As it is currently written, 11VAC5-90 creates massive barriers to entry that prevents small Virginia-based businesses from entering Virginia’s new gaming market.

 

The following comments and recommendations, if implemented, would level the playing field and give small Virginian businesses a chance to compete.

 

1. Bonds

 

Regulation Language:

 

11VAC5-90-40 Licenses and permits generally

 

E. Bonds.

 

2. The department may require an applicant for or holder of a permit to obtain a bond and submit the original to the director before the license or permit is issued.

 

5. The amount of the bond shall be in an amount determined by the director to be sufficient to cover any loss or indebtedness to the Commonwealth incurred by the licensee or permit holder.

 

6. For a facility operator or supplier, the amount of the bond may not exceed $50 million.

 

7. For a service permit holder, the amount of the bond may not exceed $100,000.

 

Comment:

 

Currently 11VAC5-90-40 of these emergency regulations gives the director the discretion to require a supplier permit applicant to post a $50 million bond and a service permit applicant to post a $100,000 bond.

 

It is unreasonable for the director to have the discretion to require a small supplier to post a $50 million bond in order to place a single slot machine at a casino in Virginia or require such supplier’s employee to post a $100,000 bond in order to work on that machine. This language will likely prevent small Virginian businesses from being able to compete with large multi-national institutions in the Commonwealth.

 

While it is appropriate for large casino operators building $300 million casinos to post a large bond, a local service technician cannot afford to post a bond higher than his annual pre-tax income.

 

Recommendation:

 

Either remove the bond requirements for permit applicants or create clear bond requirements that scale according to the size of the applicant’s business similar to the Virginia Alcoholic Beverage Control Authority’s skill games regulations (3VAC5-80-100).

 

2. Service Permit - Conflict between 11VAC5-90-50 and 11VAC5-90-80

 

Comment:

 

11VAC5-90-80 requires certain employees of supplier permit holders to receive service permits. As part of the application process detailed in 11VAC5-90-80, these employees must pay a $50,000 background investigation fee. Even if a portion of this background investigation fee is ultimately refunded to the applicant, this upfront payment will prevent employees of small business from being able to receive a service permit.

 

Strangely, 11VAC5-90-50 does not require these employees pay a $50,000 background investigation fee and merely states that service permit applicants must pay “$500 as a nonrefundable fee to cover the administrative costs of conducting the personal and background check and issuing the permit.” (11VAC5-90-50(F)(6)).

 

Employee background checks do not cost $50,000. For reference, New Jersey only charges (a) $95 for a typical casino employee license application and background investigation fee; and (b) between $750 and $4,750 (depending on the complexity of the background check) for a “key employee” license application and background investigation fee.

 

Recommendation:

 

Either remove the requirement that service permit holders pay an additional $50,000 background investigation fee from 11VAC5-90-80 or reduce the service permit background investigation fee to a maximum of $5,000.

 

3. Supplier Permit - Background investigation fee is unreasonable.

 

Comment:

 

It is unreasonable that 11VAC5-90-80 requires a supplier permit applicant to pay a $50,000 background fee for any principal or key manager. It does not cost anywhere near $50,000 to perform a detailed background check and a small business owned by four people should not be required to pay the Commonwealth $200,000 for a chance to compete with large multi-national conglomerates.

  

Recommendation:

 

Lower the supplier permit background investigation fee to $5,000.

 

4. Facility operator preference - Promote Virginian businesses

 

Regulation Language:

 

11VAC5-90-100 General facility operator requirement

 

D. Facility operator requirement

 

11. Consistent with requirements of the Casino Gaming Law and the contract between a host city and its preferred casino gaming operator, a facility operator shall submit to the department evidence that:

 

b. The facility operator has:

 

(2) Established preferences for hiring residents of the host city and adjacent localities, veterans, women, and minorities for work performed at the facility in compliance with any applicable federal law;

 

(4) Required that any contract for services performed at the facility, other than construction, with projected annual services fees exceeding $500,000, meet the requirements of subdivisions 11 b (1), 11 b (2), and 11 b (3) of this subsection with regard to full-time personnel of the subcontractor who performed services at the facility.

 

Comment:

 

While 11VAC5-90-100(D)(11)(b)(4) attempts to encourage large casino suppliers to hire Virginians, the current language is vague and easily exploitable. For example, a slot machine supplier, as part of its sale of tens of millions of dollars’ worth of slot machines, may only charge the facility operator a nominal fee to maintain such machines, despite the actual fair market value of such services exceeding the amount specified in 11VAC5-90-100(D)(11)(b)(4).

 

Recommendation:

Close this loophole by requiring any supplier that provides a facility operator more than $500,000 worth of goods or services over a five year period to meet the requirements of 11VAC5-90-100(D)(11)(b)(1-3).

 

5. Waivers

 

Comment:

 

11VAC5-90-30(E) provides various factors the Board may consider when determining whether to grant a waiver request. Currently, the impact such waiver would have on Virginian business is not one of these factors.

 

Recommendation:

 

Amend 11VAC5-90-30(E) to allow the Board to evaluate the impact each waiver request would have on local Virginian businesses.

 

6. Transporting Games

 

Regulation Language:

 

11VAC5-90-10 Definitions

 

"Transport" or "transportation" means any shipping, transfer, delivery, or other movement of a slot machine, mechanical casino gaming device, or table game equipment into or out of the state, or between facilities within the state. "Transport" or "transportation" does not include the movement of a slot machine, mechanical gaming device, or table game equipment within a casino gaming facility.

 

11VAC5-90-140 Transportation and testing of casino gaming machines and equipment

B. Transportation.

1. Unless otherwise directed by the director, a person shall submit written notice to the department prior to transporting a slot machine, mechanical casino gaming device, or table game equipment.

 

E. A slot machine, mechanical casino gaming device, or gaming table may not be transported out of the Commonwealth unless the director:

1. Approves the action; and

2. If the slot machine, mechanical casino gaming device, or table gaming equipment is being permanently removed from Virginia, removes the registration tag.

 

Comment:

 

Currently, 11VAC5-90-140 requires everyone (a) to submit written notice to the Department before transporting any casino games; and (b) to receive the director’s approval before transporting any casino game out of the Commonwealth.

 

This language is overboard. As written, any person shipping a slot machine on a truck from North Carolina to Maryland would have to (a) provide advanced notice to the Department before the truck enters Virginia; and (b) wait for the director’s approval before the truck would be allowed to cross the border into Maryland. Additionally, this language discourages businesses from manufacturing their casino games in Virginia, as they would be required to jump through these regulatory hoops before shipping a game to another state.

 

Recommendation:

 

Amened 11VAC5-90-140 to make it clear written notice is only required to transport casino games to a casino gaming facility located in Virginia and the director is only required to approve the transportation of casino games out of the Commonwealth if such casino games were previously provided for play within the Commonwealth.