JBC-Administrative Rule Review Subcommittee

So I appreciate a ready here early and stays seven thirty five we're gonna go ahead and call this meeting to order Uh we have a relatively weak the agenda with five rules to review today we're gonna take them out individually separately as remind everybody members of the public that if you wish to comment on a rule you should go and sign in now to give us the opportunity to call on you to appropriate time what makes you specify which rule individually you're interested in commenting on because we will be taking up each rule separately So here in a little bit the staff will take up the sign up sheet for you to people time the first order of business is going to be to adopt the subcommittee rules I'm gonna make an assumption of race had a chance to review those rules. I have a motion the second. all those in favor say aye. I was supposed. Nine seeing and the rules are adopted thank you presented body against my first time to cheer Committee shall be Bumbling through this bed Senator Flippo as here to hold my hand which is a great comfort to me and so that's good I'm it's it's funny because I'm trying to read what bill Lawrence handed me to the same time I'm also trying to. Take it up in the appropriate casual form so next on the agenda The rules from the racing commission and we're to start well if it's if it's okay with the committee without objection I'd like to take the rules out in a particular order starting with rule for then rule six then rule twenty two then roll twenty four and then we'll take up real twenty last if that's okay with the committee are there any objections to that process. Right C. nine will start with the rules for. Anyone see who's here to present role for. Page. Every. Mr Freeman Mister smoking camel. Tucker press the table and identify yourselves for the committee for the record thank you everyone. Good if you can introduce yourself for the committee Bayern free on the attorney for the racing commission with the John Campbell executive director the racing commission. Create your recognized to present the real. At hope I wrote the staff to since the order was for we'll start with remember front apologize for changing of the order that no problem whatsoever. Really most of these rules are non controversial do we get to the last one a casino game you remember for defense communication well well background when the casino game rules were adopted you had to be present on the premises of the casino to place a sports wager in the purpose of these rules is to change the the casino gaming rules were a sports where you can be place any place in the state of Arkansas is larger physically present which is consistent with federal law so we need to make certain changes to some of these rules concerning okay rule number four it justifies considering mutations technology that you can use authorize acceptance of sport wagering from paste patrons physically present within the state of Arkansas in no law requires a pager to appear before a casino employee and show identification there other identification thanks what would receive the computers thank you have a computer program now in you have to have passwords and. Your social security number ID numbers and things like that for security purposes short to peer before an employee of the casino so that those are basically changed because you know they were rolled over for. It doesn't look like anyone signed up to speak for against that rule is there any questions from members. That objection the rules consider reviewed and approved I move on rule number six number six is that is to call accounting regulations and this was it internal between the racing commission D. F. and H. to specify where certain funds were deposited there was some disagreement among this the staff about where the rule should be deposited we work for the attorneys trying to work out a compromise I don't think you're any any problems with this All all casino all signs renewal fees shall be deposited Arkansas racing commission cash money except the two fifty thousand dollar initial fee the ten year renewal fee any fines or penalties levy by the commission those were going to the gym state general revenues all other fees this would be for license fees for casino employees in an indoor employees things like that we're going to the Arkansas racing commission cash fund which could only be spent for the regulation of casino gaming and horse race. So that that it just defines where the money goes there was some controversy it was an internal controversy hopefully this solves that. It doesn't contain was signed up to speak for against other any questions on this rule from the members. I want to remind members and that just procedurally a couple of things with this committee one is we don't need a motion to adopt the rules the default is the rules adopted without objection so if I say or the any objections there's no objections the rules will be adopted the other thing I want to remind the committee is in the purpose of this committee is to review each will roll with regard to legality as it as it stands with state and federal law so the task of the committee is to ask you to rule is this does this violated state or federal law and then the second task would be doesn't mean Legislative intent so just as we're looking at this rules reminder that that's what we're here to consider today so are there any objections that to remember six. So without objection the rules consider review approved remove on to rule number twenty two. Senate. Rule number twenty two of this re referred to para mutual wagers off track here mutual interest referred to parimutuel wagers that surely referring to horse racing that's what this is to allow of off track here me to race. To be conducted with sports wagering they can be done anything by anyone within the state of Arkansas your to be present on the premises anymore but it's a pretty simple rule change. No one signed up to speak for against this rule is any questions from members. Any objections to the rule no question yes representative would let me figure out how to recognize you. How can you assure us that these beds are taken place within the state of Arkansas they have companies are called geo fencing companies in I think one of the residence is that here today they they are very convincing that they can tell you someone's in the middle of the Mississippi River on the side if you have to do it for other approved