Joint Budget Administrative Rule Review Subcommittee
Feb. 16, 2022
L Johnson [00:01:06] So I appreciate everybody here early. It’s 7:35. We’re going to go ahead and call this meeting to order. We have a relatively lengthy agenda with five rules to review today. We’re going to take them up individually and separately. I just want to remind everybody, members of the public that if you wish to comment on a rule, you should go ahead and sign in now to give us the opportunity to call on you at the appropriate time. You want to make sure you specify which rule individually you’re interested in commenting on because we will be taking up each rule separately. So here in a little bit of staff will take up the sign up sheet after we give the people time. The first order of business is going to be to adopt the subcommittee rules. I’m going to make an assumption everybody’s had a chance to review those rules. I’ve got a motion and a second. All those in favor say aye. All those opposed. None. Seeing none, the rules are adopted. Thank you. Appreciate everybody. Again, this is my first time to chair a committee, so I’ll be bumbling through this. But Senator Flippo’s here to hold my hand, which is a great comfort to me. And so that’s good. It’s funny because I’m trying to read what BLR has handed me, but at the same time, I’m also trying to take it up in the appropriate casual form. So next on the agenda are the rules from the Racing Commission. And we’re going to start– if it’s, if it’s OK with the committee, without objection, I’d like to take the rules up in a particular order starting with rule 4, then Rule 6, then Rule 22, then Rule 24, and then we’ll take up Rule 20 last if that’s OK with the committee. Are there any objections to that process? Allright, seeing none, we’ll start with Rule 4. If anyone– let’s see, who’s here to present rule 4? Mr. Freeland and Mr. Smokie Campbell. If y’all could approach the table and identify yourselves for the committee and for the record. Go ahead. If you can introduce yourself for the committee.
Freeland [00:03:34] I’m Byron Freeland, the attorney for the Racing Commission. I have with me John Campbell, the executive director of the Racing Commission.
L Johnson [00:03:41] Go ahead. You’re recognized to present the rule.
Freeland [00:03:45] I hope I wrote these down, since the order was changed.
L Johnson [00:03:48] Four. We’ll start with rule number 4, and I apologize for changing up the order.
Freeland [00:03:51] That’s no problem whatsoever. Most of these rules are non-controversial until we get to the last one. Casino gaming rule number 4 defines communication– well, a little background. When the casino gaming rules were adopted, you had to be present on the premises of the casino to place a sports wager. And the purpose of these rules is to change the casino gaming rules where a sports wager can be placed anyplace in the state of Arkansas as long as you’re physically present, which is consistent with federal law. And so we had to make certain changes to some of these rules. Casino gaming rule number 4, it just defines the communications technology that you can use, authorize the acceptance of sports wagerings from patrons physically present within the state of Arkansas, and no longer requires a patron to appear before a casino employee and show identification. There are other identification things. Like we’ve seen the computers– they have a computer program now and you have to have passwords and your Social Security number or I.D. numbers and things like that for security purposes. But you don’t have to appear before an employee of a casino. So that, those are basically the changes in casino gaming rule number 4.
L Johnson [00:05:10] It doesn’t look like anyone signed up to speak for or against that rule. Are there any questions from the members? Without objection, the rule is considered reviewed and approved. We’ll move on to rule number 6.
Freeland [00:05:24] Rule number 6 is called accounting regulations. And this was internal between the Racing Commission and DFA to specify where certain funds were deposited. There was some disagreement among the staffs about where the rule should be deposited. We worked with the attorneys trying to work out a compromise, and I don’t think there are any, any problems with this. All casino, all fines, renewal fees shall be deposited in the Arkansas Racing Commission cash fund, except the $250,000 initial fee, the 10 year renewal fee. Any fines or penalties levied by the commission, those would go into the state general revenues. All other fees, these would be for license fees for casino employees and vendor employees. Things like that would go into the Arkansas Racing Commission Cash Fund, which could only be spent for the regulation of casino gaming and horse racing. So it just defines where the money goes. There was some controversy. It was an internal controversy. And hopefully this solves that.
L Johnson [00:06:35] It doesn’t look like anyone signed up to speak for or against that. Are there any questions on this rule from the members? I want to remind the members that just procedurally, a couple of things with this committee. One is we don’t need a motion to adopt the rules. The default is the rules are adopted without objection. So if I say, are there any objections and there’s no objections, the rules would be adopted. The other thing I want to remind the committee is, you know, the purpose of this committee is to review each will rule with regard to legality as it, as it stands with state and federal law. So the task of the committee is to ask each rule, is this, does this violate a state or federal law? And then the second task would be does it meet legislative intent. So just as we’re looking at these rules, a reminder that that’s what we’re here to consider today. So are there any objections to rule number 6? So without objection, the rule is considered reviewed and approved, and we will move on to rule number 22.
Freeland [00:07:31] Rule number 22. This refers to parimutuel wagers, off track parimutuel wagers. When we refer to parimutuel wagers that’s generally referring to horse racing. That’s what this is to allow off track parimutuel racing to be conducted with sports wagering where that can be done by anyone within the state of Arkansas, where you don’t have to be present on the premises any more. So it’s a pretty simple rule change.
L Johnson [00:07:59] Then no one signed up to speak for or against this rule. Is there any questions from the members? Are there any objections to the rule? Question, yes, Representative Wooten. Let me figure out how to recognize you.
Wooten [00:08:12] How how can you assure us that these bets are taking place within the state of Arkansas?
Freeland [00:08:19] They have companies that are called geo fencing companies. And I think one of the representatives is out here today. They, they are very convincing that they can tell you someone’s in the middle of the Mississippi River on the side. You have to do it through an approved device to place your wager, which would be basically a computer or a cell phone. You can’t do it by telephone, I don’t believe. So, these– each of these hire a computer– a geofencing company, and they can tell exactly where the bet is placed. And as I said, that’s a federal law. So if they don’t do that, they’re violating federal law, and that’s– hopefully that will be an incentive.
Wooten [00:09:00] So. So you’re telling us that everybody that bets obeys federal law?
Freeland [00:09:06] No, I’m telling you–
Wooten [00:09:07] Are you– OK, let me proceed further. Are you telling– you said it’s very convincing that they can do it, but can they tell you 100 percent for sure that they can tell where every bet is being placed inside the state of Arkansas.
Freeland [00:09:23] I understood them to say they can tell for certain where the bet is placed.
Wooten [00:09:28] For certain.
Freeland [00:09:28] For certain.
Wooten [00:09:29] With all the hacking and cyber problems we have in the world today, they can tell you for certain every person that’s out there is a legal bettor.
Freeland [00:09:38] I think–
Wooten [00:09:39] Is a legal bettor.
Freeland [00:09:41] I mean, as certain–
Wooten [00:09:41] Is a legal bettor. Would you say yes or no to that?
Freeland [00:09:44] I would say yes.
L Johnson [00:09:46] And Rep. Wooten and committee members, we do have someone here to answer questions specifically about geofencing. We hope to have time for that.
Wooten [00:09:54] Well, let’s have them come forward then.
L Johnson [00:09:57] We, we can certainly have–
Wooten [00:09:58] I ask that they–
L Johnson [00:09:59] –the come forward now.
Wooten [00:09:59] I ask that they come forward.
Freeland [00:10:00] He is very convincing
L Johnson [00:10:03] And I’m happy to have him come forward and visit, but as we’re reviewing each rule–
Wooten [00:10:10] Wait, this is a review of the rule. They made the rule. They say that they can do it, Mr. Chairman,
L Johnson [00:10:15] I understand. We can have them come forward. That’s fine.
