Heyl Royster

 

An Update on the Illinois Video Gaming Act

Although the Video Gaming Act, 230 ILCS 40/1, et seq., (the "Act") was signed into law in 2009, Illinois did not see the contemplated video gaming terminals become operational until the last half of 2012. The Peoria Journal Star reported on March 15, 2013, that an estimated $458.3 million was wagered by users through video gaming terminals in Illinois in just the first six months of operations. This revenue comes from an estimated 4,400 terminals, which is a number likely to continue to rise as more establishments file for licenses. This article serves as a summary of the changes which have been the focus of our legislators and the Illinois Gaming Board since legalized video gaming commenced operating, as well as some considerations for municipalities and counties going forward.

As the regulatory body of video gaming in Illinois, the Illinois Gaming Board has already amended the regulations to include section 1800.1510 which addresses non-payment of taxes by terminal operators. This section became effective April 1, 2013, and allows for the Gaming Board to disable video gaming terminals at a specific location if the terminal operator is more than 48 hours past due in remitting taxes. The Gaming Board has also amended the regulations to include new section 1800.590 which provides that licenses are not transferrable and cease upon the death of the licensee. An exception exists for executors or administrators of an estate which can continue the video gaming operations with appropriate Court Order and approval of the Administrator of the Gaming Board, but only for six months. In the event of a change in ownership of a video gaming location, section 1800.590 also requires the Gaming Board be notified prior to the sale or transfer of the video gaming location.

Certain pending legislation looks to give more businesses the opportunity to become licensed owners of video gaming terminals. Currently, section 25 of the Act states "[a] person may not own, maintain, or place a video gaming terminal unless he has a valid terminal operator's license issued under this Act. A terminal operator may only place video gaming terminals for use in Illinois in licensed establishments, licensed truck stop establishments, licensed fraternal establishments, and licensed veterans establishments." In summary, these licensed establishments generally are liquor establishments including truck stops, fraternal clubs, and veterans' clubs. In January of this year, the Illinois Gaming Board ruled that private social clubs do not fall under the definition of a licensed establishment thereby preventing private social clubs from securing a license to own or maintain terminals in their place of business. In response, HB2311 has been introduced so that social clubs could become licensed under the Act. The bill defines a licensed social club as "a non-profit location, operating in accordance with and under the tax-exempt status of subdivision 501(c)(4), 501(c)(7) or 501(c)(8) of the Internal Revenue Code, where alcoholic liquor is drawn, poured, mixed, or otherwise served for consumption on the premises."

While HB2311 extends the potential locations for video gaming terminals, SB1755 looks to limit the potential locations by limiting the amount of waivers the Illinois Gaming Board can grant for licenses near an inter-track wagering location licensee (as defined under the Illinois Horse Racing Act of 1975). SB1755 is currently pending in the Senate.

The Illinois Gaming Board has also proposed an amendment to the Illinois Administrative Code which would further limit the potential locations for terminals. Currently locations licensed to house video gaming terminals must be at least 150 feet away from "a place of worship under the Religious Corporation Act" according to section 25(h) of the Act. As the Illinois Gaming Board has pointed out, however, many religious entities are not incorporated under the Religious Corporation Act. Consequently, the Board's proposed amendment includes a definition for "place of worship under the Religious Corporation Act" and it is as follows:

A structure belonging to, or operated by, a church, congregation, or society formed for the purpose of religious worship and eligible for incorporation under the Religious Corporation Act [805 ILCS 110], provided that the structure is used primarily for purposes of religious worship and related activities.

With this amended language, more businesses will be within 150 feet of "place[s] of worship under the Religious Corporation Act" and therefore unable to become a licensed establishment.

Some other proposed changes by the Gaming Board include a requirement that only licensed technicians and licensed terminal handlers be allowed to service, repair, and maintain the terminals and a grant of right for the Gaming Board to reject applications for licenses where an applicant or affiliated person has enrolled in the Self-Exclusion Program. The Self-Exclusion Program allows problem gamblers to put themselves on a list to exclude themselves from access to Illinois casinos. The above mentioned regulatory changes proposed by the Gaming Board are set to go to the Joint Committee on Administrative Rules ("JCAR"), if not already there, for an additional 45-day notice period. If no objections or recommendations from JCAR, the Gaming Board's changes will likely go into effect shortly thereafter.

Aside from legislative and regulatory amendments, in January 2013, the Gaming Board adopted an Inducement Policy in support of section 25(c) of the Act which states "[n]o terminal operator may give anything of value, including but not limited to a loan or financing arrangement, to a licensed establishment, licensed truck stop establishment, licensed fraternal establishment, or a licensed veterans establishment as any incentive or inducement to locate video terminals in that establishment." In the Inducement Policy, the Gaming Board offers clarification on what is and is not considered an inducement. Notably, items not considered an inducement include the video gaming terminals themselves and related items necessary to make the terminals operable, wireless internet or other costs associated with communicating with the central communication system, software upgrades, chair and/or stools associated with the terminals, onsite signage and marketing materials related to the video gaming, ATM fees from a patrons use of a dual function ATM/ticket payout device, and advertisement expenditures. Any other payment of cash, goods, or services by a terminal operator to a licensed establishment or third party on behalf of a licensed establishment may be considered an inducement and in violation of the Act.

By now, most municipalities and counties have addressed whether or not they will prohibit video gaming in their jurisdictions. Where video gaming is not prohibited, it is important that the relevant local unit of government review its ordinances to ensure consistency with the Act and to address any additional requirements desired. These local units of government should specifically mind section 1800.220 of the regulations which requires licensees, applicants for licensure under the Act, and persons with significant influence and control to report to the Administrator of the Gaming Board any:

a. violation of the Act or regulations or any illegal conduct including the possession, maintenance, facilitation, or use of any illegal gaming device,

b. any fact or event that may affect the conduct of video gaming or the business and financial arrangements incidental to video gaming including any change in persons identified as having significant influence or control,

c. any arrest or charge for criminal offense excluding minor traffic violations, and

d. any adverse action taken or non-renewal relative to a liquor license.

Those local government officials who are in charge of video gaming licenses and enforcement (often the same individuals responsible for the liquor commission) arguably qualify as a person with significant influence and control, and therefore should take caution of their duty to report under section 1800.220.

Regardless of whether your jurisdiction allows for video gaming, take note of section 1800.1110 "State Local Relations." Subsection (b) states that "any municipality, county, or law enforcement agency that takes action relating to the operation or use of a video gaming terminal, whether licensed or unlicensed, shall notify the [Gaming] Board and specify the extent of the action taken and the reasons for the action. . . . Any law enforcement agency that confiscates video gaming terminals or terminal income shall, as soon as practicable under the circumstances, turn over the video gaming terminals and terminal income to the [Gaming] Board unless otherwise ordered by a court of competent jurisdiction."

As Illinois continues to explore this uncharted path of legalized video gaming, new obligations and questions may arise for local units of government and new. We are here to answer any of your questions related to the Act, its regulations, and your local ordinances.