device to place your wager which would be basically a computer or cellphone you can't do it by telephone I don't believe so these give each of these will hire a computer a geo fencing company and they can tell exactly we're we're the best place yes I said that's a federal law so if they don't do that they're they're violated federal law that's it hopefully that will do Senate okay so so you're telling us that everybody the bets obeys federal law no I'm telling you are you okay let me. Proceed further are you tell you said is very convincing right they can do it but can they tell you one hundred percent for sure that they can tell were ever bit is being placed inside the state of Arkansas understood inside they can tell for certain where the band is placed. Or certain research with all the hacking and cyber problems we have in the world today they can tell you for certain every person is out there is the legal I mean I think is that the legal better I mean is sort is a legal bill or would you say yes or no to that I would say yes and representative wouldn't and committee members we do have someone here to answer questions specifically about unity and sing we have to have time to have them come forward. We we have to come for us to come forward he is very convinced of it in I'm happy to have him come forward and visit but as we're reviewing each rule. This is this is a review of the rule they made the rule they say that they can do Mr chairman I understand we haven't come forward that's fine. I know have turned computer I'll in the use my cell phone to make because that's about all of them to. If you would have to see the table identify yourself for the committee. Mr chairman thank you for having me my name is Danny drains so I'm senior director of government relations for G. O. comply. Joe comply is a company that provides the services we're talking about for basically a hundred percent of the online gaming market as well as I casinos horse racing I lotteries across the country or licensed in every state that offers these products and we've been involved in this business for the past ten years conducting billions of geolocation transactions across the country. We are constantly testing our products to make sure that they're working we are constantly trying to hack their own products to make sure that we are staying up to date with the most cutting edge technologies to do so. But to answer your question Sir. Nothing in this world is on president. I'm here so you could tell us for certain that you know where everyone is Betty. I can tell you for certain that no that's not what a as. Again. You said you cannot tell us for certain you know we're ever person is betting and state of Arkansas they are placing the bet legally within the state of Arkansas is that what you're saying that's what you say. Yes and what is that is the soul of a Mister chairman thank you. There any other questions. I thank you be instructive he said how they do this yes if the committee's interest in that be happy to give you some time to do that now thank you Sir appreciate it. Thank you. Your complies a global leader in geolocation technology the current income the company currently supports regulated online sports betting casino poker I lottery advance deposit Force wagering and daily fantasy sports operators in forty eight US states to ensure compliance with federal and state laws. Your complies and approved you location service provider in every state that offers online sports betting and gaming our software is validated by both government and independent testing laboratories and each day we process upwards of thirty million geolocation transactions in fact this past weekend Superbowl weekend we processed over eighty eight million geolocation transactions across the country and at one point we were averaging eight thousand you location transactions per second. Our company was founded solely for the purpose of delivering and you location system to support the US internet gaming market. From the company's inception we recognize the challenge facing US interstate gaming in the need for high caliber technologies act to act as the legal in a blur and safety net for interstate. Our technology enables online operators and regulators to meet the demands federal law such as the wire act unlawful internet gambling enforcement act in the sovereignty of states that use to opt in or out of online gaming. Members of this committee maybe if they would location data sources such as GPS wifi and cell towers in fact is that is used to power many useful consumer applications such as Google maps uber. And placing online coffee what are you close to start senate however the big difference between these open door consumer tools and compliance grade geo to geo location technology that we deploy. Is the way in which we interrogate that data that we're relying on to geo locate the device we cannot simply rely on IP address to determine a player's location in fact we dig far deeper our technology analyzes data sources based on a combination of wifi GPS cell tower IP and Bluetooth technology to verify players location. Your complies that knowledge detects and blocks the use of. Location spoofing methods such as proxy servers VPNs remote desktop software virtual machines mock location settings developer tools and the list goes on and on. We played a full time teams in multiple countries they keep up to date on the latest proofing technologies available and we regularly adjust our systems to detect them by the time you're complacent approves or denies that you location transaction it will have been subjected to over three hundred and fifty analytical checks to verify that only legal bats are permitted. All these controls are easily implemented as long as there is a requirement and expectation for them to be present as per technical guidelines that we still need to develop the state of Arkansas. To help illustrate how you'll you'll case technology works in regulated markets with a live demonstration of our pin drop my pin drop now on display for you. As you can see this is live gaming activity that is occurring right now in your neighboring state of Tennessee. Each pen that drops represents a real time geolocation transaction the White Plains represent mobile devices running iOS operating systems the green pants represent Android devices mobile android devices in the blue pens represent PC or mac so we're talking about desktop or laptops obviously the red