21 by the Legislature when you gave them table games.
22 REPRESENTATIVE KORTZ: Sure. Thank you, sir.
23 MAJORITY CHAIRMAN PAYNE: Thank you.
24 Representative Kavulich.
25 REPRESENTATIVE KAVULICH: Mr. Milliron, mine is 29
1 more of a technical question, but now if there is a
2 malfunction in a casino machine, there are safeguards
3 against it. What about safeguards against malfunctions in
4 these type of machines?
5 MR. MILLIRON: Again, I ’m going to always pass
6 the buck here. I ’m going to pass it to Paul Jenson, but I
7 would think that with our Gaming Board having the
8 oversight, they would require the same types of shutdown of
9 machines automatically. They know every time that machine
10 is open. I mean whether money is taken or not taken or
11 whatever is done, every single thing is recorded and has to
12 balance with the State’s computers or their State
13 computers, and I would expect it to be the same.
14 We don’t get into the kind of detail that the
15 Legislature put into the first creating of Pennsylvania
16 Gaming Control Board because it was a new thing. Now that
17 the experience is there with the Gaming Board, it sort of
18 gives them the authority to continue that kind of security
19 process.
20 REPRESENTATIVE KAVULICH: Thank you.
21 MAJORITY CHAIRMAN PAYNE: Thank you.
22 Representative Parker.
23 REPRESENTATIVE PARKER: Thank you.
24 Representative Davis touched on my question so I
25 think I ’ll wait for Mr. Jenson, but I will bring up the 21- 30
1 year-old rule. Can’t that be taken care of at cash-out or
2 do these machines actually spit out quarters?
3 MR. MILLIRON: No.
4 REPRESENTATIVE PARKER: No?
5 MR. MILLIRON: They’re not allowed to dispense
6 cash.
7 REPRESENTATIVE PARKER: Okay.
8 MR. MILLIRON: It has to be just with the ticket.
9 REPRESENTATIVE PARKER: All right. Thank you.
10 MAJORITY CHAIRMAN PAYNE: Thank you.
11 Representative Hahn.
12 REPRESENTATIVE HAHN: Thank you, Mr. Chairman.
13 Thank you for your testimony, John.
14 Clubs now have small games of chance license so
15 now they could get these machines under this law, but I
16 think under the small games they have to give some of that
17 money to nonprofit organizations. So is there anything
18 that the taverns and/or the clubs are going to have to do
19 under this law or are they going to just keep that money as
20 a profit for them? And then like the volunteer fire
21 companies that see some of the money from the clubs are
22 going to lose that and is that going to hurt some of our
23 nonprofits?
24 MR. MILLIRON: That would be a legislative
25 decision, Representative. We don’t have any provisions in 31
1 here mandating that it be given to any particular source.
2 MAJORITY CHAIRMAN PAYNE: Thank you. And I thank
3 my colleagues for moving that along.
4 We'll move on to the next presenter. Steve, all
5 yours.
6 MR. FRITZ: Good morning, Chairman Kotik and
7 Chairman Payne and the Committee.
8 I'm here today probably because, like most of
9 you, my Powerball numbers did not hit last night so I have
10 to go back to work today.
11 Again, my name is Steve Fritz. I co-own and
12 operate Staff Music and Amusements in Hanover,
13 Pennsylvania. I purchased the company in 2010 after being
14 an employee of another company for six years and Staff
15 General Manager for quite a while. Before I bought Staff,
16 it was owned since 1961 by Clyde "Ike" Laughman. I worked
17 with Ike for many years. He taught me a lot of things.
18 Unfortunately, he passed away suddenly in 2009. At that
19 point I became partners with his daughter Laurie Williams
20 and we purchased the business in 2010.
21 Staff Music and Amusements has 13 employees. We
22 operate in York County, Adams County, Franklin County,
23 Fulton County, and some counties in Maryland also. With
24 our 13 employees, we are responsible for purchasing,
25 placing, moving, repairing, collecting numerous amusements 32
1 placed in bars and clubs throughout central Pennsylvania
2 and northern Maryland. My family-owned business, like many
3 Pennsylvania operators, have expanded into electronic
4 darts, pinballs, jukeboxes, the tabletop trivia games,
5 ATMs, and whatever is coin-operated that we feel as though
6 we can run and make some money with.
7 Staff Amusements is partly responsible for making
8 darts so popular in Central Pennsylvania. We now operate
9 leagues, including virtual leagues where they can play
10 remotely against anyone in the world, anyone in the State,
11 anyone in the United States.
12 My business, like any other family business, it
13 has been both enjoyable and a struggle at times. In the
14 '80s and the '90s amusements were very popular. You
15 couldn't even get to a Ms. Pac-Man game in the arcade. Now
16 you have it on your phone, which has hurt our collections
17 very badly. Along with our taverns and clubs, we have
18 faced difficult challenges over the past decade. I have
19 found, along with my colleagues, that people simply do not
20 go out as often, and when they do, have tight personal
21 budgets. However, we have done our best to offer safe
22 family fun for our patrons to enjoy at our locations.
23 Just like every small business, you either adapt
24 or you shut your doors. Many operators have shut their
25 doors, but along with my employees, we are proud to say we 33
1 have not.
2 Mr. Chairman, I am here today as Vice President
3 of Staff Music and Amusements and I ’m here today as
4 President of the Pennsylvania Amusement and Music Machine
5 Association. Our Association advocates on behalf of more
6 than 65 Pennsylvania operator businesses. We estimate
7 there are 125 operators in the Commonwealth. PAMMA
8 partners with Amusement and Machine Operators Association
9 on issues like this.
10 We believe that after looking at models
11 elsewhere, we are the very legitimate option for increased
12 State revenue for your consideration in the coming weeks
13 and months. There may be a handful of options but we
14 believe that ours has a proven model and would provide the
15 Commonwealth the ability to knock out existing untaxed,
16 unregulated machines, an unwise way of doing business
17 today. PAMMA is suggesting to replace the 40 to 50,000
18 illegal gaming machines in the Commonwealth today with 25
19 to 30 taxed and regulated machines this year. Thank you.
20 MAJORITY CHAIRMAN PAYNE: Thank you. Questions?
21 Representative Grell.
22 REPRESENTATIVE GRELL: Thank you for your
23 testimony.
24 Just a question about the 40 or 50,000 illegal
25 gaming machines, where do those organizations that use 34
1 those machines get them?
2 MR. FRITZ: I would imagine a buy them from so-
3 called distributors that aren't ethical.