Freeland [00:10:22] I know how to turn the computer on, and I use my cell phone to make calls.
Wooten [00:10:26] That’s about all I do, too, but.
L Johnson [00:10:31] If you can go ahead and have a seat at the table, identify yourself for the committee.
Dorenzo [00:10:39] Mr. Chairman, thank you for having me. My name is Danny Dorenzo. I’m a senior director of government relations for GeoComply. GeoComply is a company that provides the services we’re talking about for basically 100 percent of the online gaming market, as well as I-casinos, horse racing, I-lotteries across the country. We’re licensed in every state that offers these products, and we’ve been involved in this business for the past 10 years, conducting billions of geolocation transactions across the country. We are constantly testing our products to make sure that they’re working. We are constantly trying to hack our own products to make sure that we are staying up to date with the most cutting edge technologies to do so. But to answer your question, sir. Nothing in this world is 100 percent. I would never sit here–
Wooten [00:11:31] So, you can’t tell us for certain that you know where everyone is betting.
Dorenzo [00:11:36] I can tell you for certain that–
Wooten [00:11:38] No, that’s not what I asked. Again, you said you cannot tell us for certain you know where every person is betting in the state of Arkansas, that they are placing the bet legally within the state of Arkansas. Is that what you’re saying? That’s what you said.
Dorenzo [00:11:57] Yes. And what I’m saying is–
Wooten [00:11:59] That, that’s all I need, Mr. Chairman. Thank you.
L Johnson [00:12:05] Are there any other questions?
Freeland [00:12:08] I think it’d be instructive— he said how they do this.
L Johnson [00:12:12] Yeah, yeah. If the committee is interested in that, I’d be happy to give you some time to do that now.
Dorenzo [00:12:16] Thank you, sir. I appreciate it. Thank you. GeoComply is a global leader in geo location technology. Currently, the company currently supports regulated online sports betting, casino poker, I lottery, advanced deposit horse wagering and daily fantasy sports operators in 48 U.S. states to ensure compliance with federal and state laws. GeoComply is an approved geolocation service provider in every state that offers online sports betting and gaming. Our software is validated by both government and independent testing laboratories, and each day we process upwards of 30 million geolocation transactions. In fact, this past weekend, Super Bowl weekend, we processed over 88 million geolocation transactions across the country. And at one point we were averaging 8,000 geo location transactions per second. Our company was founded solely for the purpose of delivering a geolocation system to support the U.S. internet gaming market. From the company’s inception, we recognize the challenge facing US interstate gaming and the need for high caliber technologies to act as the legal enabler and safety net for interstate gaming. Our technology enables online operators and regulators to meet the demands of federal law, such as the Wire Act, unlawful Internet Gambling Enforcement Act, and the sovereignty of states that choose to opt in or out of online gaming. Members of this committee may be familiar with location data sources such as GPS, Wi-Fi and cell towers. In fact, this data is used to power many useful consumer applications, such as Google Maps, Uber and placing an online coffee order at your closest Starbucks. However, the big difference between these open door consumer tools and compliance grade geo geolocation technology that we deploy is the way in which we interrogate that data that we are relying on to geo locate a device. We cannot simply rely on IP address to determine a player’s location. In fact, we dig far deeper. Our technology analyzes data sources based on a combination of Wi-Fi, GPS, cell tower, IP and Bluetooth technology to verify a player’s location. GeoComply technology detects and blocks the use of location spoofing methods such as proxy servers, VPNs, remote desktop software, virtual machines, mock location settings, developer tools, and the list goes on and on. We employ the full time teams in multiple countries that keep up to date on the latest spoofing technologies available, and we regularly adjust our systems to detect them. By the time GeoComply’s System approves or denies a geolocation transaction, it will have been subjected to over 350 analytical checks to verify that only legal bets are permitted. All these controls are easily implemented as long as there is a requirement and expectation for them to be present. As per technical guidelines that we still need to develop the in state of Arkansas. To help illustrate how geo geolocation technology works in regulated markets, we have a live demonstration of our pin drop, pin drop map on display for you. As you can see, this is live gaming activity that is occurring right now in your neighboring state of Tennessee. Each pin that drops represents a real time geo location transaction. The white pins represent mobile devices running iOS operating systems. The green pins represent Android devices, mobile Android devices, and the blue pins represent PC or Mac. So we’re talking about desktop or laptops. Obviously, the red pins would then represent geolocation transactions that we are failing. And in the neighboring state– in your neighboring state of Tennessee, where GeoComply supports 100 percent of the online gaming market, approximately 38 percent of all sports betting traffic originates in Memphis. As you all know, that’s just within miles of your border. Nearly 40 percent. This highlights the importance, but also the effectiveness of pinpoint accurate geolocation technologies to be able to allow for that border play and also prevent those close to the border, but on the outside, from being able to wager. By looking at current daily fantasy sports traffic here in Arkansas, which we also support, we can see that 26, 26 percent of your users in daily fantasy sports are within 10 miles of your borders on the inside of your borders, pointing to the fact that effective geolocation will essentially protect the future of sports wagering revenue here in Arkansas. I already described what these pens mean. I can zoom in a little bit here so we can see a little bit closer to your border area of Memphis, where you can see a lot of activity right on the border. And at some point, as I’m speaking, you might in fact see, and it’s not uncommon to see a red pin drop in your own state of Arkansas, which would be a failed geolocation transaction because somebody from Arkansas is trying to access a Tennessee sportsbook. If that happens, somebody shout it out and I can explain it to you. There it is right there. West Memphis. And if we click on it, you can see it says this user does not appear to be within an inclusion zone. Our inclusion zone would be the Tennessee border. That user’s not inside that border. They failed that transaction. That’s real time, probably happened about 15 seconds ago. I appreciate the opportunity to address the committee here today. Thank you for having me, Mr. Chairman. And I’m happy to address any questions that you all may have.
L Johnson [00:18:03] Thank you for the presentation. Are there any other questions from committee members? Senator Johnson, you’re recognized.
B Johnson [00:18:15] Just a question, this is like the policing agent for our gaming, right? This is what we’re going to try to keep this within our borders, right?
Dorenzo [00:18:25] Yes, sir. In fact, we work very closely. In fact, that’s all I do. Let me back up a second. I retired– I was a special agent for the United States Secret Service for over twenty two years. I retired a couple of years ago and started working in gaming. In fact, I was a sports gaming regulator in Tennessee, and that’s where, where I live now. My entire job with GeoComply is to work with state regulators in every state and make sure that they have these tools that I’m showing to you right now to monitor wagering traffic in that state and make sure they’re compliant with both Arkansas state laws but also with federal laws
B Johnson [00:19:03] Those interstate commerce laws, if, if there is a wager outside of the state, who’s the illegal party? The person making the wager or the state of Arkansas?
Dorenzo [00:19:14] So there’s a whole litany of answers to that question and multiple layers, right? The Federal Wire Act criminalizes interstate transmission of wagering signals. So technically speaking, the person placing that wager would, would be in violation of the Federal Wire Act. There’s also a whole litany of laws and regulations that would hold the sportsbooks accountable for that type of activity.
B Johnson [00:19:39] But if we have a system like this, which is the best we can do, has that ever been prosecuted on the state?
Dorenzo [00:19:51] Yes. In fact, I myself as a, as a federal law enforcement officer, have charged Federal Wire Act violations in illegal gambling cases. Absolutely. But the manner in which those schemes are carried out is not to break or hack a geolocation system. It’s things like proxy betting where Senator, if– I’m sorry, is it senator– if you’re in the state of Arkansas where it’s legal to wager and I live in the state of California, where it’s illegal to wager, I’m not actually placing my own bet from California. I’m calling you on the phone to place that bet for me, right? Does that make sense?
