Ohio Over Regulation
Their Next Move; Common Sense Continues To Be Elusive
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 recent issues (February, March, April and May) and again this month, Tom Fricke continues his indepth examination of what is being proposed and how it threatens the amusement business in Ohio and even beyond.
The Ohio Casino Control Commission has been engaged in rolling production of draft rules for ticket redemption machines, since the spring of last year. Dave & Buster’s initial comments to the Commission’s first batch of rules said it best:
“We are concerned by the multiple types as well as the scope of the licenses that the Commission intends to require. This rule (and the subsequent, more specific licensure rules) would require applicants to provide extensive, confidential and sensitive personal and proprietary information and consent to inspections, searches and seizures. We recommend that the Commission more narrowly tailor the intrusion on the privacy of an applicant to the information the Commission needs to perform its licensing function.”
This eloquent, cogent comment seems to have fallen on deaf ears. Now, a year and a quarter after Dave & Buster’s “nailed it” with this comment, the Commission continues to treat coin-op as if it were casino gaming and all that goes with casino gambling –– including a regulator who strips you of all rights to fair play.
The pace of rolling production of draft regulations seems to have slowed down. For review, some of the burdens that the Commission seems intent to cast upon the Industry include:
• state-level licensing of vendors, operators and locations,
• eligibility for one of these licenses subject to the Commission’s finding that the applicant has proved clearly that the applicant and its ownership are “suitable,”
• “suitability” dependent on whether the applicant and its key employees have a good reputation or has ever violated any law in any jurisdiction at any time, and
• application and license fees for “vendors” and operators of $15,000 (application) and $5,000 (license).
(Never mind that when the regulations are enacted, agents of the Commission will not need warrants to search.)
I believe that most operators and distributors consider their customer lists and equipment inventories to be trade secret material. The same applies to the information about yourself and your company that the Commission can require you to submit if you want to stay in business in Ohio. Nevertheless, the proposed rules say that you have to furnish that information under oath.
A requirement that you get naked before your regulator is troublesome enough, but for a while I’ve been waiting for the other shoe to drop. My fear has always been that the Casino Control Commission would overdo it on the form of application in the same way that it has overdone it on almost everything else: from suitability criteria to standards for independent testing laboratories (“ITLs”) to the requirement that every ticket redemption piece in Ohio has to go through ITL testing before it can be deployed, unless you submit a waiver request for your Whac-A-Mole and the Commission decides to grant it.
Have you ever seen the form of application for a casino vendor license or the uniform personal history statement that a lot of gaming regulators require? The Ohio version is 59 pages long! If you haven’t prepared one before, you would have to hire an investigator to help you prepare it, and your own work to prepare it would take you a week. It’s enough to kill a bull.
Well, on June 15 the Commission issued its initial-draft set of suitability applications. I was surprised. Compared to the casino forms, the form of application for any of the licenses required for the skill-based amusement machine business was benign. This may be why I’m still waiting for the other shoe to drop. The Commission seems to have withdrawn its draft forms of license application, maybe to think about it some more.
Apparently, some stakeholders were concerned that everyone in the world who makes and sells ticket redemption machines would have to have one of those burdensome $20,000 vendor licenses. You see, the first part of the proposed regulations that you would look at says as much:
“No skill-based amusement machine vendor shall manufacture, sell, or distribute [merchandisers or ticket redemption]amusement machines, to be used in Ohio, to any person not licensed by the commission as a skill-based amusement machine vendor or skill-based amusement machine operator under this chapter.”
Another section of the proposed regulations says that all such “vendors” have to have one of those expensive licenses. Then you have to look at yet a third section of the proposed regulations to see how the Commission will define a “vendor:”
“… provides a [merchandiser or ticket redemption machine]to a skill-based amusement machine vendor or operator.”
Please tell me where this text says that if you manufacture in Wisconsin or Florida and sell to a distributor in Ohio, that you are not breaking Ohio law unless you, too, are licensed by the Ohio Casino Control Commission. I don’t see the proposed regulations as providing that.
Note that the proposed regulations I’ve mentioned were published in draft form for comment a long time ago. Nevertheless, the proposed rules on this point were not amended in response to any comments. It was not until the Commission published in draft, forms of application for vendors, operators and locations that we saw any response to this concern. The draft application forms were published for comment on June 15. Some time later the Commission apparently withdrew the drafts.