pens would then represent geolocation transactions that we are family. In the neighboring state in your neighboring state of Tennessee where we need your place ports one hundred percent of the game online gaming market. Approximately thirty eight percent of all sports betting traffic originates in Memphis as you all know that's just within miles of the border nearly forty percent. This highlights the importance but also the effectiveness of pinpoint accurate geolocation technologies to be able to allow for that board a plane in also prevents those close to the border but on the outside from being able to which. By looking at current daily fantasy sports traffic here in Arkansas which we also support. We can see the twenty six twenty six percent of your users and daily fantasy sports are within ten miles of your borders on the inside of your borders pointing to the fact that affected you location was century. A protected future of sports wagering revenue here in Arkansas. Okay body described what these pains me I can zoom in a little bit here so we can see a little bit closer to your border area of Memphis we can see a lot of activity. Right on the border. And at some point as I'm speaking you might in fact see and it's not uncommon to see a red pen drop in your own state of Arkansas which is would be a fail geolocation transaction because somebody from Arkansas is trying to access the Tennessee sports for. If that happened somebody shouted out and I can explain it to you there it is right there West Memphis and if we click on it you can see it says this user does not appear to be within inclusions on our inclusions on would be the Tennessee border that users not inside that border they feel that transaction that's real time probably happened about fifteen seconds ago. I appreciate the opportunity to address the committee here today thank you for having me Mr chairman and I'm happy to address any questions it's on the house thank you for the presentation are there any other questions from committee members. You senator Johnson. You're recognized. Mr question. This is active policing agent for our gaming or at. This is what we're going to try to keep this within our borders right yes Sir in fact we work very closely in fact that's all I the. Let me back up a second. I retired I was especially in the United States secret service for over twenty two years I retired a couple years ago and started working and gaming in fact I was a sports gaming regulator in Tennessee and that's where where I live now my entire job would you apply is to work with state regulators in every state and make sure that they have these tools that I'm showing you right now to monitor wagering traffic in that state to make sure they're compliant with both Arkansas state laws but also with federal law. Lows interstate commerce laws if the if there is a wager outside the State who's the legal part of the person making a wager are the state of Arkansas. So there's there's a whole litany of answers to that question in multiple layers right the federal wire act criminalizes interstate transmission of wagering signals so technically speaking the person placing that wager would would be in violation of the federal wire act there's also a whole litany of laws and regulations that would hold the sports books accountable for that type of activity. But if we have a system like this which is the best we can do. Has that ever been prosecuted on the State. But yet I've in fact I myself as a as a federal law enforcement officers have charged that wire act violations in illegal gambling cases absolutely but the manner in which those schemes are carried out is not to break or happy geolocation system it's things like proxy betting where Senator if I I'm sorry Senate if you are in the state of Arkansas where it's legal to wager and I live in the State of California where it's illegal to wager. I'm not actually placing my own back from California I'm calling you on the phone the place that back for me right is that makes sense yeah. Right thank you yes Sir. Are there any other questions from committee members. Resented these you're recognized yes is it your software or the sport books or who who's that would determine if these bettors are of the proper age. That is the the proper age goes to identity verification and and kind of a know your customer process and that is we we just played does have a know your customer product separate from our G. location products and I believe essentially it's up to the operator to sign those commercial agreements with whatever KYC vendor they're going to use to determine that engine identity verification thank you Sir. Any other questions. There any other questions regarding the rule itself. Without objection the rules considered reviewed and approved. Of. Okay seen injection there's a process for that we need a motion to vote on the basis of whether the rule. Either is inconsistent with state or federal law. Or inconsistent with Legislative intent so I need a motion specifically as to as to how in that is to take a vote on whether we're gonna take a vote to approve the rule so the first vote first on the motion specifically with regard to you does it violate state or federal law or does it violate Legislative intent. The. So I'm being told you need to state your specific grounds I will say that with regard to Legislative intent reminders the committee this was a constitutional amendment referred to by the people and to the people and so I there's the question of whether Legislative intent is applicables since this was not a legislative law but was a constitutional amendment so just a reminder that that's you don't have to object based on Legislative intent you can object based on state or federal law that I'm being told you have to state your basis specifically for the object objection as it pertains to the roll over dressing. Lorem. Or. And and so again. As I'm being told by the bureau that you need a specific reason why you think it's a wide violates federal law you have to make the case for object because it violates state and federal law on this grounds. All my stuff. No okay and represent wouldn't. Yes you second hold on represented there yeah you're recognized sorry I forgot to turn my. Thank you objects on the grounds that the did the constitutional amendment that created the right to be able to build these So called places of gaming in casinos if you will that constitutional amendment say include this type of