B Johnson [00:20:35] Yeah. All right. Thank you.
Dorenzo [00:20:38] Yes, sir.
L Johnson [00:20:40] Are there any other questions from committee members? Representative Eaves, you’re recognized.
Eaves [00:20:46] Yeah. Is it your software or the sports book’s or who, whose that would determine if these bettors are of the proper age?
Dorenzo [00:20:58] That is the– proper age goes to identity verification and kind of a know your customer process. And that is– we, we, GeoComply does have a know your customer product separate from our geo location products. And I believe essentially it’s up to the operator to sign those commercial agreements with whatever KYC vendor they are going to use to determine that age and identity verification.
Eaves [00:21:27] Thank you.
Dorenzo [00:21:28] Yes, sir.
L Johnson [00:21:31] Any other questions? Are there any other questions regarding the rule itself? OK, without objection, the rule is considered reviewed and approved.
[00:21:44] I object.
Wooten [00:21:45] I object.
L Johnson [00:21:45] I’ve just seen an objection. There’s a process for that. We need a motion to vote on the basis of whether the rule either is inconsistent with state or federal law or inconsistent with legislative intent. So I’ll need a motion specifically as to, as to how– and that is to take a vote on whether we’re going to take a vote to approve the rule. So the first vote? First of all, I need a motion specifically with regard to, does it violate state or federal law or does it violate legislative intent?
[00:22:22] I move both of those.
L Johnson [00:22:26] So I’m being told you need to state your specific grounds. And I will say that with regard to legislative intent, a reminder to the committee, this was a constitutional amendment referred to by the people, to the people. And so there is the question of whether legislative intent is applicable since this was not a legislative law, but was a constitutional amendment. So just in a reminder of that, that’s– you don’t have to object based on legislative intent. You can object based on state or federal law, but I’m being told you have to state your basis specifically for the objection as it pertains to the rule we’re addressing.
[00:23:02] So I can’t just say I object on all grounds? So I object on the first one, whatever it was.
L Johnson [00:23:11] And so, again, as I’m being told by the Bureau that you need a specific reason why you think– why it violates federal law. You have to make the case for, I object because it violates state and federal law on this grounds.
[00:23:28] Violates that law about the [unintelligible] stuff. I don’t know. That’s all right. I’ll just vote no.
L Johnson [00:23:35] OK. And Representative Wooten.
Wooten [00:23:40] I object. I object based– I object.
L Johnson [00:23:43] Just a second. Hold on, representative Wooten. You’re recognized. Sorry, I forgot to turn on the microphone.
Wooten [00:23:48] Thank you. I object on the grounds that did the constitutional amendment that created the right to be able to build these so-called places of gaming and casinos, if you will, did that constitutional amendment say, include this type of wagering outside? Did it give the authority to the Racing Commission, to the Legislature or anyone else to establish off-site betting? Did that Constitutional amendment do that? Refresh my memory.
Freeland [00:24:23] It does. Constitutional amendment 100 defines casino gaming as playing the cards, dice, and includes sports wagering.
L Johnson [00:24:33] So Rep. Wooten–
Wooten [00:24:33] Does it–
L Johnson [00:24:33] Rep. Wooten–
Wooten [00:24:35] Let me–
L Johnson [00:24:36] Rep. Wooten–
Wooten [00:24:37] Let me finish.
L Johnson [00:24:37] If you will, let me interject. You can make an objection on any grounds you’d like. If you want to object on the grounds that you think it–
Wooten [00:24:43] Well, I want to know what we’re voting on. I want to know what we’re approving here. Are we approving something that’s Constitutional?
L Johnson [00:24:49] Senator Irvin, you’re recognized for a point of order.
Irvin [00:24:51] Point of order. We have closed the question period. Is that correct, Mr. Chair? And we are at the point you have already ruled without objection that this rule is approved. At this point, a member cannot ask any more questions. You can make a motion to object to the chair’s ruling. So you can make a motion to object on your grounds of objection.
L Johnson [00:25:17] Correct.
Irvin [00:25:17] You don’t think it’s this or–
Wooten [00:25:18] I make a motion to object just like the other senator did. I apologize. I don’t mean to offend anyone. But you need to keep in mind every time we do something like this, we’re driving a moral stake through the moral spirit of this state.
L Johnson [00:25:33] Again, Rep. Wooten– Rep. Wooten, you’re recognized–
Wooten [00:25:34] [00:25:34]I object based on–
L Johnson [00:25:35] Rep. Wooten, you’re recognized, you’re recognized for your objection. The only, the only point is you have to specifically object– so if I understand the question correctly, you’re objecting based on the grounds it violates the Constitution.
Wooten [00:25:47] Yes.
L Johnson [00:25:48] That’s a fair objection. Senator Chesterfield, you’re recognized. Yeah, sorry, my mic was on. We were voting– members, please, there’s a vote before the committee. We’re voting to approve the object– to sustain the objection to the rules. That’s the first vote.
Chesterfield [00:26:25] If we vote yes, then we’re sustaining the objection?
L Johnson [00:26:29] Correct, correct. If the vote is no, then the rule is approved. If the vote is yes, then we will have a second vote on whether to approve the rule. OK. Sorry. We need a second. I see Senator Teague, you’re recognized for a second. So we have a motion and a second. All those in favor say aye. All those opposed say no. The no’s have it. It’s my first time to chair, but I’m going to call that one. Yes. So without objection, now, the rule is considered reviewed and approved. So we’ll move on to the next rule, which is rule number 24.
Freeland [00:27:41] Rule number 24 is another rule that just deals with whether the patron has to be present on the casino premises. And it was changed to make the requirement that they be present, physically present within the state of Arkansas. So that’s basically the only change to rule 24.
L Johnson [00:27:58] No one signed up to speak for or against Rule 24. Are there any questions from the members regarding Rule 24. Seeing no questions, without objection the rule is considered to be reviewed and approved. And we’ll move on to rule number 20, which is the last rule for us to review today. We do have some people signed up to speak for and against this rule. If you want to start by presenting the rule, that would be great.
Freeland [00:28:22] Rule number 20 is the rule that contains one or more controversies– that were controversial and brought out public comments. Rule number 24 contains a provision that, “operation of an online sports pool shall be prohibited in circumstances in which a majority of the net casino gaming receipts as defined in Amendment 100 is paid to a third party vendor assisting in the operation of the sports pool.” And that, that provision drew the most comments, and I’ll talk about it. And the other provision is, it limits the sports books to no more than two. So Southland or Oaklawn or Saracen can have two sports books. They’re not limited to one. They can have two. It would be advertising and fighting for that business. So it allows them to have two sports books. The major controversy is over the operation of an online pool where the majority of the casino gaming receipts as defined in Amendment 100 is paid to a third party vendor. The theory there is that Amendment 100 defines sports wagering as part of casino gaming. Only a licensed casino operator can do casino gaming. And so it’s the theory is, there’s a constitutional argument here that it’d be contrary to Amendment 100 if you allowed a third party to conduct to get paid more than 50 percent of the gaming proceeds, they would in effect be operating the casino sportsbook. So the theory is that only a licensed casino operator can do sports wagering. So if you allowed someone to receive more than 50 percent, the argument is that that’s contrary to Amendment 100, because the person who’s receiving more than 50 percent is operating the sports wagering. And so the rule was drafted that requires anybody who is a vendor, that they cannot be paid more than 50 percent of the other proceeds. And this, this rule was supported by the casinos themselves, the Arkansas casinos. And it keeps the money in the state of Arkansas. And we had a hearing where the casinos brought in witnesses and they had added 700 jobs or more each and millions of dollars in the state of Arkansas. And the Racing Commission wanted to go with the Arkansas sports casinos in this instance to allow them the shot at this. And nothing is concrete. You know, I think the Commission has said, if this doesn’t work, it’ll become obvious after we begin, and then they can look at a different, a different tactic. But at this point in time, the rule states that you can’t, you can’t pay a casino gaming vendor more than 50 percent of the net gaming proceeds.