4 REPRESENTATIVE GRELL: Okay. But they would
5 potentially get them from a company, not yours necessarily,
6 but I mean is there something in your organization that
7 would give us confidence that they are not providing the
8 illegal machines now?
9 MR. FRITZ: Rephrase that.
10 REPRESENTATIVE GRELL: I'm just wondering where
11 all these illegal machines come from. And you're telling
12 me they're not coming from your company or companies in
13 your organization -
14 MR. FRITZ: They're from the manufacturers.
15 REPRESENTATIVE GRELL: Okay. Is it because they
16 might be legal in other States and they're able to get them
17 into Pennsylvania -
18 MR. MILLIRON: Oh, the machine is not illegal in
19 Pennsylvania until it's paid -- until there's payoffs. So
20 if you bring in, gosh, if you ever remember seeing them as
21 kids, a bingo card. You know, it'd be up there and the
22 pinballs would come down and if it went in straight across
23 or up, down, whatever, like a regular bingo, you'd get 50
24 points. Well, if the bar owner paid you those 50 points,
25 then it's an illegal machine. 35
1 REPRESENTATIVE GRELL: Okay. So it’s —
2 MR. MILLIRON: If you played bingo with it, it
3 was not an illegal machine.
4 REPRESENTATIVE GRELL: So it’s not necessarily
5 the machine that’s illegal. It’s the way it’s being used?
6 MR. MILLIRON: That is correct.
7 REPRESENTATIVE GRELL: Then it’s an illegal
8 operation.
9 MR. MILLIRON: That’s correct.
10 REPRESENTATIVE GRELL: Okay.
11 MR. MILLIRON: But to solve that problem we make
12 the machine illegal per se. No more of the police having
13 to wait and sit there for days to see if somebody gets paid
14 off. The machine would become illegal, which is what law
15 enforcement wants, and actually, I think it’s what
16 everybody would want to get those machines off the street.
17 MAJORITY CHAIRMAN PAYNE: Thank you,
18 Representative. I ’m not an attorney but I think that what
19 you’re trying to phrase is that like we could buy the
20 machines, you can play them for fun, and that’s legal, but
21 as soon as you start doing the cash payouts, w e ’ve crossed
22 that line?
23 MR. MILLIRON: Yes.
24 MAJORITY CHAIRMAN PAYNE: Okay.
25 Yes, Representative Costa. 36
1 REPRESENTATIVE COSTA: Yes, very quickly. I
2 worked many years in law enforcement, and the machines that
3 they use in the bars are -- I guess an expensive component
4 of that machine is the bill changer. It’s not a
5 computerized machine like they use in the casinos. You can
6 literally buy them for a couple thousand dollars versus 6,
7 $7,000. It’s just a markdown, cheap thing, so that’s what
8 it is.
9 MAJORITY CHAIRMAN PAYNE: Okay. Thank you.
10 Moving along to the last presenter, Mr. Jenson.
11 MR. JENSON: Well, thank you for the opportunity
12 to address the Committee this morning. I really appreciate
13 it.
14 My name is Paul Jenson. I ’m a partner at the law
15 firm of Taft Stettinius & Hollister in Chicago. Taft is
16 regularly recognized as the number one gaming law firm in
17 Illinois by various publications. We also have a national
18 gaming practice and we certainly are active in several
19 jurisdictions across North America.
20 I am the Co-Chair of our gaming practice, and
21 since 2009, the vast majority of my time has been spent
22 actually in Illinois in dealing with the Illinois Video
23 Gaming Act. For better or worse, I ’ve lived and breathed
24 that act and our program and I ’m certainly excited to talk
25 about it today. 37
1 When the Illinois Legislature passed the Illinois
2 Video Gaming Act, we were in a situation where the State
3 was really desperate for money, yet did not want to raise
4 taxes, and this was a way to fix some budget deficits. We
5 also had a situation that sounds like Pennsylvania has
6 right now. We had 50,000 or more gray games on the street.
7 Gray games really is a misnomer. Those games are illegal,
8 and as we were just talking about, the games themselves
9 became per se illegal with the passage of the Video Gaming
10 Act, but before that it was the behavior that everyone
11 exhibited with the games that was the problem. And our
12 Illinois law enforcement officials didn’t have the
13 personnel or the desire to enforce the law that was on the
14 books. With the passage of the Video Gaming Act, that
15 changed. In addition, those games were untaxed and the
16 State was not making any money off of it and that’s a
17 horrible thing.
18 But when the bill was passed in 2009, it didn’t
19 really become operational until October of 2012, and like
20 any new gaming legislation, we faced some challenges. One
21 of those challenges I want to highlight today though
22 because it could be instructive for Pennsylvania. The
23 Legislature passed our act without a funding mechanism for
24 helping the Gaming Board enforce this, and the Illinois
25 Gaming Board was tabbed with regulating this act. Our 38
1 board at that time was staffed with enough people to
2 regulate our 10 Illinois riverboat casinos and that was a
3 full-time job for those guys.
4 Unfortunately, our staff was tasked with
5 implementing the Video Gaming Act and they were doing that
6 in their spare time and on weekends. Our staff is as
7 dedicated as anyone is but it was just too tall of a task
8 and it caused delay to occur in rolling our program out.
9 The Legislature eventually fixed this problem and gave the
10 Gaming Board funding, and in fact, our Gaming Board has
11 nearly doubled in size since 2009, but in any event, it's
12 something that I think if Pennsylvania decides to follow
13 this path, it's something you should address upfront.
14 You know, John gave you a brief description of
15 the Illinois law but let me give you my overview and we can
16 discuss it later. But in short, the law allows for up to
17 five video gaming terminals, or I might call them VGTs, to
18 be placed in locations that have liquor licenses that allow
19 for the consumption of alcohol on the premises. These are
20 places like bars, restaurants, fraternal organizations,
21 VFWs. When I say consumption of alcohol, it means that the
22 liquor-licensed establishment needs to pour alcohol and our
23 patrons need to be able to drink there.
24 We have all kinds of other liquor licenses in
25 Illinois such as packaged goods licenses. These places are 39
1 not eligible for video gaming licenses. We also allow for
2 video gaming to occur in truck stops, and those places do
3 not need to be liquor-licensed establishments.
4 Our patrons can bet up to $2 and win up to $500
5 per spin. This is different from casino gaming in that
6 it's very low stakes. Casino gaming is a destination-type
7 gaming market whereas this is more of a convenience market.
8 People are at these establishments for other reasons
9 perhaps than to just gamble.