wagering outside it give the authority to the racing commission to the legislature or anyone else to establish off site betting. It is that constitution that's a refresh my memory does constitutional amendment one hundred fines is seen of gaming is playing cards dice and includes a sports wagering is representing me representative will be finished if you will let me interject you can make an objection on any grounds you'd like if you wanted to act on the grounds that you thank you well I will you know we're rolling L. I will know what we're proving here or we proven something this concert senator Ben you're recognized for point of order. One of order we have closed the question period is that correct Mister chair and we're at the point you have already ruled without objection that this rule is approved at this point a member cannot ask anymore questions you can make a motion to object to the chair's ruling. So you can make a motion to object on your grounds of objection don't think make or whatever to object is like the other Senator did not apologize don't mean to offend anyone but you need to keep in mind every time we do something like this we're driving A. Clark St the market is represented witness representative we're recognized J. you're recognized for your actions the only the only point is you have to specifically objected to your if I understand the question correctly you're objecting based on the grounds that violates the constitution's okay okay that's a fair objection. Senator Chesterfield you're recognized. Yes sorry my my concern we're voting was members please there's a vote before the committee we're voting to approve the object to sustain the objection to the rules that's the first vote. Correct. All. Correct if if the vote is no. Then the rule is approved if the vote is yes they will have a second vote on whether to approve the rule. Okay sorry we need a second day which I see Senator Teague recognized for a second so I have a motion and a second all those in favor say aye. All those opposed say no. That does have it. It's my first time to cheer but I will call that when. Yes the so that without objection now the rule is considered to be doing repair and approved so we move on to the next rule which is rule number twenty four. On. Rule number twenty fours and other religious deals with whether the patient has to be present on the casino premises and it was changed to make the requirement that that is the president physically present within the state of Arkansas so that's basically the only change a rule twenty four. No one signed up to speak for against real twenty four there any questions from the members regarding rule twenty four. Cigna questions without objection rules considered very reviewed and approved and will move on to rule number twenty which is the last real first review today. We do have some people signed up to speak for against this rule if you want to start by presenting the rule and that would be great. Rule number twenty is the rule that contains one or more controversy they were controversial in in in brought at public comments of rule number twenty four contains a provision that operation in all lands support who will shall be prohibited in circumstances which a majority of the net casino gaming receipts as defined in the mid one hundred inspector third party vendor or assisting the operations for school and that that provision for the most comments and I'll talk about it in the other provision is it limits the sports books to no more than two so south center climb or Saracenic could have to sports books it and they don't have or not limited when they have to it would be advertising fighting for that business so lesson have to sports books. Of the. The major controversy is over the operation of an all Lampur majority casino gaming receipts as defined in member one hundred is paid to a third party vendor or the theory there is an amendment one hundred defined sports wagering is part of casino gaming only a license is seen no operator can do casino gaming and so is the theory is that there's a constitutional argument here that'd be contrary to a member one hundred if you allowed a third party to conduct it to it to get paid more than fifty percent of the upper of the net gaming proceeds they would in fact be operating the casino the their sports but sports book. So the theory is that only a license you see no operator to do sports wagering so if you allow someone to receive more than fifty percent the argument is that that's contrary to amend one hundred because the person is receiving more than fifty percent is operating the sports wagering and so the rule was drafted the requires anybody who is a vendor or they cannot be paid more than fifty percent of of of the of the proceeds in this is this rule was supported by the casinos themselves the Arkansas casinos and keep some money in the state of Arkansas and we had a hearing where the casinos brought in witnesses and they were had added seven hundred jobs or more each and millions of dollars in the state of Arkansas in the right to commission was want to go with the Arkansas sports scene knows in this instance to allow them the shot of this and nothing is good concrete is thank you Commission said if this doesn't work it'll become obvious as we begin that they can look at a different a different tactic but to this point in time the the rule statute you can't go out you can't passionate casino gaming the end or more than fifty percent of the of the that game proceeds. Okay we do have some questions from some members there's several securing apple start senate bin you're recognized for a question. Thank you Mr chair representative when did have a very good question and I didn't mean to cut you off represent important but his question was in regards to the constitution and the constitutional amendment that the people of the State of Arkansas voted on and what you just said of validates that amendment one hundred does define the ability to wage is that correct and that it would have to be a casino operator that would be in charge of that wage rate is that correct well it does save charges authorizes them to operate to do casino gaming which is in fact a sports wagering also that you have to have a casino license in three of this point okay. And it just remind me when was this voted when was this constitutional amendment two thousand eighteen is my memory yeah I'm doing it for members but I think that's correct okay. Thank