L Johnson [00:31:30] OK, we do have some questions from some members. There’s several queuing up. We’ll start with Senator Irvin. You’re recognized for a question.
Irvin [00:31:37] Thank you, Mr. Chair. Representative Wooten did have a very good question. And I didn’t mean to cut you off, Representative Wooten. But his question was in regards to the Constitution and the constitutional amendment that the people of the state of Arkansas voted on. And what you just said validates that Amendment 100 does define the ability to wage. Is that correct? And that it would have to be a casino operator that would be in charge of that wagering? Is that correct?
Freeland [00:32:08] Well, it don’t say in charge. It just authorizes them to operate, to do casino gaming, which is defined as sports wagering also. But you have to have a casino license, and there three at this point.
Irvin [00:32:20] OK. And could you just remind me, when was this voted? When was this constitutional amendment passed?
Freeland [00:32:26] 2018 is my memory. I’m doing that from memory, but I think that’s correct.
Irvin [00:32:30] OK. All right. Thank you.
Freeland [00:32:33] I’ve got the amendment in here. If I’m wrong, I’m looking it up.
Irvin [00:32:38] All right. Thank you.
Freeland [00:32:40] Yeah, it’s November. Yeah, November 14, 2018. Well, it was approved November 6, effective November 14, 2018.
Irvin [00:32:50] OK, thank you.
L Johnson [00:32:52] Senator Davis, you’re recognized for a question. Oh, sorry, sorry, you’re in the wrong seat. And now– hold on, I’ll recognize you. Senator–
Teague [00:33:02] I can’t even read this morning. So did you say two? You are authorizing two? So, aren’t we going to have a third one?
Freeland [00:33:12] Well, at this point, the rules authorize two sports wagering vendors, and that would be someone who would come in to aid the casino in doing sports wagering. So they would have the ability to have up to two.
Teague [00:33:29] So when the new one opens up, does it get grandfathered in or or is it just going to be locked out?
Freeland [00:33:37] No, when the new casino opens up, the casino gaming rules, as written, and if adopted today, apply to the new casino.
Teague [00:33:45] OK, thank you. Thank you, Mr. Chairman.
Teague [00:33:51] Representative Wooten, do you have a question? You’re recognized.
Wooten [00:33:54] Thank you, Mr. Chairman. On the– Item C in the book, it makes the statement, no financial impact is– occurs. What is that a measurement of? Is that a measurement on state finance, on state expenses, or is that a measurement on the toll that takes on family income? What’s, what’s the financial impact?
Freeland [00:34:26] Financial impact, when we were filling out this form, we thought it meant that it doesn’t cost the state anything. They’re not paying money for it. The financial impact, the state of Arkansas would not be paying $100,000 or $20,000 to anything.
Wooten [00:34:40] So. So it doesn’t, it doesn’t include any social impact relative to families losing money or, as Dr. Jack Sternberg pointed out, it’s the best way in the world to lose every bit of money you’ve got, as he pointed out in this, in this statement.
Freeland [00:34:58] Right? You’re correct.
Wooten [00:34:59] Are you– are you aware, are you aware that there’s 8 pages of opposition to this and only 4 for it and all of it’s coming from the wagering and gambling people?
Freeland [00:35:13] Yeah. Definitely.
Wooten [00:35:14] OK.
Freeland [00:35:14] We turned in a copy of all the–
Wooten [00:35:17] OK, did you read, did you read Deb Thompson’s statement, Mark Johnson’s statement and Roger Frye’s statement of those that oppose?
Freeland [00:35:31] I read all of them.
Wooten [00:35:33] You read all of them?
Freeland [00:35:35] Yes, sir.
Wooten [00:35:36] And you still–
Freeland [00:35:36] I re-read them yesterday or scanned them.
Wooten [00:35:40] Thank you. Thank you, Mr. Chairman. Thank you for your patience and the committee. Thank you.
L Johnson [00:35:46] Are there any other questions regarding the rule from members? Seeing no more questions, we do have some people signed up to speak for and against the rule. Mr. Burris, are you here? You’re signed up first to speak against.
Burris [00:36:19] Thank you, Mr. Chair. Thank you, Mr. Chairman, members of the committee.
L Johnson [00:36:24] If you could just state your name and who you’re representing for the committee.
Burris [00:36:27] Yes, sir. My name is John Burris, I’m with Capitol Advisors Group. We represent a coalition of sportsbook companies, some of the brand names you probably would recognize like FanDuel, DraftKings, et cetera. I will do my best to be quick. This is never a fun thing to do. Believe it or not, it’s not fun to sit here and speak to you all. You’re here for fiscal session, not here to deal with this kind of issue. And it’s not fun to oppose a lot of people who are friends. But, but here we are. You know, I’ll try to provide a little bit of context for this debate, but then explain why we believe in the end, the rule as written is inconsistent with the Federal Commerce Clause that states that, essentially, in my layman explanation that a state cannot discriminate against an out-of-state interest to the benefit of an in-state interest. I think it was, it was clear that that was the intent of the rule here. This has been a behind the scenes debate largely for the past couple of years at the Racing Commission level. Back sometime– originally, it was decided that while the amendment allowed for onsite sports– or for sports betting, the decision was made in the rulemaking process in 2019’ish to require that to be onsite at the casino. Back in the fall, the governor came out and said that he supported moving that to offsite and to allow for any where. A lot of that’s because our neighboring states are moving in the same direction. This is a pretty competitive marketplace across the country. So then the process of drafting the rule started. As was stated, casinos helped craft a rule that included this provision that the folks that I work with believe will in the end not provide a competitive marketplace for consumers. So, we weave in and out of the policy discussion here, you know, but I’ll largely try to stay focused on that Commerce Clause piece. You know, I want to say near the beginning, it’s not– I do regret the way this debate has shaped up in a way about kind of an us versus them mentality, to the point made earlier. Everyone agrees that the Arkansas licensed casinos have to be in operation to sportsbook. It’s not a dispute. The Arkansas Constitution requires it. Only the four licensed casinos are allowed to offer sports wagering. What we’re asking for is to be able to go negotiate our own contract with those casinos to be a subcontractor and a third party vendor without the state putting their finger on the scale of dictating a profit margin. And that’s what this rule does. So, I’ll reference some Commerce Clause and dormant Commerce Clause reasoning. We looked at– there’s a substantial amount of Eighth Circuit Court law and Supreme Court case law that lays out when a litmus test for when there can be Commerce Clause violation. I’ll quote one of the rulings from the Supreme Court that’s often quoted by the 8th Circuit, and it’s that interstate commerce fail– can be a violation under three scenarios. I think two of them apply here. One is just– when discrim– this is quoting– when discrimination can be discerned where the evidence in the record demonstrates the law has a discriminatory purpose. If you watch the Racing Commission meeting, I bet out of state was said about 50 times. If you read some of the letters sent to oppose this rule and make the in-state casino argument, they say in writing that the intent is to keep out of state interests out and keep the revenue at the Arkansas casino. So I want to repeat over and over again that every dollar, no matter what, even if I get exactly what I’m asking for, every dollar has to flow through an Arkansas casino through their operation under their control. That is not in any way in dispute. But the reason I quote the case law is because it became evident through the testimony and then throughout really the whole process that the intent is for there to only be the in-house one, one offering by the Arkansas licensed casinos and with the intent of keeping out third party vendors. And