Alert December 13, 2012

12/13/12: MGC Special Policy Meeting Summary

On December 13, 2012, members of Goodwin Procter’sGaming, Gambling & Sweepstakes Practice attended a public meeting of the Massachusetts Gaming Commission  regarding the discussion of several of the following policy questions related to the implementation of the gaming legislation:

Policy Question 9: Should the Commission increase the minimum license fee and/or capital investment requirements? Should the Commission encourage bidding on the license fee? If the amounts are modified should they vary by region?

Commissioner Zuniga cautioned against using the license fee as a criterion for evaluating applicants. A larger license fee would be a short-term gain, but would decrease resources available for capital investment, which would create a longer lasting benefit. The Commission also discussed that allowing an applicant to offer to pay a large license fee could create a “glitter” factor that might make it politically difficult for the Commission to deny that applicant a license even if there would be less money going into capital investment. Chairman Crosby stated that they would have to consider the long-term stability of an applicant regardless of whether they bid on license fees, and that the “glitter” factor could be positive if the applicant could afford it. The Commission also discussed the possibility that higher license fees may cause projects to go bankrupt due to lack of long-term capital. The Commission adopted Commissioner Zuniga’s recommendation that it set the fee at $85 million for Category 1 licenses and $25 million for Category 2 licenses and to allow competition in the investment amount.

Policy Question 10: How should the Commission determine a suitable debt-to-equity ratio for applicants for a gaming license?

Commissioner Zuniga began the discussion by stating that subsection 14 of Section 4 of Chapter 23K granted the Commission the power to determine a suitable debt-to-equity ratio for applicants and suggested that the statute could be interpreted as giving the Commission authority to set different ratios for different types of licenses, and perhaps different levels of investment at different times. The Commission agreed that the debt-to-equity ratio was just one of several factors used to determine the financial stability of an applicant. They voted to not establish a debt-to-equity ratio at this point, and instead to research and establish regulations designed to test the financial risk of applicants at any point in the future.

Policy Question 11: Should the Commission allow a facility to open in stages, with the casino opening prior to the hotel and/or other facilities? If so, under what constraints?

Commissioner Zuniga stated that allowing facilities to open in stages would be beneficial as they would more quickly generate gaming revenue, would need less initial investment, and would be able to use more capital for investment rather than paying interest on loans. Commissioner McHugh expressed concern about the enforceability of a phasing commitment as there could be a higher risk of non-completion. Chairman Crosby felt that phasing should not be precluded, but that the Commission should decide whether it would be appropriate on a case-by-case basis. The Commission decided not to preclude facilities from opening or being constructed in phases, and to allow proponents to submit information regarding their plans for the construction, operation, and opening of their facilities. After the vote, Commissioner McHugh raised the issue of what might happen if the Commission agrees to allow phasing of a project but the local community does not. The Commission agreed to pursue the issue at a future meeting.

Policy Question 12: To what degree will an applicant be required to have progressed in federal, state and local permitting and other regulatory process before submitting its RFA-2 application?

The Commission decided it needed to do more research on Policy Question 12 and did not discuss it.

Policy Question 15: What degree of building design completion will be required before the licensing selection?

Commissioner Zuniga began the discussion by outlining the American Institute of Architects’ (AIA) definitions of the three major phases of design development: schematic design, design development, and construction documents. He then stated that the schematic design level would provide the necessary level of detail for the Commission to make licensing decisions, and suggested that a robust “conceptual design” may be sufficient. The Commission voted that it require a schematic design as understood by AIA, a statement of work that includes a narrative that articulates the applicant’s goals, and a detailed cost estimate before licensing selection, and that it establish a process for the review of the design evolution throughout the process.

Policy Question 36: If MOU’s and other agreements may be part of an applicant’s proposal to the commission to demonstrate their commitment to key evaluation criteria, how should the commission weigh these agreements and enforce them in the coming years after the license is awarded?

Commissioner Stebbins recommended that the Commission allow MOUs and other agreements to be included in the application to attest to an applicant’s ability to meet the objectives articulated in Section 18 of the Gaming Act. The Commission discussed the possible implications on local control if they found that a particular MOU entered between a local community and a developer did not adequately meet the statute’s objectives. The Commission ultimately adopted Commissioner Stebbins’s recommendation and deferred discussion about the development of enforcement methods to a later date.

Policy Question 38: As part of an applicant’s goal to impact small businesses, what information should the commission require?

