Interview: John Payne, Chair, PA House Gaming Oversight Committee

As Chair of the House Gaming Oversight Committee, John Payne has tirelessly championed igaming regulation as the centrepiece of reforms aimed at ensuring the continued competitiveness of Pennsylvania's gaming industry. He updates iGaming Business North America on the progress of the reform package, which could now include daily fantasy sports regulation, and why his number one priority is to get a bill across the tape before standing down in November.

iGaming Business: How is the gaming reform package for 2016 taking shape? Are there any significant changes to HB649 far as the online side is concerned? John Payne: We recently met with the 11 of the 12 casinos to go over the gaming package for this year. Online gaming is still the prime part of the bill, along with a lot of technical changes like the privatization of the lab, and changing the licence term from three to five years. We have slots at the airport in there, but not machines, we are now looking at tablets instead because they don't take up the floor space or require physically pulling a machine in and out when you want a new game, it's just a software changeover. The proposal for slots at off-track betting parlors is floating right now, whether or not that survives the final cut we don't know. We also have no idea where we are at with sports betting or fantasy sports. We passed a resolution yesterday [9 February] out of committee, to encourage the feds to once and for all legalize sports betting instead of just in Nevada. It ties into New Jersey's court challenge. It passed 23-1 out of committee. That goes to the full floor now for a vote. Today is our last day for four or  five weeks. We have appropriations hearings on the budget that the Governor just presented. Those hearings bring every department before that Committee, and they tear their section of the budget apart from A-Z. So when we come back in March for the full General Assembly, I would hope we actually move that resolution.

iGB: A resolution was passed in January directing the Joint State Government Commission and the PA Gaming Control Board to study the viability of regulating DFS. When are they due to report, and is the intention to fold DFS regulation into the gaming reform bill?
JP: That's the game plan. The letter went to the Gaming Control Board, they have 90 days. We are running on a lot of train tracks, we have all the igaming, all the lab fixes, all the other things are simultaneously happening. We also have the request in to the Gaming Control Board do the fantasy sports study, so the clock has started on that. Then we have the sports betting resolution, which just came out of committee, when we come back in March, we want to get that out of the House Chamber.

iGB: So when do you plan on having a final gaming package finalised and ready for legislators to vote on? JP: I'm hopeful that by 1 May we will have the report back from the Gaming Control Board, the sports betting resolution passed and all the elements in HB649 ironed out, what's in and what's not. I would like to incorporate fantasy sports in that bill. We are also looking at a new proposal on video gaming tables (VGTs), hopefully we will have more information on that in the next 30 days. So by 1 May, we want to be ready to go so as we go to pass - I hope - a budget in June of this year, we will be one month ahead of schedule and able to say: “We have an alternative revenue source for both the pension shortfall and to help you seek casino growth in the budget process." This will have to include the pension fix, as the deficit was at US$50bn, and we are now moving towards US$60bn. We have to fix the problem.

iGB: As Chair of the House Gaming Oversight Committee, what is your position on the legal and regulatory position of DFS?

JP: Whether it's your fantasy team or not - you are betting, money is transacting across the table, people are winning and losing, somebody is collecting a lot of money. We believe it's gambling, and if you don't believe it's gambling, we are going to look at banning you from the state. I think both FanDuel and DraftKings have big problems right now, with several state attorney-generals issuing opinions and moving to ban them from their state. They are no longer advertising on TV before football games, and are trying to disappear back off the radar screen, if you will. If they are going to operate in Pennsylvania, they ought to be registered with the Gaming Control Board. We should regulate it, and there's some costs associated with doing that.

iGB: The tax rate for online became a point of contention last year, going from a reasonable 14% or 16% in earlier bills to the frankly unworkable 54% proposed by the Senate Republicans. Has the tax rate for online now been settled?
JP: We still have individuals who think it should be 100%. If you are anti-gaming, you think the tax rate should be pretty high. We are at 16% - we moved off 14% -  and we think that's a reasonable rate for what has to be invested in the security systems, the geo-fencing and everything else that has to happen. I don't think that rate will be an issue, and that's not going to stop this bill. I think 16% is a good starting point. The casinos have already told us that if we go over 20%, they are not going to sign up for igaming, so I think we have negotiated that part. Does that mean there still are going to be people who are going to say we want 54% or 80%? Sure there will. But the reality is that I think we have enough votes at 16%.

iGB: So will gaming reform be your main priority and focus in 2016?
JP: Oh yes. The No1 priority in 2016 is to accomplish what we didn't finish in 2015. Let's get a bill across the tape, get it signed into law, and make our business partners healthy and competitive.