After the drafts were withdrawn on July 28, the Commission found it necessary to publish to stakeholders the following explanation:
“Thank you for your recent comments regarding our draft skill-based amusement machine-related license applications. The Commission received a number of comments from vendors highlighting some confusion among stakeholders regarding vendor licensing requirements. This message seeks to clarify the licensing requirements regarding skill-based amusement machine vendors.
“Under proposed rule 3772-50-16, skill-based amusement machine vendors may not manufacture, sell or distribute [merchandisers or ticket redemption]machines, to be used in Ohio, to any person that is not licensed by the Commission as a skill-based amusement machine vendor or a skill-based amusement machine operator. However, a skill-based amusement machine vendor that is licensed by the Commission may purchase … [merchandisers or ticket redemption]machines from a vendor that is not licensed by the Commission.
“In other words, a skill-based amusement machine vendor is not required to obtain licensure from the Commission as long as that vendor does not provide skill-based amusement machines directly to a skill-based amusement machine operator in Ohio. Instead, the vendor can provide skill-based amusement machines to a distributor that is licensed by the Commission as a vendor. That distributor can, in turn, then provide the skill-based amusement machines to licensed operators. Therefore, a vendor is only subject to licensure if it directly provides a skill-based amusement machine to a skill-based amusement machine operator in Ohio.”
On the surface this notice might appear to be a glimpse of enlightenment, at last. But it’s not. Here are some of the things wrong with it.
• The proposed regulations don’t say that.
• Nowhere in the minutes of the Ohio Casino Control Commission is this position set out. A statement to a few stakeholders of a mere “interpretation” is not an acceptable substitute for clear “do’s and don’ts” set out in a law that is binding on everybody.
• At least some of the regulations were authored by Gaming Laboratories International and implemented the common policies that apply to regulation of casinos. Among those policies is that if the slot machine that you make is used in the regulator’s jurisdiction, then you have to be licensed by that regulator.
• Regulation of an industry populated in large part by small entrepreneurial businesses should be straightforward and readable. That characterization doesn’t apply to the regulations that the Commission is about to promulgate.
• Why did the point regarding vendor licensing first see print from the Commission more than a year after publication of draft regulations (that were obviously problematic when first published) and at that, only when the Commission published the forms of license application?
• Notwithstanding the informal statement of the Commission’s application of the “magic of interpretation,” the vendor licensure regulation will nevertheless impose upon the game manufacturing/distribution community a duty to inquire regarding where their products will come to rest and whether the final resting place (an Ohio vendor or distributor) is licensed by the Ohio Casino Control Commission.
But the vendor licensing issue isn’t the second shoe to drop on the floor above you. It’s the first shoe. The second shoe is the form of license application itself. The Ohio Casino Control Act says that the information about yourself and your business is submitted in confidence and is to be treated as confidential information. There’s even a formal process that applies when someone submits a Freedom of Information Act request to see your license application. But don’t look for a disclosure of this in the draft forms of license application for skill-based amusement machines. It isn’t there.
In applications for casino vendor licenses and key employee licenses, there is a “Gotcha” of which those in the regulated gambling business have no standing to complain. The “Gotcha” is that while the law may protect the confidentiality of the trade secret, personal and private information that is submitted with a license application, the applicant has no right to sue anyone if that information is leaked. In other words, the applicant may have a right, but has no remedy. That “Gotcha” was conspicuous by its absence from the draft regulations that the Commission has published so far. The “Gotcha” is also conspicuous by its absence from the forms of license application that the Commission published for comment on June 15 and then pulled back.
Dave & Buster’s was right in its early concern about the confidentiality of information submitted with license applications. It may be that the absence of the “Gotcha” was at least part of the reason that the Commission pulled back its drafts (for now, at least). If text that deprives the applicant of a remedy for leaks of its confidential information is in the application forms when published again for comment, that will be the second shoe that drops.
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 email@example.com; phone 314/322-9526. © Copyright, Thomas F. Fricke 2016, St. Louis, Missouri, USA. All rights reserved worldwide.