Commissioner Stebbins began the discussion by noting the difficulty of defining “small business.” The Commission discussed how the statute requires certain documents regarding an applicant’s impact on small business, but that some additional information—such as, what outside spending would be needed and where they thought they might contract with local vendors—might be helpful. The Commission decided to highlight for potential applicants the information that is already requested by statute and to request that applicants indicate their expected outside spending categories and the projected amount of such spending.

Policy Question 44: What should the studies and reports required by G.L. c. 23K, Sections 9(a) (13), (18) contain?

The Commission discussed whether additional regulations were needed to flesh out the requirements of the statute. Commissioner McHugh suggested that some type of criteria for the applicants would be helpful so that the Commission would compare the same type of material when evaluating applications. The Commission decided it would continue to refine the criteria for the studies and reports, and eventually issue guidelines as to what information it may require.

Policy Question 22: What, if any, conditions in addition to those prescribed in G.L .c. 23K, Section 21, should the Commission prescribe for each gaming license?

The Commission determined that Policy Question 22 was subsumed in its earlier discussion of Policy Question 5 regarding the elucidation of evaluation criteria and did not discuss it.

Policy Question 39: How much weight or consideration does the commission give to the facility itself in meeting the goals of Sec. 5 SS 3 related to building appeal and other factors?

The Commission determined that Policy Question 39 was subsumed in its earlier discussion of Policy Question 5 regarding the elucidation of evaluation criteria and did not discuss it.

Policy Question 41: What process should the commission use/require for testing gaming equipment? See Section 66.

Commissioner Cameron recommended that rather than picking one or two laboratories to do all testing of gaming equipment, that the Commission promulgate regulations for appropriate testing laboratories and to license those labs that meet the requirements. Some commissioners expressed concern that letting casinos pick the laboratory that would test its games could lead the laboratories to be loyal to the casinos rather than the Commission. The Commission discussed how competition between laboratories and laboratories’ interest in maintaining their licenses would mitigate this concern. They also discussed possible regulations to prevent industry capture of the laboratories. The Commission decided to promulgate regulations for licensing independent testing laboratories, to create a comprehensive set of standards that those laboratories must follow, and to license all qualifying labs.

Policy Question 24: What information should the commission require in respect to an applicant’s “description of its minimum system of internal procedures and administrative and accounting controls for gaming and any simulcast wagering operation” required by G.L. c. 23K, Section 25(d)?

Commissioner Cameron stated that the key to this question was whether the Commission could keep the regulations somewhat generic, but have a set of internal control standards that are more specific. That way the Commission could quickly respond to changes as needed without having to continually promulgate new regulations. The Commission discussed whether it would promulgate the standards or whether the casinos would recommend standards subject to the Commission’s approval. The Commission voted that it would promulgate a general set of regulations to govern the types of controls a casino should have in place, and that casinos shall submit a comprehensive and detailed set of minimum internal control standards to supplement the regulations subject to the Commission’s approval.

Policy Question 42: What should be the length of the licenses issued to the employees whom the statute requires to be licensed?

Commissioner Cameron began by stating that the Gaming Act requires that certain key gaming employees be licensed by the Commission, but that it does not establish the length of the license. She noted that older gaming commissions have longer periods, and that as a relatively new commission, a three-year license would strike the appropriate balance needed to gain public trust in gaming while avoiding unnecessary administrative burden. The Commission voted to issue licenses for key gaming employees for a three-year period.

Policy Question 43: What non-gaming vendors should be excused from the licensing process?

Commissioner Cameron recommended that the Commission (1) require non-gaming vendors to obtain licenses if they conduct over $250,000 of business per year with a gaming facility; (2) require non-gaming vendors to register if they conduct under $33,333 of business per year or less than $100,000 over three years; and (3) require non-gaming vendors to undergo a heightened registration process if they conduct more than $100,000 over three years but less than $250,000 per year. The Commission determined that the thresholds will be based on the contract amount, not what is actually spent. The Commission also briefly discussed whether publicly traded companies should be exempt from the licensing process. Commissioner McHugh noted that the statute could be read to require non-gaming vendors to register with the Commission and that while he agreed with the recommendation, they should make it clear that when they promulgate regulations their interpretation of the statute may change. The Commission adopted Commissioner Cameron’s recommendation as written.

 

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Those interested in learning more about Goodwin Procter’s gaming and gambling expertise and practice, and/or the issues outlined above, should contact David Apfel or Bob Crawford, co-chairs of Goodwin Procter’s Gaming, Gambling & Sweepstakes Practice.