You’re Going to Be Regulated, Like It or Not
Why What’s Happening in Ohio Is Important to All
by Tom Fricke
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.
There have been skirmishes over many gambling-related subjects including video poker, charitable tip tickets (the Ohio name for pull tabs), games supposedly free of chance because you could see the next outcome before you coined the machine (like twenty other states, the Ohio Court of Appeal put the kabash on that along ago), and over games supposedly free to play (and not gambling) because they promoted subterfuge products nobody used when purchased or nobody wrote in for when the meager “free” entries were offered by mail. There have even been skirmishes over a set of statutory “do’s and don’ts” intended to provide to Law Enforcement objective criteria to facilitate enforcement, but proved so labor-intensive to enforce that in many places outside of Cleveland enforcement was often ineffective.
Laws like these engender disrespect for the law and create a dilemma for the law-abiding business: Break the law with your skill games or your competition will eat your lunch. For years the Ohio General Assembly has struggled with this dilemma by successive revisions of prohibitory laws within a framework that has been historically one of the most turgid of all of the states’ gambling crime laws. It used to be that gambling crime laws didn’t get updated very often. For example, as applicable to what amusement games for prizes are prohibited (and disregarding fantasy competitions), New York’s law has not been updated in more than twenty years. In contrast, the Ohio the central gambling crime section (the definitions) has been amended three times within the last five years.
No wonder then that last year, the General Assembly turned to a state regulator to accomplish certainty of compliance in non-casino games for prizes, where certainty had never been available before, in anyone’s memory. That’s when the General Assembly turned the whole mess over to the only available state agency able to tackle the job: the Ohio Casino Control Commission. (I’ll refer to it as the “CCC.”)
The CCC is supposed to make rules for “skill-based amusement machines.” By the way, except for limited use of something that Ohio law calls a “sweepstakes terminal device,” the only lawful, machine-delivered game for a prize outside of regulated casino and charitable gaming, is a “skill-based amusement machine.”
What’s that? The Ohio statute provides an objective formula: limited-value merchandise prizes and no rigs or gaffs. Fine enough, but how in the world is the Sheriff of Summit County supposed to ascertain whether the wholesale merchandise value awarded for redemption entitlements accumulated over 60 plays exceeds the statutory limit? How is the Sheriff to find out whether the machine is rigged when the Sheriff cannot even examine the machine without a search warrant? And how is the conscientious operator to eschew bending the rules when all of its competition is, well … you know. (Far more than once I’ve had Harvard MBA senior executives tell me that they prefer to take their legal advice from the “street.”)
As the result of statutory technical standards that ordinary law enforcement and the criminal justice system can’t enforce effectively, we now have the General Assembly’s delegation to the CCC of the power to make the law that governs your business and can be costly. No warrants required any longer. CCC agents are sworn law enforcement officers, too. They can seize without warrants. How do you insure that your machine isn’t rigged? Well, maybe the CCC will require certification after an engineering examination by an independent testing laboratory that is licensed by the CCC. Application and license fees themselves could add up to $20,000 for a vendor of “skill-based amusement machines” as now proposed. I’ll go into greater detail, starting next month.
None of this has happened yet. The best guess is that it won’t be effective until May or June of next year, and then there will be a ninety-day transition period. At present, the CCC is drafting rules in batches. It wants, is accepting and is considering comments to its rolling production of draft rules from stakeholders in the trade. These rules are being written by ex-AG lawyers and an engineering firm, which tests slot machines. Comment from a broad cross section of the industry is needed!
Here is an outline of the process of Ohio administrative agencies making law and some contact information. Maybe it will be handy to those inclined to enlighten the rule maker about what will work and what will not work, in a comprehensive regime of close supervision of the business of operating paid skill games in public space for value awards.
1. Draft Rules. The CCC prepares draft rules. The CCC has prepared three batches, as follow:
May – June, 2016, 10 rules: definitions, authority and purpose, general licensing requirements, vendor licenses, key employee licenses, licenses for operators of merchandisers, licenses for operators of ticket redemption, licenses for locations with ticket redemption, a transition period when the regulations become effective, and requests to the commission to waive a requirement (except for licensing).
