Tom Fricke’s Redemption & The Law – April 2017

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Ohio Regulations

The Common Sense (?) Initiative

Legal columnist Tom Fricke

Legal columnist Tom Fricke

by Tom Fricke


Editor’s note: In Tom Fricke’s Redemption & The Law column, he has been following the developing changes in Ohio law he feels are profoundly threatening to coin-op and its locations. Writes Tom, “In 2014, the Ohio General Assembly enacted a law that appointed the state’s Casino Control Commission as the statewide cop of all ticket redemption and merchandisers. The law required the Commission to make regulations to govern all forms of skill games for prizes.” In the July 2014 Redemption & the Law, we reported this development under the headline, “Ohio Declares War on the Industry.”

The Commission didn’t begin publishing regulations for industry and public comment until August 2016. Tom reported on these in his November 2016 column, “You Are Going to be Regulated, Like It Or Not,” in which he published an announcement of the rulemakings, an explanation of the public comment process and a guide for those who want to engage in the rulemaking process as commenters.

In February, Tom Fricke wrote a brief summary of the pending regulations that many industry vets consider to be an existential threat. In March, he returned to this hot topic again, starting a series of explanations telling why he agrees with those industry vets, and why he feels the proposed regulations will have troublesome effects beyond the Ohio state line. This piece, focused on the state’s “Common Sense Initiative,” continues this insightful examination.Ohio has been a “battleground state” in respect of games for prizes for as long as it’s been a “battleground state” between the major political parties. Right now, a battle is brewing in the Buckeye State that requires an immediate response from the amusement machine industry.


Ohio has a “watchdog” agency intended to protect business and the public from excessive zeal on the part of public servants to whom the General Assembly has delegated the power to make law. It’s called the “Common Sense Initiative.” The Lieutenant Governor of Ohio runs it.

When an Ohio administrative agency promulgates regulations that affect your business (and have the force of law) it has to publish them first in draft form and allow stakeholders some time to respond with written comments. After a short direct-to-agency comment period, the agency sends the draft regulation and the written comments received to the Common Sense Initiative (the “CSI”).

Supposedly, the Lieutenant Governor’s people look at the draft regulations, the stakeholder comments submitted with the draft regulations, any comments submitted directly to the CSI and the agency’s responses to the standard questions the CSI asks the agency. At the end of this process, the CSI may (or may not) submit a recommendation back to the agency.

When the agency submits drafts and stakeholder comments to the CSI, the agency also has to answer a bunch of standard questions that are set out in the CSI rules.

Think this explanation of administrative procedure is boring?

You might change your mind when I tell you about two of the Casino Control Commission’s responses to two of the CSI’s standard interrogatories. I conclude that the responses are about as P.T. Barnum as telling the voters that Mexico will pay for the border wall.

Question 1:

“What alternative regulations (or specific provisions within the regulations) did the Agency consider, and why did it determine that these alternatives were not appropriate? If none, why didn’t the Agency consider regulatory alternatives?”

The Casino Control Commission’s Response:

The Commission staff reviewed regulations in other jurisdictions, including skill-based video lottery terminals, carnival and amusement games, and  boardwalk games.    Some of the draft regulations are modeled on regulations in other jurisdictions. However, Ohio’s definition of skill-based amusement machines is significantly different than other states’ definitions. Further, other states have not had  success in eliminating illegal slot machine gambling. •••

Why this response is Balderdash: 1

I wonder if the public servants who wrote this stuff have ever heard of Georgia. There, all amusement games in public space that you pay to play are regulated by the Georgia Lottery Corporation (the GLC”). There are extensive regulations in the Georgia statute and the rules of the GLC. They cover every kind of amusement game, even those which don’t offer a prize.

There is licensing of operators and locations. License applicants for one class of game machines have to submit to a criminal records check. Georgia license applicants subject to this requirement can still get their license if they’ve been conviction free for a period of time. One class of amusement machines has to connect to the GLC central monitoring system.  Machines in this class also have to undergo by-sample compliance certification by an independent testing laboratory. There was a successful transition for this class of games from unconnected/no technical standards.

Georgia even provides for an advisory council –– with significant industry representation –– to provide an organized forum for ongoing dialogue between the regulator, government and representative industry stakeholders. Maryland law provides for that, too. Ohio law and draft regulations don’t. And I’m told that the Georgia operators who were illegally paying off in cash are gone.

What’s significant about Georgia is that the fees and criminal check requirements are nowhere near as harsh as those proposed for Ohio, and the industry –– all branches of it –– seems to be able to live with the regulatory burden of the Georgia Lottery Corporation. The Georgia regime of regulation isn’t overbearing, like the one proposed for Ohio.

And to think that the Ohio Casino Control Commission says that laws of other states aren’t relevant!