I think that case law that I quoted, I’ll read it again, that according to the Supreme Court and the Eighth Circuit, when discrimination can be discerned where the evidence in the record demonstrates that the law has a discriminatory purpose, there is a dormanCommerce Clausese violation. There’s also– and there’s lots of other case law. I’ll reference one more. There’s a majority opinion written by Justice Kennedy at the U.S. Supreme Court that talks about the application of, of boards and commissions and antitrust violations, where he says that the application is, quote, flexible and context dependent. And the reason for that is because obviously regulators or governments, lawyers have gotten smart over the years. You can’t write a rule that says out of state, not allowed; in state, allowed. They’re written in a way that’s facially valid but has a discriminatory purpose. And I believe that that’s, that’s what occurred here. One note that was not presented in the presentation by the commission. Their argument was that Amendment 100 requires that the casino licensee conduct the gaming. Again, I’d say no one disputes that. I, no matter what, my client has to go beg one of the three casinos for the right to do business in Arkansas. Absolutely no matter what. Again, what we’re asking is for the state not to put a finger on the scale of dictating a profit margin. But what was not discussed yet was that there’s an attorney general opinion that came out after the Racing Commission meeting that speaks to the requirements of Amendment 100. I have 25 copies here. But it says very clearly that there is no requirement in Amendment 100 for a mandated profit share. It says it is silent. There’s no statutory requirement. There’s no rule and reg requirement. It’s completely silent. So the premise of the rule or the premise of the sentence, you know, was because in theory, it could be a violation of Amendment 100 if a third party vendor received a majority of the revenue, and therefore this was a requirement of Amendment 100. And that’s as it was presented to you a moment ago. But the Attorney General’s Office makes it very– the attorney general opinion makes it very clear that that’s in no way a requirement. We proposed a better way. And I’ll come close to a conclusion here. But to hammer a point home, again, absolutely no one disputes that only the Arkansas licensed casino can offer a sportsbook. We acknowledge that there’s always room for increased clarity on who’s in control. You know the need for this revenue, the profit share mandate, which no other state does, by the way, was because confusion over making it clear who is in control of the gaming. So what we have proposed is instead of a profit share, which the attorney general’s opinion says is not relevant to the discussion, the good news is a much simpler solution is to use a definition of control that’s in the Racing Commission rules and regs today. And I’ll read it to you. It says that control, as defined by the Racing Commission, the term control, including control and controlled by, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or by otherwise. So if you look at the rule at the end where it says, the sentence that starts further, you know, but instead of saying paid a majority of the profit, essentially, simply say that the casino licensee must retain appropriate control, as defined by the rules and regs already. And we can compare it a lot to like a general contractor, a lot of subcontractor agreements, where you usually hire a subcontractor because they’re turnkey, right? If you’re a general contractor and you hire an electrician, they may be getting paid a majority of that money from the homeowner or whatever the scenario is, but the general contractor is still the general contractor, you hired an electrician because that’s the work they do. You can Google any other– any state that allows sports betting in the country, including several of our neighbors right now, and without any effort at all find dozens of stories of sportsbooks partnering with casinos every day. Louisiana is a great example. It didn’t have to be this complicated, and in the end, we think that the rule as written is inconsistent with the Federal Commerce Clause. We want to be able to go negotiate our own contract and convince them that we’re a good partner and no one disputes– the crazy part about this is they can say no, and we cannot do business. They are in complete control. If they think it violates Amendment 100, they don’t sign a contract. If they don’t like me, they don’t have to sign a contract. We cannot do business in Arkansas without a casino partner. We just want to be able to negotiate– hope over time that market pressure and consumer demand will allow us to make our case. And when we do, we want to be able to negotiate a contract without the government having put the finger on the scale on the front end. And we believe in a way that is inconsistent with the FederaCommerce Clausese that prohibits discrimination against an out-of-state interest for an in-state interest. And I’ll close with this, but it’s actually the point I should have made from the very beginning. When I talked about the facially valid component of this, why it’s important, they’re going to say that– their argument is essentially that the profit mandate split applies to an in-state sportsbook just like it would an out-of-state sportsbook. Therefore, there is nCommerce Clause violation because no matter where you are as a sportsbook, the same rule applies. It’s a, it’s a– I get the argument. But that’s where I quoted Justice Kennedy about the application being flexible and context specific and the discriminatory purpose. The reality of this marketplace, though, you don’t have to say in-state and out-of-state. The undisputed reality is that every casino is, you know, by common sense an in-state operation, therefore licensed brick and mortars. And it’s acknowledged by the casinos that every sportsbook is out of state. There is no in-state sportsbook now. And so you don’t have to say in-state, out-of-state. All you have to say is licensed casino gets half, sportsbook must pay half or you can’t operate here. And the effect, as it made very clear in the testimony and in the writing, is to discriminate against that out-of-state interest. That, that is our argument of why, in addition to bad public policy, we think it’s inconsistent with the Federal Commerce Clause. You could remedy it by simply asking for clarity and using the definition of control that already exists by getting an AG opinion on Commerce Clause or by, by not approving the rule. We want this to move forward, but we believe, as written, it is inconsistent with the Commerce Clause and case law surrounding dormant Commerce Clause. I’ll be happy to answer any questions.
L Johnson [00:48:01] Are there any questions from committee members for Mr. Burris? Seeing no questions, thank you for your presentation. Next up to speak, this would be for the rule, would be Mr. Saffa if he’s here. If you’d come to the table and identify yourself for the committee. Thank you. So it may be that the three of you have signed up to come to the table together. I’m happy to have all of you come together or individually, however you want to do that. And I didn’t put on my readers– Mr. Abel and Mr. Lancaster, if y’all also want to come to the table and just have all of you identify yourself. I’m happy to hear from all of you collectively.
Saffa [00:48:44] Thank you, Mr. Chairman. I thought it would be useful for there to be a couple of attorneys at the table in addition to Mr. Freeland.
L Johnson [00:48:51] Sure.
Saffa [00:48:51] And my mother will probably always consider me a failure because I’m not an attorney. So sitting next to me are the attorneys for my competition, Oaklawn and Southland.
L Johnson [00:49:02] Fair enough. If y’all could each just individually identify yourself for the committee and for the record.
Ebel [00:49:06] Yes, sir, Mr. Chairman, I’m Skip Ebel, and I’m the attorney for Oaklawn Jockey Club.
Lancaster [00:49:11] Mr. Chairman, I’m Steve Lancaster–
L Johnson [00:49:13] Yeah, let’s see, I think you need to turn on your mic. And you have a mic to your right, Mr. Ebel. Go ahead, Mr. Lancaster.
Lancaster [00:49:21] Again, Steve Lancaster and I’m an attorney for Southland.
L Johnson [00:49:24] OK. Mr. Saffa.