July – August, 2016, five rules: licensees must update, what licensees have to file with the CCC, records that licensees have to keep, the CCC’s prerogative to inspect those records, and restrictions on advertising by licensees.
August – September, 2015, five rules: do’s and don’ts by all classes of licensees.
The CCC will continue preparing draft rules until it has a free-standing code of regulations to govern “skill-based amusement machines.”
2. The CCC’s mailing list. The CCC maintains a mailing list of “stakeholders.” Initially, the CCC reached out to those they know, like (I suppose) the Bowling Centers Association of Ohio, the Ohio Coin Machine Association, the Ohio Licensed Beverage Association, and some noted amusement businesses like Dave & Buster’s and Bob’s Space Racers.
You don’t have to be invited to be placed on the CCC’s mailing list. The CCC has formed a division with the sole mission of regulating skill-based amusement games. The person in charge is Andromeda Morrison, a lawyer with substantial experience in the Office of the Attorney General. To be placed on the mailing list, you need only to send a request to Ms. Morrison at email@example.com. If you could be helped or harmed, based on what ends up as the final rules, you ought to ask to be placed on the mailing list. You will receive the new draft rules promptly and have maybe two weeks to provide written comment.
3. Commission acceptance of the draft rules. After the announced comment deadline and any time that Ms. Morrison and her colleagues require to consider the comments received, the current batch of rules is presented to the Commission at a meeting. If the Commission accepts the draft rules a process of two independent reviews by actors outside of the CCC begins, as follows.
4. Executive branch review. The Office of the Governor includes something called the “Common Sense Initiative.” The Lieutenant Governor runs it. After initial agency action, the agency submits the draft rules together with its own report regarding the comments it has considered, whether it has revised its draft based on any comments, whether it has considered comparable laws of other states, and what is the agency’s estimate of the impact and cost of the proposed rules on the business proposed to be (further) regulated. The “CSI” review typically can take between four to eight weeks. The process completes with the CSI responding to the agency, either accepting the drafts as written or making recommendations for reconsideration.
During executive branch review, the process is visible and the door is never closed to comments. At any time prior to issue of final rules, the CCC will accept and consider comments. At any time also, prior to completion of CSI review, the CSI will accept and consider comments. You can access the CCC website at www.casinocontrol.ohio.gov. On the front page, searching “skill based amusement” will bring you to a menu that includes the two CSI filings that the CCC has made so far. When you review these filings you can click to see summaries of the rules submitted, the CCC account of the rule’s effect on business and underlying reasons for that, a list of the commenters and the text of their comments. There is even a link that you can click to send in your own comment right then and there. (I don’t recommend commenting in the manner of the opening statement to the jury in My Cousin Vinnie.)
5. Legislative branch review. When the agency completes review by the Lieutenant Governor’s Common Sense Initiative, its regulations then are reviewed by a joint legislative committee. It is called the Joint Committee on Agency Rule Review. Its website (www.jcarr.state.oh.us) tells you pretty much everything you need to know. You can even have this legislative committee put you on its own mailing list. JCARR doesn’t invalidate rules. It is only a legislative committee. It can, in effect, report to both houses of the Ohio General Assembly that a rule should be invalidated. From that point, the General Assembly has to pass a resolution to invalidate an administrative agency’s rule.
There is a lot to be concerned about here. I think these rules are being proposed in draft by people who have no experience in the unique industry of skill games for prizes. One of my largest concerns is the role and responsibility of the manufacturer who simply passes its products into the stream of commerce as it has always done. If it doesn’t sell direct to locations or operators, what are its duties of inquiry regarding whether the product will come to rest in Ohio. Is such a manufacturer obligated to maintain an Ohio vendor license? Must the manufacturer revise its national advertising to state that its products are not approved for use in Ohio? How in the world does an independent testing laboratory certify Ohio compliance of a trivia quiz game or a pusher?
I’ll publish my own comments about such things in the months to come. In the meantime, I suggest that the battle in the battleground state of Ohio is of importance industry-wide.
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 firstname.lastname@example.org; phone 314/322-9526. © Copyright, Thomas F. Fricke 2016, St. Louis, Missouri, USA. All rights reserved worldwide.