you I've got the amendment and here are some raw rolled over to the R. thank you of. Yeah it is November November fourteenth two thousand eighteen. Well as approved November six. Affected November fourteenth two thousand eighteen okay thank you. Senator Davis you're recognized for a question. The all it said sorry sorry you're in the wrong seat and now you've got a Yala recognized I can't even read this morning. So did you say to. You are authorizing to a. So are we going to have a third one. Well at this point the rules authorized to sports wagering indoors and that would be someone who would come in. Two two eight the the casino in doing sports wagering so they would have the ability to have up to two. So when the new one opens up does it get grandfathered in or is it just going to be blocked out with do casino opens up the casino gaming rules as written and if adopted today applied to the new casino okay thank you thank you Mr chairman. Represent you and you have a question you're recognized thank you Mr chairman. On the I don't see. In the book and makes a statement. No financial impact. Is. Occurs. What what is that a measure when the the center management on state finance on state expenses or is that a management on the toll it takes on family income what's what's the financial impact me financial impact we were going out that's where we thought and it doesn't cost the state anything you're not paying money for financial impact it's the state of Arkansas would not be paying a hundred thousand dollars or twenty thousand dollars anything so so it doesn't it doesn't include any social impact relative to families of that losing money or as as doctor Jack Sternberg pointed out the buzz when will you lose every bit of money you've got a C. pointed out in this in a statement right you're correct are you are you where are you aware that there's a new pages of opposition to this and only for Ford and all of its coming from the wagering gambling people yes definitely we we we turned in a copy of all the okay did you read did you rate the. Then Thompson's statement mark Johnson statement and Roger fry's statement in the those that oppose. I read all of them you will yes I don't know if you still haven't re read on yesterday first Kandam. Thank you thank you Mr chairman thank you for your patience and commitment to the thank you. Are there any other questions regarding the rule for members. See no more questions we do have some people signed up to speak for against the rule Mr burst here you're signed up first to speak against. Thank you Mr chair thank you Mr chairman members of the committee you can just ride the state your name and who representing for the committee Sir my name's John Burris with capital budgets group represents a coalition of sports but companies some of the brand names you probably would recognize like FanDuel draftkings etcetera. I will do my best to be quick this is never a fun thing to do but believe it or not it's not fun to sit here and and speak to you all here for fiscal session not here to deal with this kind of issue and that is not fun to oppose a lot of people who are friends but but here we are you know I'll try to provide a little bit of context for this debate then explain why we believe in the end the rule is written is inconsistent with the federal Commerce Clause that states that essentially in my layman explanation that a state cannot discriminate on up against an out of state interest to the benefit of an in state interest I think it was it was clear that that was the intent of the rule here. This is been a behind the scenes debate largely for the past couple years at the racing commission level back sometime to originally it was decided that while the amendment allowed for on site support for sports betting the decision was made on the rulemaking process in your twenty nineteen is to require that to be on site at the casino we'll be back in the fall the governor came out and said that he supported moving that the off site and to allow for any where a lot of that's because our neighboring states are moving in the same direction this is a pretty competitive market place across the country so then the process of drafting rule started As was stated casinos had helped craft rule that include this provision that the that the folks that I work with believe we'll in the end not provide a competitive marketplace for consumers so. We weave in and out of of the policy discussion here you know but a largely try to stay focused on that Commerce Clause piece yeah I want to say to be near the beginning. It's not I I do regret the way this debate is shaped up in a way about kind of an us versus them mentality to the to appointment earlier. Everyone agrees that the Arkansas licensed casinos have to be in operation sports book that's not in dispute the Arkansas constitution requires it only the for licensed casinos are allowed to offer sports wagering what we're asking for is to be able to go to go **** our own contract with those casinos to be a subcontractor in a third party vendor. Without the state putting their finger on the scale dictating a profit margin and that's what this rule does. So. I'll reference some Commerce Clause and dormant Commerce Clause the reasoning we looked at all there's a substantial amount of a circuit court law and Supreme Court a case law that lays out when a litmus test for when there can be a Commerce Clause violation I'll quote one of the release of the Supreme Court that's often quoted by the eighth circuit and its static Interstate Commerce fail can be a violation under three scenarios thank two of them apply here one is just one described this is quoting one discrimination can be discerned where the evidence in the record demonstrates the law as a discriminatory purpose if you watch the racing commission meeting. I bet out of state was said about fifty times if you read some of the letters sent to oppose this rule once and make the in state casino argument. They say in writing that the intent is to keep out of state interest out and keep the revenue at the Arkansas casino so I want to repeat over and over again that every dollar no matter what even if I get exactly what I'm asking for every dollar has to flow through an Arkansas casino through their operation under their control that is not in any way in dispute But. The reason I quote the case law is because it became evident that the testimony and and then throughout really the whole process that