10 Our VGTs are just like the slot machines you
11 would see in Las Vegas or any other casino around the
12 world, including here in Pennsylvania. They allow for
13 spinning reel games, which is the typical slot machine,
14 video poker, and video blackjack. They are run during the
15 same hours that an establishment's liquor license is
16 operational, and then truck stops, because they don't have
17 a liquor license, they are allowed to run 24 hours a day
18 and seven days a week.
19 There are some locations that are otherwise
20 eligible to receive a license but we have said that they
21 cannot. So, for instance, if they are located within 1,000
22 feet of a casino or a horse racetrack, they can't have the
23 games, likewise, if they are located within 100 feet of a
24 church or a school or if their local municipality has opted
25 out, and we'll talk about that more later. 40
1 All of our VGTs are connected to a central
2 communication system, which is really created to really
3 help the Illinois Gaming Board in regulating this industry.
4 The central communications system is operated by Scientific
5 Games, which prevailed in an RFP that was run by the
6 Illinois Gaming Board at the start of this program.
7 The system tells the Gaming Board exactly how
8 much money has been played on the games and won and
9 therefore how much money the State is owed. It is the
10 perfect accounting system and it really cannot be
11 manipulated. It also tells the Gaming Board if the games
12 are malfunctioning in any way and then to the extent that
13 the Gaming Board has problems from a licensing perspective
14 or really anything else, they are able to shut those games
15 down remotely at any time or restart them when they see fit
16 to do so.
17 There are several levels of licensure within the
18 Illinois Video Gaming Act. I ’m going to talk about four of
19 them today. I ’m talking about manufacturers, distributors,
20 terminal operators, and establishments. That’s the
21 backbone really of our system. Manufacturers are the
22 companies that make the games. These are companies like
23 IGT, Bally, WMS, Novomatic. They’re worldwide companies
24 that sell internationally. They provide these games to
25 distributors who are tasked with either selling or leasing 41
1 the games to terminal operators.
2 Our distributors also assist the manufacturers in
3 servicing and repairing these games. These are companies
4 that have personnel in-state whereas many of the
5 manufacturers do not, and many of them had pre-existing
6 relationships with the companies that became our terminal
7 operators.
8 The terminal operators, they're tasked with
9 operating games. Again, they are really the backbone of
10 the system. They are the focus of the Illinois Gaming
11 Board's regulation and this is for many reasons but mainly
12 because they're in charge of collecting the money, and most
13 importantly, paying the State every 15 days.
14 And then finally the establishments, they play a
15 lesser role. They're really there to house the games.
16 They're effectively leasing a portion of their space in the
17 bars to house up to five games. But their principal
18 responsibility is to watch over those games every day to
19 make sure that people aren't mistreating them, making sure
20 that underage people are not gambling.
21 I want to talk a little bit also about use
22 agreements, which is the contract that governs the
23 relationship between the terminal operator and the
24 establishment. First of all, a use agreement needs to be
25 in place in every establishment that has legalized gaming. 42
1 The Gaming Board in Illinois has required certain
2 provisions to be mandatory in these agreements. For
3 instance, there is a statutory revenue split that must be
4 followed. The State is given 30 percent of the win or the
5 net terminal income, and then after that, the terminal
6 operator and the establishments split that 50/50, so the
7 establishment gets 35 percent, the operator gets 35
8 percent, the State gets 30. Of the State’s 30 percent, the
9 State keeps 25 percent and then 5 percent goes to local
10 municipalities.
11 Our use agreements also require that there be no
12 inducement language present, so that essentially says that
13 terminal operators are not allowed to provide anything of
14 value to an establishment in procuring the use agreement,
15 and that can be anything from a bag of $10,000 in cash to
16 Cubs tickets to trips to Vegas. I mean literally nothing.
17 And to the extent that a terminal operator makes an offer
18 to induce someone, that is a felony in Illinois and it’s
19 punishable by up to three years in prison and a substantial
20 fine.
21 How do these games work? So when a patron comes
22 into play, he inserts money into the game and then plays,
23 and when he’s done, he’ll press the button and cash out.
24 And as we talked about before, they don’t receive money;
25 they receive a ticket. And that ticket must be redeemed 43
1 for cash in a redemption terminal. In Illinois there are
2 basically two choices of a redemption terminal. One is
3 effectively a self-serve kiosk that is present on the bar’s
4 floor so that the patron connection to go up, scan the
5 ticket, and be paid to the last penny. The other choice is
6 to place the redemption terminal behind the bar where the
7 player would give the ticket to the bartender, the
8 bartender would then scan the ticket in the redemption
9 terminal, and the machine would pay out everything but the
10 change and the bartender would be responsible for giving
11 the person the change.
12 I literally can’t say enough about redemption
13 terminals. It’s the one State that has video gaming that
14 does require reduction terminals to be used. It keeps the
15 money out of the bartender’s hands, which is great for a
16 number of reasons, and certainly provides safety for
17 everyone. There’s greater security, there’s greater
18 safeguarding of cash, it prevents fraud, and also it frees
19 up the bartender to do what he’s there to do, which is to
20 serve food and beer and not be bothered with trying to cash
21 the tickets out, so a great thing. W e ’ll talk a little bit
22 more about that later.
23 Also wanted to mention from a licensing
24 perspective that the Illinois Gaming Board is charged with
25 investigating and licensing every level of license in this 44
1 process, everything from manufacturers to the establishment
2 to the people that work on the games and beyond that. It’s
3 a slightly less intrusive process for locations, but for
4 every other form of license, every other level of license,
5 it really is the legal equivalent of a proctology exam.
6 You know, gaming is generally recognized as the
7 second-most regulated business in the U.S. and it’s right
8 behind atomic energy, and I can tell you that it’s
9 certainly true in Illinois. In fact, in video gaming it
10 goes beyond what even some of our casinos face because I
11 think that the Gaming Board was concerned with the people
12 that might be involved in video gaming and wanted to make
13 sure that these people were clean beyond clean.
14 When our clients get a license, it is an
15 accomplishment; it’s something to be celebrated. And I
16 have firsthand experience in dealing with the Pennsylvania
17 Gaming Control Board and can tell you that the same thing
18 is true here.
19 Who gets looked at? So it’s not only the company
20 that holds the license but all of the owners. And when I
21 say all of the owners, I mean every owner is disclosed,
22 even those people that have a half-a-percent interest. The
23 Gaming Board knows exactly who is involved here. All the
24 officers, directors, decision-making employees, and really
25 anyone else that the Gaming Board comes across and wants to 45
1 investigate, they are free to do so.
