Gaming law

Complying With Small Games of Chance Act Is No Small Task

, Special to the Legal, The Legal Intelligencer

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Most troubling about the extensive background checks is that the PLCB excludes any applicant with a felony conviction in the past 15 years from holding a tavern gaming license or even assisting in operating a tavern game. Section 914 of Act 90 prohibits employees of license holders from touching a game of chance if they have any prior felony convictions—so much for second chances.

If a tavern owner is able to successfully front the $4,000 in fees and complete the paperwork and background checks, they must then become master accountants (or hire one). Holding a tavern gaming license requires quarterly disclosures, maintaining a completely separate gaming bank account, and compliance with a hefty tax system. Pursuant to Section 909, 60 percent of the net revenue from tavern games goes to the state and 5 percent to the local municipality. At the end of the day, bar owners will keep 35 percent of the net revenue from tavern games, meaning they must generate a net revenue of at least $11,435 in the first year to recoup the initial $4,000 in expenses. State legislators who supported Act 90 estimate that the state will earn more than $150 million annually from these games.

Although the expansion of small games of chance is certainly a great opportunity for the state to earn new revenue, Act 90 appears to have overlooked the most troublesome aspects of any gaming system—tax compliance, safety and addiction.

For instance, traditional casinos employ trained personnel to work alongside state and local law enforcement stationed inside casinos to spot problem gamblers. Act 90 does not require any such training for tavern gaming license holders. Similarly, recovering gambling addicts or those who simply need help limiting their bets can place their names on self-exclusion lists at casinos or tell casinos in advance to cap their wagering. It is hard to imagine such self-awareness being encouraged inside a bar.

Act 90 does make it illegal to allow a visibly intoxicated patron to play a small game of chance, much like serving alcohol to someone who is visibly intoxicated is not allowed. From a liability standpoint, this is a nightmare.

Could a bar become civilly liable if an intoxicated patron blows his family's savings account on pull-tabs? Although unlikely, it is not a stretch to imagine such a claim popping up in due time, particularly in Philadelphia.

Even more surprising is the lack of strict tax compliance on behalf of the state. The state monitors every cent wagered at casinos. Count rooms are under heavy surveillance to ensure that the state gets its cut immediately. Likewise, the state lottery taxes its tickets at the point of sale.

In bars and taverns, though, it is up to the license holder to keep accurate financial records and pay the proper taxes. There is no live monitoring by the state. Curiously, Section 504 calls for the Bureau of Liquor Control Enforcement to conduct random, annual audits of 5 percent of private liquor clubs, but there is no mention of auditing taverns in Chapter 9 of Act 90.

Granted, the civil and criminal penalties for tax fraud should be enough of a deterrent, in theory. However, with estimates of more than $350 million being wagered annually on small games of chance, there is certainly plenty of temptation to not report every dollar wagered on the books. Without constant monitoring or a way to collect taxes at the point of sale, it seems as if the state has added an element of trust into this gaming system.

Ultimately, the success or failure of Act 90 is not measurable until the PLCB starts granting licenses this summer. Yet while the expansion of small games of chance into bars is an exciting opportunity for bar owners and a potential new revenue source for the state, the PGCB needs to tread lightly in any further gaming expansion. With a state lottery, small games of chance in bars, and 12 (soon to be 13) casinos, the saturation point for gambling is quickly nearing.

Steven J. Silver is an associate at Goldberg, Miller &  Rubin. He won the International Association of Gaming Advisors' Shannon Bybee Scholarship in 2012 and was recently published in the John Marshall Journal of Computer & Information Law for his research into the convenience casino industry. He can be reached at 215-735-3994.

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