iGB: Both yourself and the Democratic Chair of the House Gaming Oversight Comittee, Nick Kotik, announced that you wouldn't be standing for re-election this year. Should that be a concern for the gaming industry, given how both of you have championned igaming as the centrepiece of gaming reform in PA over the last year or so?
JP: Don't worry until November! Both Nick and I have to fill our terms out, which run until 30 November. We are still here, we have got about dozen hearings already scheduled for March and April, on other subjects. We are not going away, we are going to keep gaming in the news, keep it in the forefront and awareness levels up. That's the way you get things done. Hopefully we have set a standard for this committee, that whoever follows us understands that gaming is a very important business in Pennsylvania, and we have to be doing everything we can to help these businesses survive. Interestingly, when we first brought up playing slots at the airport, most people laughed. They just thought it was ridiculous, telling us that Nevada is the only place that would happen and that the FAA [Federal Aviation Administration] wouldn't let us do it. I'm currently holding an article in my hand from TravelandLeisure.com, which says: “OTG (the company that manages a large number of concession stands) is looking at bringing airport concession stands, restaurants and slot operations to Laguardia in New York and O'Hare in Chicago.” So, as we sit and talk about it, we have already got two other states looking at doing it. That's what happens when you put it out there in the press worldwide, somebody reads it and says: “Pennsylvania is too slow to do it, we'll do it.” So we keep on kicking people, saying: “We have got to get moving, we've got to be proactive, we have got to get this stuff enacted and get it done.” We had a real ugly budget process last year. I've never spent so many days in Harrisburg as I did in November and December last year. I was here more than I was ever back in the district.

iGB: But you never saw gaming as being part of that budget anyway?
JP: No, from Day 1, it was always: “We need revenues to balance our pension shortfall.”

iGB: What will happen in terms of your succession and the gaming reforms after November, should the package not pass while you and Nick Kotik are at the head of the Committee?
JP: After the November leadership elections, the speaker of the house will appoint all the committee chairs in December. It goes on seniority, so they start with the most senior person and ask them what committee they would like to have, and they just go down through the list. I'm just working to make sure that this committee has gotten the attention and that we've brought it to the forefront, so everybody understands that it should not sit and do anything and not hold hearings. This is a committee that should be active every year because of two things. One, the fiscal impact on the Commonwealth, and two, the amount of jobs this industry provides to the people of Pennsylvania. So there's no reason this committee should ever take second place to somebody else's.

iGB: You mentioned earlier that the language allowing racinos to add up to 250 slots at up to four off-track betting locations may not make the bill. Given how powerful a lobby the horse racing industry is in PA, is it not vital to broker compromise on this issue to ensure smooth legislative passage?
JP: There are a couple of problems. You can't give just the Category 1s, that have the horse tracks, the ability to potentially put slot machines in an off-track location just 36 miles away from a Category 2. We have a 35-mile buffer right now under the law. As the bill stands, your competitor could be one mile over the line with an off-track betting parlor, and you are not allowed to have any. We are trying to broker a compromise. If we do off-track betting parlors and put slots in them, then all the Category 1s and Category 2s also have to have them. When we proposed that last year, the pushback was: “My gosh, now we've got 10 x 250 machines in each one, that's way too many, too saturated, too close to all the casinos.” And they all kind of said to us: “We would rather have nothing at all than to have that kind of saturation.” One of the things we looked at was putting them at a greater distance to casinos, which would put the off-track parlors into areas that don't have any gaming close to them at all, and we couldn't get that finalised by the end of the year. Nobody wants to put an off-track parlor in Northern Pennsylvania, where there are more deer than there are people.

iGB: Despite Sands operating the second largest casino in PA, Sheldon Adelson's Coalition To Stop Internet Gambling stepped up its campaign against igaming regulation there last year. However d o you  feel they are now losing the argument that online is less safe than brick 'n' mortar, given how watertight the security and tech have been in NJ? JP: Nothing has changed my mind that igaming is actually safer in preventing minors from gambling than the brick 'n' mortar casinos. Every month I get a report from the Gaming Control Board, and I read the press and reports that are out there online, and it never fails. However, if you look at brick 'n' mortar, there's always somebody giving a fake ID, or an employee of the casino losing their ID and somebody else using it, a mother coming in with two underage children and saw nothing wrong with that and she helped them scam the system. It occurs all the time. When you look at how rigid the model is in New Jersey, and the success rate they are having, it speaks for itself. They have enough firewalls in place that's it's 99.999% safe, which is better than our brick 'n' mortar casinos.

iGB: Have you had conversations with the politicians and regulators in the other states that have regulated igaming, and if so, what advice have they given you?
JP: We've obviously talked to New Jersey, and we are basing our model on theirs. Maryland, New York, Ohio are behind us. They are kind of looking at it because we are looking at it. I am certain, if Pennsylvania passes it, Maryland, New York, Ohio will all follow suit.

iGB: New York recently passed an online poker bill out of committee for the first time. Is this movement in neighbouring states something you will be making lawmakers aware of, in terms of creating a sense of urgency around the issue?
JP: As we have sat here for another year, Jersey has got another year of igaming revenue under its belt, and a further year proving it can be regulated safely and that you can keep minors off the sites. New York has now moved a poker bill, and is looking at more casinos. Maryland and Washington DC actively have casinos under construction. Ohio has opened casinos, New Jersey is looking at building two mega casinos in northern New Jersey right outside of New York city. I look at this and say, Pennsylvania has two choices: keep proactive and engaged and be out in the forefront, or be eaten alive.