2 That investigation includes criminal history, not
3 only convictions but any arrest. Really any exposure to
4 law enforcement at all gets disclosed and investigated by
5 the Gaming Board. Financial history, education, residency,
6 family, work history, the Gaming Board agents have been
7 known to knock on your neighbors' door and ask what kind of
8 person you are and what type of habits do you follow.
9 These people are fingerprinted, an FBI report is generated,
10 and it really culminates with an interview where a couple
11 of different IGB agents will interview this person
12 generally in the IGB office, and they're there to not only
13 fill in any holes that the report has but really to get a
14 sense of who you are as a person and whether you are
15 someone that the Gaming Board wants to be in this industry.
16 You may have heard this before but the gaming
17 license is a privilege and not a right, and I think most
18 people that are not involved in gaming have no idea what's
19 involved in getting a gaming license, and I think that will
20 solve a lot of people's concerned about the gaming
21 industry.
22 Relevant statistics, and John certainly gave you
23 some of this, but as of yesterday, there were 4,649
24 licensed establishments in Illinois and they were operating
25 approximately 19,200 VGTs. There were 930 municipalities 46
1 or counties that allow for video gaming, 175 that prohibit
2 it, including the City of Chicago, and then 370 other
3 communities where the law is somewhat unclear but no
4 establishment in those municipalities have applied so we
5 really don't know where they stand yet.
6 In 2013, which was the first year of video gaming
7 in Illinois, the State had tax revenue of about $90
8 million, a net terminal income of $300 million. In 2014
9 that number jumped to $198 million of tax revenue, net
10 terminal income of almost $660 million. And in 2015 we
11 fully expect our State tax revenue to be somewhere between
12 250 and $300 million, and that is just going up, and the
13 number of our establishments goes up every month.
14 What can Pennsylvania due to replicate and/or
15 improve upon? So there are a lot of good things that
16 Illinois did and we're certainly proud of our law. Perhaps
17 the best thing we did was to put the Illinois Gaming Board
18 in charge of the program. It gave us an environment that
19 we could grow and prosper, it prevented any scandal from
20 occurring, and that to me was the number one thing that we
21 wanted to guard against.
22 John spoke about our three-tiered system, which I
23 think is incredibly important starting with manufacturers
24 and distributors on the sales side, the operator, and then
25 the establishment. The different levels of licensure, they 47
1 can't interact, so an establishment can't be a terminal
2 operator and vice versa and a manufacturer can't be
3 terminal operator or an establishment. It provides more
4 money to the State. It really increases employment
5 opportunities. Healthy competition is a great thing in
6 Illinois. Illinois we have experienced literally hundreds
7 if not thousands of new jobs in addition to the jobs that
8 we've saved, jobs like Steve's right now.
9 In addition, we've seen a significant amount of
10 reinvestment at the establishment level. Some of our
11 locations were getting to be kind of shoddy, and now with
12 the advent of video gaming, you'll see people that are
13 putting money back into the establishment, they're creating
14 rooms especially for these games, and it's been a much
15 better thing. This three-tiered system just keeps the
16 market participants honest.
17 No inducements language, we talked about it
18 before; it's an excellent idea. I would definitely put
19 that in the law. In addition, I would have Pennsylvania
20 expand it to say that not only an inducement can't be
21 offered but if it's accepted, that also should be a felony.
22 It should be on both sides of the coin and we think that
23 that will help enforce that law even more.
24 The redemption terminals, again, I hope that
25 Pennsylvania follows Illinois' example there. When we 48
1 started this program, our terminal operators were not
2 excited about it because those redemption terminals cost
3 $10-$12,000 a piece. Now, I would imagine that you would
4 be hard-pressed to find a single terminal operator that
5 doesn’t like them, despite the cash.
6 One of the things that I think that no one
7 realize would happen when we passed the Illinois Video
8 Gaming Act is that so much of the other illegal gambling
9 that used to occur in bars has gone away. So certainly the
10 gray gaming is gone. There are no more gray games anymore.
11 But in addition, you go into a bar in Illinois and you’d
12 often see Super Bowl squares or NCAA tournament contests or
13 guys in the corner playing cards, rolling dice. That is
14 completely gone at this point. I can’t say completely gone
15 but we are on the road to getting rid of that. The Gaming
16 Board agents are out there, the Liquor Enforcement Board is
17 out there, and people are being fined, licenses are being
18 taken away, and it’s been an unforeseen benefit.
19 Really I ’d like to answer any questions. I
20 talked enough so -
21 MAJORITY CHAIRMAN PAYNE: Thank you.
22 And, Mr. Jenson, I will have Josiah see you
23 afterwards so we can get the copies of the written
24 testimony.
25 MR. JENSON: Sure. 49
1 MAJORITY CHAIRMAN PAYNE: We have your outline
2 but not the actual written testimony. And I did John a
3 favor because the policy of this Committee will be that we
4 want all written testimony no later than the Monday of the
5 week that w e ’re doing the hearing.
6 MR. JENSON: Got you.
7 MAJORITY CHAIRMAN PAYNE: So I appreciate that.
8 MR. JENSON: Sure.
9 MAJORITY CHAIRMAN PAYNE: I ’m going to open up
10 the questions.
11 Representative Dunbar.
12 REPRESENTATIVE DUNBAR: Thank you, Mr. Chairman.
13 And thank you, Mr. Jenson, for your testimony.
14 And this question either you or Mr. Milliron
15 could answer. W e ’re all for revenue, consumer protection,
16 those type of things -
17 MR. JENSON: Sure.
18 REPRESENTATIVE DUNBAR: -- but I do have some
19 concerns. And I ’d like to get a little better feel for
20 exactly what transpired in Illinois. There’s 40,000
21 illegal machines approximately in Pennsylvania and a lot of
22 them are in our clubs, our fire departments and things like
23 that. None in my district; they’re all in Jerry’s
24 district. My district’s completely clean.
25 But I was just curious, after Illinois in 2013 50
1 started this, how the clubs and everybody reacted because
2 I’m sitting there in my head thinking, all right, these
3 individual machines right now have a lower payout
4 percentage. The illegal machines are paying them,
5 whatever, 70, 80 percent, and now w e ’re going to regulate
6 it up to the 85 to 95 percent payout so the dollars are
7 going to be reduced that they’re getting. Secondly,
8 they’re going to have to take those dollars and divvy it up
9 between the municipality and the State as well so their
10 shares are reduced. So I was just curious how the pushback
11 was?