Saffa [00:49:26] Thank you very much. My name is Carlton Saffa. I serve as the CMO of the Saracen Casino. I look out in the audience today and I see many friends. It’s an honor to be back here today. I’ve not been here in the private sector capacity before, and it’s a little exciting to be back in the building. This meeting is important and it is timely. And again, it is an honor to be here to discuss something as important as this. I want to be clear from the outset that I speak only on behalf of Saracen Development, the owner and operator of the Saracen Casino Resort. We are an Arkansas LLC, with over $300 million invested in Pine Bluff to date and another $150 million in the pipeline. I was the enterprise’s first employee and today we employ about 900 Arkansans, with about 70 percent being local to Jefferson County. It is my understanding that the other casinos in Arkansas are in support of this rule as well. But we have somewhat differing opinions as to some of the more minor details. For example, Saracen did not and still does not support the idea that each casino should have two apps, sometimes called skins. The Racing Commission placed this rule in specifically at the request of the national vendors gathered here today. It is my understanding that was an attempt at a concession to those vendors. The rule today allows two apps per casino, and we have accepted that concession and moved on. But to be clear, that’s not something we would have wanted in there. Again, the casino’s positions may slightly differ, but with each of us at the table together, you can see that we all support the rule for our own reasons. The organizations that we represent compete every day. We compete against each other in a competitive marketplace rightly outlined in Amendment 100. Someday, maybe, there could be a fourth casino in Russellville which could join this competitive marketplace. We compete with table games, slots, food and beverage, entertainment and on and on. But the people outlined a competitive marketplace of no more than four vendors, and I think they did a good job in doing that. As you know, there was a request by the national vendors for a technical correction to this rule, one that admittedly didn’t change the rule in substance, and that has delayed this rule by nearly a month already. That delay caused Arkansans to miss an opportunity to place wagers on the Super Bowl, the biggest sporting event of the year. And this rule addresses something our patrons ask us for every day, and I’m sure you have constituents asking you about every day. This rule is important, but it is also very time sensitive now, and I would ask that you look to this with a sense of urgency. With March Madness just around the corner, should we not proceed today? I’d imagine we’ll all get calls from people around the state asking what is taking us so long. The state will lose revenue from this extension of an already legal business and the casinos will lose what for us would be like Christmas shopping season for a retailer. And this is probably the most important thing I have to say, so if you’ve tuned me out so far, please at least hear this. The question before you today, the reason we’re all here this morning, as you well know, is to review this rule simply to confirm that it is consistent with state and federal law. And the question before you again is simple in scope: is the rule unanimously passed by the agency consistent with the law? I’m confident that the answer is yes, and the Saracen team 900 strong is eager to proceed with mobile gaming, an extension of our existing brick and mortar sportsbook offerings. Sports betting is not new to Arkansas. Saracen has been in the sports betting business since the first day we opened in October of 2019. My friends at Oaklawn took the first legal sports wager in state history. What we are merely talking about is an extension of a legal and existing line of business. I would ask today that you apply the same review practice to this rule as you would to any other rule from any other agency at any other time you’ve met on a rule in this room. No more and no less. I would ask that we not twist ourselves into knots because we could be here all morning with endless what ifs, could be, maybes, and more. Because the same sorts of cherry picked case law arguments that you can toss about are not as dead on as you would be led to believe. Given enough resources, there are people who could argue that today is not Wednesday or that this is the afternoon right now, especially to suit their goals. And again, I’d ask that we view this rule against the task at hand today only. Is the rule consistent with state and federal law, the same standard applied every time a state agency rule is reviewed. There are arguments that this rule might violate the Commerce Clause, or it might violate the dormant Commerce Clause or the kitchen sink or anything else that could be thrown at it. And while I am immediately dismissive of those claims, I respect the lobbyists for the national vendors who are making these claims. You see, they have to make arguments like this because otherwise they are out of options. I get it. The national vendors have before them a unanimously passed rule with broad public support and have no other choice but to invent an argument about legality to stop things. And so that’s exactly what they’re doing. The national vendors realize their only ability to try to stop this popular and unanimously passed rule is to convince you to declare it inconsistent with state or federal law. After hours of testimony, the attempts to halt this rule at the commission level received exactly zero support. And I’ll say it again. The rule before you today passed with a unanimous vote of the Racing Commission. I get it. I do not blame the other side for this Commerce Clause, throw the kitchen sink at it argument and I would try the same thing if I was in their shoes. But none of that makes for a convincing case or a reason for you to view this rule as out of line with the law. This proposed dea–l rule deals even handedly with interstate and intrastate commerce as it does not discriminate between the two. The Arkansas Racing Commission, under Amendment 100, has a clear interest in strict regulation of casino licensees, which are the only entities authorized in Arkansas to conduct sports wagering. There is no distinction in this rule between a vendor from within Arkansas and from outside of Arkansas. None. Geography is not referenced. There is no discrimination. There is no mention of geography. There is no distinction. Neither on face nor in practical effect is this rule in any way inappropriate. I’m near the end here, so don’t worry. Pardon the sports analogy on sports betting, but please know that this Commerce Clause argument is a Hail Mary pass. That’s what it is. I know we’re talking about sports betting, but you had a Hail Mary pass thrown this morning. And I’m asking that you don’t fall for it. Please know that lawyers across the state, not just the ones at this table, but many more, have reviewed the mobile wagering rules and do not have the same conclusion as the national sports betting vendors. Those vendors need to convince you that somehow some way this violates the law. So they’ve created an argument, and that’s their Hail Mary pass today. To sum this up, I’m confident the rule is in line with the law, and Saracen is excited to launch. Should this rule proceed as reviewed, our organization will be live for March Madness and we’re excited, as are our patrons and no doubt many of your constituents. Thank you for your time and again at the table with me are representatives from Oaklawn and Southland.
Ebel [00:56:46] Again, my name is Skip Ebel, and, again–
L Johnson [00:56:49] Excuse me. We’re going to, we’re going to have some questions first.
Dismang [00:56:51] Thank you.
L Johnson [00:56:52] Senator Dismang, you’re recognized for a question.
Dismang [00:56:54] You know, I had no intention on hitting my mic today. But you know, we’re friends and I just want to say how much I appreciate the lecture on both the constitutional amendment I drafted and the, and the law following that set up this process. I mean, I will say this. And I’m not sure that I disagree. I really don’t disagree on whether or not this, you know, objects to or is not in line with federal, state law. But I– one thing I will say because I don’t want the members to walk away from this committee thinking they don’t have the right, you do have the right to ask questions and try to get an understanding of where the law or the proposed rule originated from and what its impact is going to be. And so we may be bound by not being able to actually, you know, take a position because it may not violate federal or state law or be in contrast to. We do have the right to ask that question or those questions. So this is mine. One, when I look at it, I’m still a little bit uncertain of why the rule is written at 50 percent of revenue. Nothing to do with FanDuel or anybody else. Why is that? And so when I, when I look at the rule, the only thing that I can get back to is– and this is really what I want to know from the commission or even y’all. I mean, you already have the latitude to work with who you want to. The Constitution provides that. Now there’s this injection of 50 percent of profit, which to me, if I’m looking at it, is the way that this will play out is, this ties the hand of all casinos in the state from being able to operate with anyone outside the state, which then just again solidifies the market share for probably the entity, one of the three casinos that is most ready to launch today. Because we understand market share, and once it’s developed and created and whoever’s first to the game is going to be able to hold on to that. And those entities, just so you’re aware, I think, that aren’t ready to launch today will never be able to participate at the level of the first entity out the gate. So I do think it’ll be beneficial for certain casino operators. As I said, I’m just a little bit confused why we took this direction at the 50 percent unless it was for any other reason than to dictate market share.