the intent is for their only be the in house one you know one offering by the Arkansas licensed casinos and with the intent of keeping out third party vendors and I think that case law but according to read it again the the the court to the Supreme Court and the a circuit that one discrimination can be discerned where the evidence in the record demonstrates that the law has a discriminatory purpose. There's a dormant Commerce Clause violation there's also and there's lots of other case law reference one more there's a majority opinion written by justice Kennedy at the US Supreme Court the talks about the application of of of boards and commissions and anti trust violations whether he says that the application is quote flexible in context dependent on the reason for that is because obviously regulators or governments lawyers of guns smart over the years you can't write a rule that says out of state not allowed in state allowed they're written in a way that facially valid but has a discriminatory purpose and I believe that that's that's what occurred here one note that was not presented and and the presentation by the commission of their argument was that a member one hundred requires that the casino licensee conduct the gaming again I'd say no one disputes that. I no matter what my client has to go but one of the three casinos for the right to do business in Arkansas absolutely no matter what again what we're asking is for the state not to put a finger on the scale dictating a profit margin vote what what was not discussed yet was that there's a Attorney General opinion it came out after the race the commission meeting that speaks to the to the requirements of the number one hundred I have twenty five copies here but it says very clearly that there is no requirement and one hundred fermentative profit share says a silent there's no statutory requirement is the rule regular army it's completely silent so. The the promise of the rule with or for the purpose of the sentence you know it was because in theory it could be a violation of the number one hundred if a third party vendor received a majority of the revenue and therefore this was a requirement and then the one hundred that's as it was presented to you a moment ago the Attorney General's office makes it very the Attorney General had opinion makes it very clear that that's in no way a requirement We proposed a better way and I'll come close to a conclusion here. But the hammer point home no again absolutely no one disputes that only the Arkansas licensed casino can offer sports book. we acknowledge that. There's always room for increased clarity on who's in control you know the the need for this revenue the profit share mandate that which no other state does by the line. was because confusion over making it clear who is in control of the gaming so we have proposed is instead of a profit share which the attorney general's office and says it's it's not relevant to the discussion. The good news is a much simpler solution is to use a a definition of control that's in the racing commission rules and rags today and I'll read it see and it says the control as defined by the racing commission. Of the term control including controlling control blind means the possession director and director of the power to direct cost the direction of the management and policies of a person whether through the ownership of voting securities by contract or by otherwise. So if you look at the rule at the end where it's the services starts further you know but in the end instead of saying. I paid a majority of the of the profit essentially simply say that the casino licensee must retain appropriate control as defined by the rules and regulations and we can see compared a lot to look at general contractor reach a lot of subcontractors that's where you usually are subcontractor because they're turning to you right your general contractor he hired elector should they be getting paid a majority of that money from the homeowner whatever the scenario is but the general contractor still the general contractor you hired and electricity because that's the work they do in Google any other sold any state that allows sports betting on the come looting several of our neighbors right now and without any effort at all fine dozens of stories of sports books partnering with casinos every day we send as a great example it didn't have to be this complicated and in the end we think that the rules written is inconsistent with a federal Commerce Clause we want to be able to go to go **** our own contract and convince them that we're a good partner and no one disputes the court the crazy part about this is they can say now and we cannot do business they are in complete control if they think of all it's meant one hundred they don't sign a contract they don't like me and want to sign a contract we cannot do business in Arkansas that occurs you know partner we just want to be able to go hope over time that market pressuring consumer demand will allow us to make our case and when we do we want to be able to negotiate a contract without the government having put the finger on the scale the front and and it we believe in a way that is inconsistent with a federal Commerce Clause that prohibits discrimination against out of state interests court instead interest I'll close with this but it's actually the point I should made from very beginning. When I talked about the facially valid component of this once important they're gonna say that their their argument is essentially that the profit mandate split applies to an in state sports book just like it would an out of state sports book therefore there is no Commerce Clause violation because you're no matter where you are as a sports book same rule applies it's a it's a I get the argument but that's what I quoted justice Kennedy about the application being conned a flexible context Pacific and the discriminatory purpose the the reality of this market place though you don't have to say seven out of state the undisputed reality is that every casino is owned by common sense instead operation for licensed brick and mortars and it's a knowledge five by the casinos that every sports book is out of state there is no one state sports book now and so you don't have to say instead out of state all you have to say is licensed casino gets have sports but must pay half for you can operate here and the effect as it made very clear in the testimony in the riding is to discriminate