12 And understand, we went to the small games of
13 chance where we were trying to take care of our clubs and
14 we ended up getting the riot act from all of our local
15 clubs. I ’m not condoning illegal gambling; don’t anybody
16 say I was condoning illegal gambling. I was just wondering
17 how you addressed that in Illinois.
18 MR. JENSON: Yes, it’s a good question. It’s
19 certainly something that we encountered. There was just a
20 decision that we were going to become legalized and I think
21 that the difference between the gray games that are on the
22 street and the legalized VGTs you see now, it’s an immense
23 difference. The legalized VGTs are so much nicer, they
24 attract more play, they attract players like me who didn’t
25 want to participate in the illegal gambling aspect of it 51
1 before. And in fact, our establishments now make more
2 money under legalized play. Even with the sharing of
3 money, even with the reporting of money, they are all
4 making more money than they did beforehand. So I think
5 you’d be hard-pressed to find establishments that are
6 disappointed.
7 REPRESENTATIVE DUNBAR: In your opinion is that
8 why Chicago hasn’t opted in?
9 MR. JENSON: No, Chicago doesn’t have gray games
10 at this point. No one in the State does, honest to God.
11 It is -
12 REPRESENTATIVE DUNBAR: I ’d like to believe that
13 but I ’m not sure that I can so -
14 MR. JENSON: Truthfully, the reason Chicago
15 doesn’t have it, in my cynical opinion, this is a political
16 stick that they have in terms of trying to get a casino in
17 Chicago, and I believe that when that issue becomes settled
18 at some point, and hopefully that will happen in the next
19 year, I think this issue will be settled as well.
20 REPRESENTATIVE DUNBAR: Thank you, Mr. Chairman.
21 MAJORITY CHAIRMAN PAYNE: Thank you.
22 Representative Knowles.
23 REPRESENTATIVE KNOWLES: I ’m sure that there’s no
24 illegal gaming in Chicago.
25 I guess my question would be we can all assume 52
1 why they opted out. I guess my question would be how
2 strictly and how hard did law enforcement push for the
3 illegal operations that were taking place in Chicago?
4 MR. JENSON: Well, I can tell you that we've
5 worked with the Illinois Gaming Board and the Chicago
6 Police Department to round up several gray games in the
7 Chicago area. In addition, the Chicago Police Department
8 has confiscated sweepstakes games if you guys are familiar
9 with them. It is a priority strictly because there are
10 lots of communities that neighbor Chicago that have
11 legalized video gaming, and those people have invested, as
12 John mentioned, significant sums of money in this legalize
13 gaining practice and they can't allow for illegal games to
14 be present a few blocks over in another jurisdiction.
15 So there is a tremendous amount of self-policing
16 that is going on within Illinois right now. If the Gaming
17 Board were here today, they would tell you that they
18 average dozens of calls every day about people complaining
19 about certain things. When we first had video gaming
20 become legalized, most of those calls were about, oh, the
21 bar down the street has the gray game; please go fix that.
22 There was definitely a concerted effort.
23 REPRESENTATIVE KNOWLES: Thank you very much, the
24 three of you.
25 And thank you, Mr. Chairman. 53
1 MAJORITY CHAIRMAN PAYNE: Thank you.
2 And, Mr. Jenson, just move the mike a little bit
3 closer to you.
4 MR. JENSON: Sorry.
5 MAJORITY CHAIRMAN PAYNE: There you're good.
6 Representative Kortz.
7 REPRESENTATIVE KORTZ: Thank you, Mr. Chairman.
8 Thank you, Mr. Jenson, for your testimony.
9 How does the Illinois law address the legal
10 operator who starts to go to the dark side? Let me present
11 a scenario. He has four games that are all legal and
12 everything's above board but there's one that sneaks in the
13 back door that's still the gray game. And has that
14 happened?
15 MR. JENSON: Well, it hasn't happened but I'll
16 tell you what did happen, which is we had some operators
17 that became licensed as terminal operators but they weren't
18 allowed yet to put the legalized VGTs on the street, so
19 many of those people would continue to operate their gray
20 games in that limbo period. The Gaming Board found
21 evidence that this had occurred and proceeded to have
22 disciplinary actions against these people and actually
23 revoked their terminal operator licenses. And we've had
24 this happen on a number of occasions. Really I think we're
25 past the period of that happening now, but that was 54
1 definitely an issue back in 2012 and 2013.
2 REPRESENTATIVE KORTZ: If I may follow-up —
3 MR. JENSON: Please.
4 REPRESENTATIVE KORTZ: — if that happens though,
5 if you have a legal operator and then one seeks in the back
6 door, what's going to happen to that guy?
7 MR. JENSON: He's going to lose his license.
8 REPRESENTATIVE KORTZ: He's going to lose his
9 license?
10 MR. JENSON: And that's a felony, absolutely.
11 Yes, any possession of a gray game right now is per se
12 illegal and it's a Class IV felony in Illinois.
13 MAJORITY CHAIRMAN PAYNE: Representative Davis.
14 REPRESENTATIVE DAVIS: Thank you.
15 When Illinois started this, did you guys consider
16 fantasy football at all? From what I heard, they're
17 putting out like $10 million a week on FanDuel.
18 MR. JENSON: Yes, I mean we are always
19 considering in Illinois different variations of gaming.
20 Internet gaming is something that we continue to discuss
21 and fantasy football is a form of internet gaming or it's
22 related. I think that there's certainly room -- I'm a
23 gaming guide -- there's room for all kinds of gaming in all
24 these States, but I think Illinois made the value
25 proposition determination that this was the better way to 55
1 go. It was going to save a bunch of jobs from these
2 amusement operators that were in a dying industry. The
3 establishments that we had were facing a lot of hardship.
4 The smoking ban in Illinois has hurt them. The economy was
5 really bad, and this was a way to get them another revenue
6 stream that was legalized.
7 I can’t say that we would never allow fantasy
8 football. I play fantasy football. But I think Illinois
9 is happy with where w e ’re at right now but it’s something
10 to consider for the future.
11 REPRESENTATIVE DAVIS: Can I just ask, my son I
12 just found out plays this every day.
13 MR. JENSON: Sure.
14 REPRESENTATIVE DAVIS: Isn’t that illegal? It’s
15 legal but you have to be to 21, right?
16 MR. JENSON: You have to be 21 certainly and
17 there is -
18 REPRESENTATIVE DAVIS: And who gets all that
19 winnings? Who gets all that money, the operator?