Question 2:

“Adverse Impact to Business ­–– Provide a summary of the estimated cost of compliance with the rule. Specifically, please do the following: ••• (b) Identify the nature of the adverse impact (e.g. license fees, fines, employer time for compliance); and (c) Quantify the expected adverse impact from the regulation.”

The Casino Control Commission’s Response:

The nature of the potential adverse impact from the proposed rules includes costs for employer time and payroll and an application and licensing fee. •••

Why this response is Balderdash:

So far they have failed to mention in their responses to the CSI that the entire industry in Ohio is going to have to replace all of its amusement game equipment and run every piece through an independent testing laboratory. The transition period for this is minimal and likely not adequate. What’s the cost of that? Take a look.

Regulation 3772-50-24 in revised draft form was released for comment on March 7. I read this in disbelief:

All [merchandisers and ticket redemption]must be approved by the commission for use in Ohio and comply with all technical and testing standards adopted by the commission as Appendix A to this rule.

Other draft regulations say that for every piece, you can submit an application to the Commission and the Commission may give you a free pass. Or, the Commis­sion may tell you that you have to have an independent testing laboratory examine it and supply an engineering report and opinion that the piece complies with the Ohio statute and the Commission’s supplementary technical standards.

There are problems here.

Problem 1:

There are three major independent testing laboratories (“ITLs”) that serve the casino industry. Normal casino regulation requires that before a slot machine operates in a casino under the regulator’s jurisdiction, the independent testing laboratory must examine a production sample or prototype against the jurisdiction’s technical standards. The examination includes hardware compliance such as whether the slot machine’s logic board is in a tamper-proof, locked compartment inside the cabinet and automatically records on an electronic log when the inside logic board compartment is opened and closed. This is something that can be observed by anyone.

What can’t be observed just by looking is how the software works. For this, the ITL reviews the software, including source code. From the review, the ITL develops a software signature that can be checked in the field by plugging in a portable computer with an app which reads the signature. If the field-tested signature matches the one in the ITL’s engineering report, operation of the machine in a casino is lawful. If the signatures don’t match when field tested, the slot machine has to be taken out of service and the casino operator can expect a notice of violation.

This is ITL certification by sample to enable field testing. That’s not what the draft regulations for Ohio skill games would require. The draft regulations would require ITL compliance testing not just of samples, but of every individual machine. Moreover, as mentioned, there is no reasonable transition period.

The price of an ITL electronic system usually starts at about $10,000. Multiply the number of Harpoon Lagoon or Yahtsee machines in Ohio by that amount, before you even think about the demands upon out-of-state manufacturers to supply source code and technical data to the ITL. (And what if the manufacturer refuses to supply source code?) Your arithmetic yields a prohibitive amount not within the scope of the Commission’s statement to the CSI. That’s bad enough, but there’s more.

Problem 2:

The ITL is to certify compliance by each individual machine with several technical standards that are right in the statute. One of them is:

“The ability of the player to succeed at the game is impacted by the exercise of a skill that no reasonable player could exercise.”

This requires a human factors analysis if the ITL is to have a scientific basis for certifying that a game isn’t too hard for the average foreseeable player. ITLs are staffed by engineers, not doctorates in psychometrics. At a minimum, either the Commission is going to have to use the term “scientific” advisedly (not acceptable regulatory practice, if you ask me), or the ITL is going to have to add to its cost by adding psychometricians to staff.

Combined with fees that start at $20,000 for vendors and ticket redemption operators, these significant costs provide certainty that if the draft regulations become effective in their current form, there will be “blood in the streets” in Ohio.

This is clearly stated in polite comments submitted last June by the Ohio Camp­ground Owners’ Associa­tion. They stated: “[A]ny income derived from these games is nominal. Should campgrounds be required to get a license, most would get rid of machines rather than paying the $3,000 every three years for a license. This means we will have to eliminate a form of entertainment for our guests.”

 


Attorney Tom Fricke specializes in the law of redemption. He has served the amusement game trade for more than three decades in various roles including in-house counsel for a national FEC chain, trial and transactional attorney for many businesses and as an expert witness on the law of redemption. Tom has also penned hundreds of articles on the subject of redemption regulation, legislation and compliance.

Redemption and the Law is commentary. It is not legal advice. It is intended only to provide useful information on the subject matter covered with the understanding that neither the publisher nor the author is engaged in rendering legal services. If legal advice or other professional or expert assistance is required, the services of a competent professional should be sought. The views expressed in Redemption and the Law are solely those of the author and not the publisher. Author Tom Fricke claims an exclusive trademark in the phrase Redemption and the Law. He can be reached by email at tffricke@aol.com; phone 314/322-9526. © Copyright, Thomas F. Fricke 2016, St. Louis, Missouri, USA. All rights reserved worldwide.

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