Saffa [00:59:15] So a couple of things. One, I’m glad you asked the question. And you’re right, we have been friends since before you even in the state legislature on the House side. So thank you. And I did not intend to provide a lecture, but merely to limit the scope. I actually had a line in here, I cut it out for brevity where it basically said, If you have questions about this rule, call me and we’ll have coffee or a beer and I can talk to you about it. But I didn’t think that it was useful for the committee this morning, although it’s completely at your discretion to do what you want to discuss every component of the rule. The scope today is whether it comports with state and federal law. But I’d be tickled to visit with you today, tomorrow, you name the time and place about any component of this rule. But again, the scope is what I, to use your word, Senator Dismang, lectured on. And I apologize if that’s how I came across. But I think it’s clear for the committee’s use of time to know that’s our scope. To your question about the 51, I’ll say what I said to the commission. My job as a casino operator is to make a business decision about what is best for my entity, for our entity, for the 900 folks who work with me. And what I said to the commission was, I believe it is their job to create proper public policy. I believe that the majority position, the 51 position is actually proper public policy because keeping control– and control not just being legal control or control on an org chart, but control in terms of money with the licenses is the ideal public policy position for the state. The amendment speaks to the casinos being able to book the bets, and it has been my position that it’s not just good for me to make that call on behalf of my business, but it is so obviously correct that it should be the matter of public policy. I hope that answers your question.
Dismang [01:01:03] It does, except for each casino already has the ability to do that. And this 50 percent rule actually ties the hands of each casino together, in a sense. And I mean, I get it. I mean, I think I fully understand the game and what’s being played here. And I think you said it best when you said it was your interest to represent your, you know, your bosses and your entity. And I completely respect that. I just think that, like I said, I think it’s just important that we point out kind of what will ultimately be the goal. And I mean, that means that all of you are going to be holding hands from here forward and there’s going to be limitations placed on you. And those that are the first to the market will be the biggest benefactor, and those that are not will not be. And I think that’s– hopefully everyone was able to see that as we were, you know, going through this process and also understand that the rule probably originated with the casino, you know, with the casinos themselves as opposed to with the commission. I get it. I understand it. But again, members, we have the right to ask questions in this committee to make sure we understand what the outcome is going to be. And I don’t want us to feel like we’re, you know, hamstrung on doing that even if we’re only limited to be able to take up, you know, whether or not it conflicts or violates federal state law. Thank you.
L Johnson [01:02:22] Senator Sample, you’re recognized for a question.
Sample [01:02:24] Thank you, Mr. Chairman. Carlton, you mentioned, you alluded to control a while ago, and I’m sitting here thinking, you’ve, you’re going to ultimately have about a half a billion dollars tied up in, in your casino in Jefferson County. And I understand why we want the 50 percent. But I’m still sitting here as a former business owner wondering why you, why you even want someone that would come in and could possibly jeopardize your license and cause you problems to the extent that you might have to have to shut that business down. Why, why are you even taking in, the three of you, even considering this? Because between the three of you, I would say that you’ve got, you know, a billion and a half or more money tied up in it, and you could ultimately lose everything if they operated in an illegal manner.
Saffa [01:03:40] So mobile sports betting is something that I think Arkansas has been slower than other states to to move towards. I can speak from only my experience. On premise wagering was attractive in the beginning, but we continue to hear every day from our patrons that this is something that they want and it is something that many states are moving towards. Louisiana recently launched just in time for the Super Bowl. We had hoped to be right there with them and that didn’t work out. The market is requesting this extension of our brick and mortar business. And senator, I would, I would think of it as this. It’s like, it’s like e-commerce. So if you open a store on Main Street and you sell, you know, widgets, you’ve got to move online because your customers are demanding it. And our fear was that if we did not move with the requests, that frankly, time might pass us by with something that we didn’t see coming. A big position change for me was when I saw a man I used to work for and respect greatly, the governor, call for rules for mobile wagering. At that point, I knew it was time. But you’re right. The wire act violations are very real. Mr. Dorenzo from GeoComply spoke to that. These gentlemen are lawyers for the casinos. I’m an executive for one. And believe me, I’m very familiar with the Wire Act because my neck is the one that’s hanging out there if GeoComply’s technology doesn’t work. Trust me, it works.
Sample [01:05:11] And if we don’t control the percentage, well, then, and simply allow each casino to take and set their own rules, will that mean that eventually one casino would have all, all of the sportsbook and the other two would be without?
Saffa [01:05:32] It’s possible. I think the competitive marketplace is very good. Southland has a very large market share because of its proximity to Memphis and Oaklawn and Saracen. We sort of duke it out like, like old friends for Central Arkansas’ business. But this market needs to be regulated, and I believe these rules rightly regulate the marketplace.
Sample [01:05:55] And that’s what we’re here for. So thank you.
L Johnson [01:05:59] I want to give, I want to give the other representatives that are at the table an opportunity to speak. I also want to take questions. Representative Eaves, you signed up for a question. Do you have a question specifically for Mr. Saffa or more generally for the, all the representatives at once? Because I want to give them a chance to– OK, so if– Mr. Ebel, you’re recognized or Mr. Lancaster, whoever wants to go first.
Ebel [01:06:20] Thank you, Mr. Chairman. Again, just the Oaklawn has been around for 100 years, and I’m proud to be here to support on their behalf the proposed rules that the Racing Commission has adopted. We don’t believe that these rules impose any burdens on interstate commerce that are in violation of the United States Commerce Clause. We think these rules reflect sound regulatory policy consistent with Amendment 100, and it’s an appropriate regulatory safeguard. Go back to the language of what Amendment 100 says, Amendment 100 says casino licensees may accept sports wagers. That’s what it expressly says. It does not say anything about third party vendors. It says casino licensees may accept sports wagers. The Racing Commission, I believe, based on the the testimony and at the hearing, I believe they were concerned about that, and I believe Byron expressed concerns about the casino licensees really need to be the one with the stake in the game. They need to be the one with the vested interest in the mobile sports wagering platform to be consistent with Amendment 100. And this 50 percent rule was discussed, and the conclusion, I believe, the Racing Commission came to was that it was an appropriate regulatory safeguard to remain consistent with the specific expressed language of Amendment 100, saying casino licensees may accept sports wagers. I recognize the fact that the Attorney General’s Office has has said there’s no express prohibition against allowing third party vendors in the room. The Racing Commission heard debate on on this point. We disagreed with with part of the rule that allows each casino operator to have two mobile wagering platforms. We believe it should be one. We respect the Racing Commission’s regulatory authority. We respect their decision when they adopted the rule allowing up to two mobile sports wagering platforms, and we do not object to that rule. But the intent of the rule is to make sure that we remain consistent with Amendment 100, the requirement that it be the casino licensees that really have a stake in the game. The feeling was that really, if you have the revenue share that we have in place here, that would be an appropriate regulatory oversight on that point. This type of rule is not unusual in the casino gaming world. There are other instances in casino regulations where limitations are placed on the amount of revenue that may be paid to the third party vendors. So it is not anything unusual in the casino gaming regulatory world. And in short, the Racing Commission, after hearing testimony, after receiving public comments both for and against and advice from Byron, they adopted this rule. We believe it’s an appropriate regulatory safeguard and it’s to remain consistent with Amendment 100’s requirement that it be the casino licensees that accept the sports wagers. Thank you.
Ebel [01:09:55] Mr Lancaster, I’ll remind you that we’re up against a hard stop at 9. And I want to give people time to ask questions. Perhaps we should have started at 7, but I probably would have been tarred and feathered. If you can just keep it brief, thank you.