20 MR. JENSON: Yes.
21 REPRESENTATIVE DAVIS: Wow. So the State or the
22 Feds don’t get anything across the country?
23 MR. JENSON: That is not a well-known program.
24 It’s in the beginning stages of being known.
25 REPRESENTATIVE DAVIS: Okay. So I have to have a 56
1 talk with my son.
2 Thank you.
3 MAJORITY CHAIRMAN PAYNE: I think he was saying
4 maybe after the hearing he’ll talk to you all.
5 REPRESENTATIVE DAVIS: I shouldn’t have said it
6 on TV.
7 MAJORITY CHAIRMAN PAYNE: Yes, strike that part
8 from whatever you just asked, yes.
9 Representative Diamond.
10 REPRESENTATIVE DIAMOND: Thank you, Mr. Chairman.
11 I have three quick questions. I ’ll try to ask
12 them quick and -
13 MR. JENSON: Sure.
14 REPRESENTATIVE DIAMOND: -- you can answer them
15 quick. You said there were 4,600 establishments roughly in
16 Illinois. Can you tell me how many people actually needed
17 to have background checks done roughly, and was that all in
18 fact paid for by license application fees, that sort of
19 thing?
20 MR. JENSON: Yes. I mean I will tell you I don’t
21 know that the number of people, but thousands, probably 10
22 to 20,000 different applications, and it was all hopefully
23 paid for by the application fees, that’s correct.
24 REPRESENTATIVE DIAMOND: All right. Can you
25 clarify what you meant when you’re talking about 57
1 inducement? And at the same time I know that here there’s
2 like a very, very bright line between the Legislature and
3 casino operations. Is there a similar bright line proposed
4 in Pennsylvania between the legislature and the legislators
5 and their families and ownership or stakes in any of this
6 aspect of these businesses?
7 MR. JENSON: Well, I ’ll tell you that part of the
8 application requires disclosure to be made if you are an
9 elected official or related to an elected official. The
10 Gaming Board needs to know about it. It does not
11 necessarily preclude you from being part of it but it is
12 something the Gaming Board would consider.
13 REPRESENTATIVE DIAMOND: Okay. And finally, for
14 the folks who are being proposed to provide the machines to
15 the locations, is there some sort of licensing or
16 territorial rights that you hold that would become
17 increased in value as a result of this that then becomes
18 part of the value of your business? Besides just the fact
19 that you’re making more money selling these machines, is
20 there some sort of license that you hold, some sort of
21 territorial rights that you hold that you can then pass on
22 to a buyer of your business at some point?
23 MR. FRITZ: No. There’s no territorial rights.
24 It’s only the relationship that we as operators have with
25 our customers that would keep us in the locations and keep 58
1 someone else out.
2 REPRESENTATIVE DIAMOND: So, in other words, if
3 this comes on board and we do this in Pennsylvania, anybody
4 could set up a business right next door to you to compete
5 with you and there’s no license they have to buy? There
6 was like no buy-in like a liquor license or anything like
7 that, nothing equivalent to that?
8 MR. FRITZ: They would have to apply the same way
9 we would, go through the background checks. They wouldn’t
10 be like a liquor license.
11 REPRESENTATIVE DIAMOND: Okay. All right. Thank
12 you.
13 Thank you, Mr. Chairman.
14 MAJORITY CHAIRMAN PAYNE: Thank you.
15 Representative Hahn.
16 REPRESENTATIVE HAHN: Thank you, Mr. Chairman. I
17 have two questions.
18 And I think, John, I just want to make sure,
19 you’re saying now when you go into a restaurant, they had
20 the machines there and it says for amusement purposes only,
21 but you’re saying that under this law they couldn’t have
22 them at all?
23 MR. MILLIRON: That’s correct.
24 MR. JENSON: That’s right.
25 REPRESENTATIVE HAHN: All right. 59
1 MR. MILLIRON: That's a generalization but -
2 REPRESENTATIVE HAHN: Right.
3 MR. MILLIRON: -- basically those machines where
4 you see "for amusement only,” that's the red flag.
5 REPRESENTATIVE HAHN: I understand but I'm just
6 saying so that -- okay.
7 MR. JENSON: They're not going to stop you from
8 having Pac-Man and some of those, but the slot machine
9 games you see, they're going to be gone.
10 REPRESENTATIVE HAHN: Or like the video poker
11 machine, okay.
12 And has Illinois done any data or any studies on
13 the social aspects? When you talk about, well, you go to a
14 casino, that's a destination. You go and you're going
15 there, you know you're going to gamble, that's one thing,
16 but now you're taking your family out to dinner and you're
17 sitting there and you say, oh, well, until the appetizers
18 come, I'm going in the room and I'm going to play poker and
19 then you never come back to dinner. Now there's fights and
20 you're losing the money that you had for the dinner.
21 Having they looked into any of that?
22 MR. JENSON: Yes, it is fair to assume we've
23 looked into it definitely. I'm not sure there's been an
24 actual study prepared. But I will tell you that we do have
25 the opportunity for municipalities to opt out of this law. 60
1 I don't remember the last time a municipality did opt out.
2 Every day we get municipalities to opt in. And to the
3 extent that we were seeing situations like you described
4 occurring, I think that we would definitely be seeing
5 communities opt out on a regular basis.
6 REPRESENTATIVE HAHN: Casinos have security. Is
7 there any security because of that, you know, people
8 getting into fights, anything at these establishments that
9 are -
10 MR. JENSON: Most of our terminal operators have
11 surveillance cameras that protect the games. There's not
12 any added element of security, and in fact, we really have
13 not had reports of that kind of negative behavior
14 occurring. And again, these games are in these
15 establishments already anyway so it's not like it's night
16 and day when we put the new, nicer, legalized games in.
17 REPRESENTATIVE HAHN: Yes, but I think the
18 difference is if they're in the back and they're quiet and
19 they don't want to draw attention to it; now they're out
20 where everyone's saying it, they're out, the bartender can
21 see them -
22 MR. JENSON: Sure.
23 REPRESENTATIVE HAHN: -- I think it makes it a
24 little bit different. I'm just curious.
25 MR. JENSON: Yes. 61
1 REPRESENTATIVE HAHN: Thank you, Mr. Chairman.
2 MAJORITY CHAIRMAN PAYNE: Thank you.
3 Representative Rozzi.
4 REPRESENTATIVE ROZZI: My question will be
5 directed at Steve.