against out of state interest that that is our argument of you know why in addition about public policy with a it's inconsistent with federal Commerce Clause. You could remedy it by simply asking for clarity of it and using the definition of control that already exist by getting an AG opinion on Commerce Clause or by it by not approving the rule we've we want this to move forward but we believe as written it is inconsistent with the voter Commerce Clause and case law surrounding dormant Commerce Clause. I'll be happy to answer questions. There any questions from committee members for Mr Burris. Senior questions thank you for your presentation next up to speak this would be for the rule the Mr Sasfin he's here to come to the table identify yourself committee thank you. Senate. It may be that three of you have signed up to come to the table together I'm happy to have all of you come together individually however you want to do that. And I didn't among readers. Mr Abel Mr Lancaster I also want to come to the table and just have all of you identify yourself I'm happy to hear from all of you collectively. Thank you Mr chairman I thought it would be useful for there to be a couple of attorneys at the table in addition to Mr Friedland sure and up my mother will probably always consider me a failure because I'm not an attorney so sitting next to me are the attorneys for my competition Oaklawn and Southland sure enough jockeys just individually identify yourself for the committee and for the record yes Mister chairman I'm skeptical and I'm the attorney for Oaklawn Jockey Club Mr chairman Steve cast for the C. I. think you need to turn on your mind can you have a Mike to have mystery. Good great Mr Lancaster they get Steve Lancaster and I'm an attorney for south one okay Mr sapa. You very much my name is called and staff of I service the CMO of the stairs and casino I look out in the audience today and I see many friends. It's an honor to be back here today I've I've not been here in the private sector capacity before and it's a little exciting to be back in the building. This meeting is important and it is timely and again it is an honor to be here to discuss something as important as this. I want to be clear from the outset that I speak only on behalf of stairs and development the owner and operator of the stairs and casino resort we are in Arkansas LLC with over three hundred million dollars invested in pine bluff to date another hundred and fifty million in the pipeline I was the enterprises first employee and today we employ about nine hundred our Kansans with about seventy percent being local to Jefferson County. It is my understanding that the other casinos in Arkansas or in support of this rule as well but we have somewhat different opinions as to some of the more minor details for example Saracen did not and still does not support the idea that each casino should have two apps sometimes called skins the racing commission place this rule and specifically at the request of the national vendors gathered here today it is my understanding that was an attempt at a concession to those vendors. The rule today allows two apps for casino and we have accepted that concession and moved on but to be clear that's not something we would have wanted in there. Again the casinos positions may slightly differ but with each of us at the table together you can see that we also for the rule for our own reasons. The organizations that we represent compete every day we compete against each other in a competitive market place rightly outlined in Amendment one hundred some day maybe there could be a fourth casino in Russellville which could join this competitive market place we compete with table games slots food and beverage entertainment and on and on but the people outline the competitive market place of no more than four vendors and I think they did a good job of doing that. As you know there was a request by the national vendors for technical corrections to this rule one that admittedly didn't change the rule and substance and that is delayed this rule Fite nearly a month already that delay caused our Kansans to miss an opportunity to place wagers on the Superbowl the biggest sporting event of the year and this rule addresses something our patrons ask us for every day and I'm sure you have constituents asking you about every day this rule is important but it is also very time sensitive now and I would ask that you look at this with a sense of urgency with March madness just around the corner should we not proceed today I'd imagine we'll all get calls from people around the state asking what is taking us so long the state lose revenue from this extension of an already legal business and the casinos will lose what for us would be like Christmas shopping season for retailers. And this is probably the most important thing I have to say so if you've to me out so far please at least here this the question before you today the reason we're all here this morning as you well know is to review this rule simply to confirm that it is consistent with state and federal law and the question before you again a simple one scope is the rule unanimously passed by the agency consistent with the law I'm confident that the answer is yes and the Saracen team nine hundred strong is eager to proceed with mobile gaming an extension of our existing brick and mortar sports book offerings sports betting is not new to Arkansas Saracens been in the sports betting business since the first day we opened in October of twenty nineteen my friends at Oaklawn to the first legal sports wagering in state history what we're merely talking about is an extension of a legal an existing line of business I would ask today that you apply the same review practice to this rule as you would to any other rule from any other agency at any other time you've met on a rule in this room no more and no less I would ask that we not twist ourselves into knots because we could be here all morning with endless what ifs could be maybes and more because the same sorts of cherry picked case law arguments that you can toss about are not as dead on as you would be led to believe given enough resources there are people who could argue that today's not Wednesday or that this is the afternoon right now especially to suit their goals and again I'd ask that we view this rule against the task at hand today only is the rule consistent with state and federal law the same standard applied every