Lancaster [01:10:07] Thank you. And I will. Again, my name is Steve Lancaster. I’m here representing Southland Casino Racing. Southland has also been a community member in this state for well over 50 years. Since the passage of Amendment 100, Southland has invested north of $300 million in the West Memphis community, building our facility in improving and increasing it. By the time this is over, we’ll have employed about 100 people. We’re constructing a 20 story hotel again in West Memphis. That’s going to be great for that community. And in the last few years, Southland as a body has contributed over $1 million to various charities in our community. What I, what I want to speak to today is the, the Commerce Clause argument that’s been been put forward. I think we can all agree, as Mr Burris said, that the casino licensee is allowed to accept wagers on sporting events. That is our responsibility under Amendment 100 and the, the rule, Rule 20, accurately places that responsibility on the casino licensee. The, the Racing Commission under Amendment 100 is given responsibility to regulate gaming, and that includes sports wagering. The Racing Commission has oversight responsibilities, payment of taxes responsibilities. They’ve got to make sure that regulation is fair, impartial and stringent. And that is the purpose of these rules. And that also is the strong local benefit that Rule 20 provides and is what must be weighed against any incidental burden on interstate commerce. And that as my understanding is the only question that’s before this body today, is does Rule 20 violate the Commerce Clause or more particularly the dormant Commerce Clause? And in just real summary, the Dormant Commerce Clause prohibits states from enacting laws that discriminate against interstate commerce by burdening out-of-state competitors to benefit in-state competitors. And there’s a two-step analysis that the law follows to to do that and determine whether there is a violation. The first is whether the the law, the rule has a discriminatory effect on its face. And here that is certainly not the case. The rule applies to any vendor. Whether they are local or out of state, it must be recognized that there is not an in-state vendor at this time. But there there could be, and they would be subject to this same rule. I’ll also point out that there are out-of-state vendors who we are, we are working with now, who will be a vendor for us in mobile wagering. And they are able to comply with this rule. So it is not a matter that this is affecting and keeping out every out-of-state vendor. People are able to work through this. The second test– so again, we believe that the first test is easily met. The second one is if the law regulates to effectuate legitimate local public interest, and the effect on interstate commerce is only incidental, the rule is upheld unless it is clearly excessive in relation to local benefit. And again, we’ve, we’ve pointed out– Carlton and Skip have talked about that, that local benefit, that responsibility that the Racing Commission and Amendment 100 has placed upon us as the casino licensees to conduct mobile wagering in what is already an extremely tightly regulated industry. There is– that rule as to be allowed and enforced unless any incidental burden on interstate commerce– that rule clearly is excessive in relation to the local benefit. And again, the local benefit is what, what this needs to be weighed against here. The, the effect on interstate commerce doesn’t even rise to incidental. Again, it applies evenly to, to whether you’re in state or out of state. Again, we’ve got out-of-state vendors who are, who are complying with this rule. It doesn’t prohibit any vendor from contracting with a casino licensee, and that includes Mr. Burris’ clients. They’re free to to contract with us, just within the confines of Rule 20. And when their business model is what would trip them up for, for contracting with us under the rule, that is not an unfair burden on interstate commerce. That’s a business decision that these, these groups have made.
L Johnson [01:16:08] I hate to interrupt you, but we do have several questions. And so again, I hate to interrupt, but we have 10 minutes. There’s three people that have signed up to ask questions. I’d like to have a chance for at least a brief opportunity for each of them to ask questions, if that’s–
Lancaster [01:16:25] Yes, that’s fine.
L Johnson [01:16:26] So again, apologize. Representative Eaves, you’re recognized for a question.
Eaves [01:16:31] Thank you, Mr. Chairman. Thank you for the explanation. And I certainly want the casinos to be successful. I’ve been to a few of them and they’re, they’re beautiful. And I know you have a lot of people working for you. What I am still struggling with is you guys can do whatever you want. You’re a constitutionally protected monopoly and you can do whatever you want, including signing up with a third party vendor to offer sports betting, mobile sports betting or not. In my mind, the only reason you’ve got this in here, where– and I forget your name, on the left hand side here– that you’ve referenced the amendment several times, which really it was contradictory to what the Attorney General’s Office said. I don’t– I just can’t understand why you think that you need that 51 percent in there to give you the authority to do what you’re doing. I mean, you can already do whatever you want to do with the mobile sports betting third party vendors. You can choose to use them or you can choose not to use them. It doesn’t make a difference to me either way, but I don’t understand why you feel like you have to have this rule and have, again, the government’s thumb ensuring that you get at least 51 percent. Because frankly, I think that the reason you want 51 percent is so that all four casinos potentially stay together. Because when the first one drops and uses a third party vendor, the rest of you guys might be behind the ball a little bit. I would also wonder how many of the casinos have an app ready to go right now? Clearly, Saracen does. And I also– again, an attorney–
L Johnson [01:18:05] And we do have others.
Eaves [01:18:07] I’ll be quick. If your argument is that it doesn’t violate the Commerce Clause because there– it applies to in-state and out-of-state vendors equally, and there currently are no in-state vendors, are you saying that we are violating the Commerce Clause until there is an in-state vendor?
Lancaster [01:18:26] No, sir. The law is blind about whether it’s in state or out of state. It’s purely on who has the ultimate responsibility, as Skip said, who has the, the stake in complying–
Eaves [01:18:44] Without this, without this rule in here, though, I don’t see how anything changes, honestly. I mean, you guys can choose to use a third party vendor or not. I don’t really understand why that needs to be in there. Maybe I’m missing something.
Saffa [01:18:57] So Rep. Eaves, this is sort of what I said to Senator Dismang. And again, apologies for the lecture on the scope, but I was hoping that we could stay to the Commerce Clause argument, and I’m glad that we are. I believe– me, I can’t speak for these two. I believe that the casino retaining most of the skin in the game, which is what we’re talking about here– right, a majority position to the casino– is important enough that it rises to the level of public policy, not independent business decision. And that’s the reason that we believe it makes sense to be in the rule. So yes, you are correct. We can make this decision without the rule, but I believe it is appropriate public policy to ensure that the casinos maintain skin in the game. And that’s why I’m glad it’s in the rule.
Eaves [01:19:45] I don’t think for a second that if you use a third party vendor, you wouldn’t maintain control of it or–
L Johnson [01:19:51] Representative Eaves, we’re going to have to get another couple of questions. We’re going to have, we’re going to have to make a decision as a committee whether we’re going to recess and come back. So we’ll start with– we’ll try to get to each question. Briefly, Rep. Garner. You’re recognized. You’re recognized.
Garner [01:20:14] Thank you, Mr. Chair. I’ve got a question, actually, for you at the appropriate time.
L Johnson [01:20:18] Go ahead.
Garner [01:20:19] I would love– we’ve heard off and on some legalese about what the attorney general has said is OK, but we have not heard whether the attorney general or whether the Attorney General’s Office has determined, given our charge, whether this rule violates commerce, the Commerce Clause. Has the attorney general been asked? And, and does– is there an opinion from the Attorney General’s Office whether this rule violates the commerce, interstate commerce law? And if there’s somebody from the Attorney General’s Office or you guys, whoever can answer that question.
L Johnson [01:21:02] So, you know, we don’t have time, obviously, right now for the Attorney General’s Office to come. They’re here. There are several more people now signed up for questions. Want to give ample opportunity for the committee to vet this issue. I don’t want to force a vote before people have had their questions answered and before everybody’s had the opportunity to say what they want to say. So we’re going to try to recess and we’ll try to meet again in the morning is going to be the first time. Not 7:30. 8 o’clock. 8 o’clock should give us ample time to get in here, answer the rest of the questions. Again, I apologize for not getting to everyone today. We tried to start as early as I felt like we feasibly could. It’s good conversation. I think these are all appropriate questions for the committee to ask and good things for us to hear. So I hate to impose on people to come back again in the morning, but there’s no time availability this afternoon and I don’t feel comfortable pressing this issue at that hearing from the people that are being asked to be heard from. So we’ll recess and we’ll adjourn. We will meet again in the morning at 8 o’clock.
Flippo [01:22:06] Thank you, Mr. Chairman.