6 MR. FRITZ: Okay.
7 REPRESENTATIVE ROZZI: I appreciate your
8 testimony about the challenges the business will face. You
9 talked about the 13 employees.
10 MR. FRITZ: Yes.
11 REPRESENTATIVE ROZZI: If something like this
12 passes or goes through, how many employees do you see that
13 you could possibly add to your workforce?
14 MR. FRITZ: With talking with other operators in
15 Illinois, we're about the same size, they've doubled and
16 even tripled their employee base with this because a lot of
17 locations now we go every other week to make collections,
18 once every four weeks and make collections. We're not
19 going to be able to do that. When these machines are out
20 and they're making money, they're going to need to be
21 collected every week. It's going to be a lot more labor
22 intensive, a lot more, you know, setting up, you know, all
23 these machines, getting them connected to the central
24 computer system. It's going to be a lot of work and
25 it's -- 62
1 REPRESENTATIVE ROZZI: So if there’s a problem
2 with the machine, a part of your business is sending
3 somebody out?
4 MR. FRITZ: Yes.
5 REPRESENTATIVE ROZZI: Do you guys work with the
6 career technology educational centers at all where the
7 young students that are coming up that are looking to move
8 into the -
9 MR. FRITZ: Not at this point but it would
10 certainly be a good option. Our guys will have to be
11 licensed by the State to be able to work on these machines,
12 so I will have to be sending anybody that works for us to
13 get this license to be certified to work on these machines.
14 REPRESENTATIVE ROZZI: And, John, do you have
15 numbers from Illinois, total jobs created from this?
16 MR. MILLIRON: I know there’s been an increase,
17 but, Mark, I ’d have to pass on exact numbers.
18 MR. JENSON: Yes, actually w e ’re working on an
19 economic impact study right now by Union Gaming that’s
20 going to have some of that information and we expect it to
21 be available in the next month. W e ’ll get it to you.
22 With respect to your earlier question, I think
23 it’s a great point. A lot of our Illinois operators have
24 newfound relationships with technical colleges all around
25 the State right now where we are bringing on graduates on a 63
1 regular basis to serve in some of these service and repair
2 roles.
3 REPRESENTATIVE ROZZI: Absolutely. That would be
4 a great opportunity for -
5 MR. MILLIRON: One of our other clients -- I ’ll
6 give a pitch here -- are the career and technical schools,
7 the high schools, and w e ’ll be certainly talking to them
8 about some of the regional schools in bigger areas for
9 training because it’s going to be a perfect opportunity.
10 One of the things we sort of mentioned but didn’t talk
11 about much, all the technicians have to be licensed and
12 background.
13 MR. JENSON: That’s right.
14 MR. MILLIRON: They’re the ones that are going to
15 be handling the cash. Steve hopefully will be too busy to
16 be running around collecting the money every day
17 everywhere. The service tech, something happens, the
18 machine goes down, right now we don’t have that, you know,
19 meaning background checks or whatever. So not only are
20 they going to be more of them, they’re going to have to be
21 qualified and they’re going to be better trained and
22 they’ll be better paid.
23 REPRESENTATIVE ROZZI: Exactly, good-paying jobs.
24 MR. JENSON: Yes.
25 MR. MILLIRON: Yes. 64
1 MAJORITY CHAIRMAN PAYNE: Okay. Representative
2 Nesbit, are you -
3 REPRESENTATIVE NESBIT: [inaudible].
4 MAJORITY CHAIRMAN PAYNE: Representative Kaufer.
5 REPRESENTATIVE KAUFER: Thank you, Mr. Chairman.
6 I actually have several questions.
7 I used to work for the casino so I know a little
8 bit about -
9 MR. MILLIRON: There you go.
10 REPRESENTATIVE KAUFER: — the background here of
11 what w e ’re working on. But the first thing I wanted to
12 know, are these machines regulated by the gambling
13 regulators under the same standards as casinos?
14 MR. JENSON: Yes, absolutely. They’re tested by
15 the same independent testing labs. In Illinois we use
16 Gaming Laboratories International, or GLI. There are other
17 States that use BMM. But any machine that you see on the
18 streets in Illinois has been tested and approved by the
19 Gaming Board and GLI.
20 REPRESENTATIVE KAUFER: Will there be
21 surveillance? Is there anything like that in the
22 legislation similar to the casinos?
23 MR. JENSON: Video gaming and casino gaming are
24 different. It’s very hard to have the same type of
25 security. In our Illinois casinos I think every two feet 65
1 is covered by a camera. We don’t have that in video
2 gaming. I will tell you, though, that the vast majority of
3 our operators have set up surveillance cameras on the
4 machines, on the payout device, on the exits, on the
5 parking lot, and it really has helped secure the area.
6 REPRESENTATIVE KAUFER: Getting back to some of
7 the questions I asked before, how many casinos did you say
8 Illinois has? 10 casinos?
9 MR. JENSON: We have 10.
10 REPRESENTATIVE KAUFER: Okay. And what has been
11 the impact of this on the casinos? They were around before
12 this law passed?
13 MR. JENSON: Yes. Our casinos came on in the
14 early ’90s and I mean it’s difficult to say. And again, I
15 mentioned we were doing the economic impact study. One of
16 the things that that study is going to address is exactly
17 what the impact has been on casinos. When you look at
18 Illinois casino revenues, ours have been declining for
19 several years, really since 2008, and it’s the same thing
20 in every other regional State in the Midwest. Our casino
21 numbers go up, they go down based on the economy, based on
22 other aspects in the law. Our smoking ban has hurt them.
23 It’s difficult to blame video gaming for our
24 casinos’ negative numbers when other States that don’t have
25 video gaming are going down by a similar number. I think 66
1 from a commonsense perspective it's hard to say that video
2 gaming hasn't had any impact on the casinos; I'm sure it
3 has, but from an overall perspective, the gaming pie in
4 Illinois is bigger with video gaming than we had before.
5 REPRESENTATIVE KAUFER: Okay. Also, what did you
6 say the breakdown of revenues were in Illinois?
7 MR. JENSON: The State gets 30 percent and then
8 the operators and establishments split the rest. And then
9 the State's 30 percent, 5 percent goes to municipalities.
10 REPRESENTATIVE KAUFER: Well, I just bring that
11 up because in Pennsylvania we have a 55 percent tax on the
12 casinos, so I saw in your testimony, John, that you said if
13 we were to have a 34 percent tax, that would still be below
14 that 55 percent tax that we have on casinos. So I'm
15 wondering what you think in regard to the competition of
16 casinos versus the bars and taverns of similar gaming of
17 the slot style that we're talking about.
18 MR. JENSON: Yes, and again, I'm not certain
19 about the Pennsylvania gaming tax, but in Illinois we have
20 a 50 percent gaming tax for casinos, but it's a graduated
21 rate and actually very few of our casinos are actually
22 paying that 50 percent mark. In video gaming it's a flat
23 30 percent and everyone's paying the same thing, so the
24 dollars are much closer than people would normally think
25 they are. 67
1 The only other thing I'd say about increasing the
2 tax rate to something like a 50 percent or 55 percent flat
3 rate, it's going to make it very difficult on the
4 operators. The operators are 100 percent financially
5 responsible for the games and there is a tremendous amount
6 of capital outlay in the first few years of the operation
7 of the business in terms of repaying those games. And as I
8 think John said, if you have five games and a payout device
9 in an establishment, that's $100,000 per establishment, and
10 if you had 50 or 60 establishments that you're servicing,
11 it's a tremendous amount of money that's upfront. They
12 need the money up front.
13 REPRESENTATIVE KAUFER: Couldn't you foresee
14 this, though, as a problem going forward that you have two
15 different tax rates, one at a reduced tax rate for local
16 and seemingly more convenient locations than a casino at a
17 higher percentage rate, nearly 20 points we're talking
18 here?
19 MR. JENSON: Yes, but I think there's a
20 difference between casinos and VGTs that are in these
21 places. And again, when you look at betting up to $2, it's
22 a much different environment than we have in a casino.
23 There are no limits. Casinos have progressives, they have
24 much bigger jackpots, there are player reward programs in
25 casinos that we haven't seen yet in Illinois and you 68
1 probably won’t see in Pennsylvania right away. There are a
2 tremendous amount of advantages that the casinos have that
3 the video gaming industry doesn’t.
4 REPRESENTATIVE KAUFER: And my last question is
5 you talked about these amusement VGTs being illegal per se.
6 MR. JENSON: Yes.
7 REPRESENTATIVE KAUFER: What would happen to the
8 places that already have these? Can they be converted over
9 to -
10 MR. JENSON: No, those games will have to be sold
11 or scrapped. They will be illegal hopefully to even
12 possess those games in Pennsylvania. That would be my
13 suggestion. And we need a clean slate.
14 REPRESENTATIVE KAUFER: So there’s no way for
15 these places that already have this property? That
16 property is now illegal?
17 MR. JENSON: That’s right.
18 REPRESENTATIVE KAUFER: Okay. Thank you.
19 Thank you, Mr. Chair.
20 MAJORITY CHAIRMAN PAYNE: Thank you.
21 Representative Parker.
22 REPRESENTATIVE PARKER: Thank you, Mr. Chairman.
23 MAJORITY CHAIRMAN PAYNE: And I think w e ’re down
24 to two so -
25 REPRESENTATIVE PARKER: Well, yes, Representative 69
1 Kaufer I think addressed some of my concerns so I'd be
2 interested to see that study -
3 MR. JENSON: Sure.
4 REPRESENTATIVE PARKER: -- because a $500 million
5 figure, I'm just curious how much of that cannibalizes the
6 casino industry revenue, so what the -
7 MR. JENSON: Sure.
8 REPRESENTATIVE PARKER: -- net figure would be in
9 the end.
10 MR. JENSON: Yes, absolutely.
11 REPRESENTATIVE PARKER: Thank you.
12 MAJORITY CHAIRMAN PAYNE: Thank you. What I
13 meant was take your time because we only have you and
14 Representative Costa. I wasn't trying to rush you. I
15 didn't mean two seconds.
16 Representative Costa.
17 REPRESENTATIVE COSTA: I'll make my Chairman real
18 happy. I caught the earlier warning of my good friend and
19 the Chairman to be short, so I'll waive off. I'll catch
20 you at another hearing. Thank you.
21 MAJORITY CHAIRMAN PAYNE: Anybody else?
22 REPRESENTATIVE: I had -- why did Chicago opt
23 out? Is there -
24 MR. JENSON: I mean I can address that. So,
25 first of all, our act was written for an opt-out, so it 70
1 really was everyone was in unless you affirmatively opted
2 out by passing a new ordinance that said we don’t want
3 video gaming, but it wasn’t drafted perhaps as well as it
4 could have been, and the Gaming Board interpreted it in
5 their conservative way to say that really if you ever had
6 an ordinance on your books that prohibiting gambling from
7 occurring, even if that ordinance was from 1929, w e ’re
8 going to respect that ordinance and w e ’re not going to
9 allow video gaming. So Chicago was able to rely on an
10 ancient ordinance that simply prohibits gambling from
11 occurring in city limits. They never actually took the
12 subject up at a city council meeting.
13 We basically had to go municipality to
14 municipalities across the State and convince these people
15 that video gaming was a responsible and economically
16 positive program and we were able to get, as we said, 930
17 communities to say yes to this. And every week that goes
18 by, we are getting more to do it.
19 Chicago I think wanted to see how video gaming
20 rolled out in other jurisdictions. They wanted them to be
21 the guinea pigs. They wanted to make sure that it really
22 wasn’t the bogeyman that people were saying it was going to
23 be, and it’s proven to be that way. It’s become, as I
24 mentioned before, a political issue. The City of Chicago
25 was trying very hard to get its own casino and the State is 71
1 negotiating with it, and I think one of the things that’s
2 been used is video gaming on the side.
3 MR. MILLIRON: The Mayor of Chicago used to be
4 the President’s Chief of Staff. His top priority when he
5 won election was getting a casino in downtown Chicago, and
6 he has certainly put any other competition to the side.
7 Now, after two, three years, again, there’s a serious push
8 from the aldermen to have the issue reviewed, and I know
9 the people in Illinois have been having numerous meetings
10 to separate it from the whole issue of the casino, but the
11 Mayor’s opposition, because of that, was significant.
12 MAJORITY CHAIRMAN PAYNE: Thank you. And I want
13 to thank the Members for attending today, the presenters,
14 and the public. Thank you very much. This hearing’s
15 adjourned.
16 MR. JENSON: Thank you.
17
18 (The hearing concluded at 11:00 a.m.) 72
1 I hereby certify that the foregoing proceedings
2 are a true and accurate transcription produced from audio
3 on the said proceedings and that this is a correct
4 transcript of the same.
5
6
7 Christy Snyder
8 Transcriptionist
9 Diaz Data Services, LLC