time a state agency rule is reviewed. Their arguments that this rule might violate the Commerce Clause or it might violate the dormant Commerce Clause where the kitchen sink or anything else that could be thrown at it and while I am immediately dismissive of those claims I respect the lobbyist for the national vendors who are making these claims you see they have to make arguments like this because otherwise they are out of options I get it the national vendors have before them a unanimously passed rule with broad public support and have no other choice but to invent an argument about legality to stop things and so that's exactly what they're doing the national vendors realize their only ability to try to stop this popular in unanimously passed rule is to convince you to declare it inconsistent with state or federal law. After hours of testimony the attempts to hold this rule the Commission level received exactly zero support. And I'll say it again the rule before you today passed with the unanimous vote of the racing commission I get it I do not blame the other side for this Commerce Clause throw the kitchen sink at an argument and I would try the same thing if I was in their shoes but none of that makes for a convincing case were reason for you to view this rule as out of line with the law this proposed deal rule deals evenhandedly with interstate and intrastate commerce as it does not discriminate between the two the Arkansas racing commission under Amendment one hundred has a clear interest in strict regulation of casino licensees which are the only entities authorized in Arkansas to conduct sports wagering there is no distinction in this rule between a vendor from within Arkansas and from outside of Arkansas none geography is not referenced there is no discrimination there is no mention of geography there is no distinction neither on face nor in practical effect is this rule in anyway an appropriate. I'm near the end here so don't worry. Pardon the sports analogy on sports betting but please know that this Commerce Clause argument is a hail Mary pass. That's what it is I know we're talking about sports betting but you had a hail Mary pass through this morning. I'm asking that you don't fall for it. Know that lawyers across the state not just wanted this table but many more have reviewed the mobile wagering rules and do not have the same conclusion as a national sports betting vendors those vendors need to convention that somehow some way this violates the law so they've created an argument and that's their hail Mary pass today to sum this up I'm confident the rule is in line with the law in Saracen is excited to launch should this rule proceed as reviewed organization will be live for March madness we're excited as our pagers and no doubt many of your constituents thank you for your time and again at the table with me our representatives from Oaklawn and Southland. Yes my name is skip able and I represent are gonna they're gonna have some questions for or thank you senator Dismang you're recognized for in a you know I had no intention on hitting my Mike today but I you know we're friends and I just wanna see how much I appreciate the lecture about the constitutional amendment I drafted in the in the law following that set up this process I mean I will say this and that and. I'm not sure that I disagree I really don't disagree on whether or not this you know objects to or is not in line with federal state law but I one thing I will say because I don't want to members to walk away from this committee saying they don't have the right you have the right to ask questions and try to get an understanding of where the law or the proposed rule resonated from and what its impact is going to be and so we may be bound by not being able to actually you know take a position because may not violate federal or state law or be in contrast to we do have the right to ask that question. Are those questions so this is mine. One. When I look at it I'm still a little bit uncertain of why the rule is written up to fifty percent revenue nothing do with band bill or anybody else it's it's why is that and so when I when I look at the rule the only thing that I can get back to is. And and this is really what I want to know from the commission or even you all I mean. You already have the latitude to work with who you want to the constitution provides that now this is injection of fifty percent of profit. Which to me if I'm looking at it is the way that this will play out is this ties the hands of all casinos in the state from being able to operate with anyone outside this state which then just again solidifies the market share for probably the entity one of the three casinos it is most ready to watch today is we understand market share and once it's developed and created in whoever's first of the game it is going to be able to hold on to that and those entities so you're aware of things that aren't ready to launch today will never be able to participate at the level the level of the first entity at the gate so I do think it'll be beneficial for certain casino operators is that I'm just a little bit confused why we took this direction at fifty percent unless it was for any other reason than to to dictate market share so couple things one I'm glad you asked the question you're right we have been friends since before you even in the state legislature on the house side so thank you and I did not intend to provide a lecture merely to limit the scope I actually had a line in here I got it out for brevity we're basically said if you have questions about this rule call me and we'll have coffee or beer and I can talk to you about it but I didn't think it was useful for the committee this morning although it's completely at your discretion to do what you want to discuss every component of the rule the scope today is whether it comports with state and federal law but I'd be tickled to visit with you today tomorrow you name the time and place about any component of this rule but again the scope is what I to use your words senator Dismang lectured on and I apologize if that's how I came across but I think it's clear for the committee's use of time to know that our scope to your question about the fifty one. I'll say what I said to the commission. My job as a casino operator is to make a business decision about what is best for my entity for our entity for the nine hundred folks who work with me. What I said to the commission was I believe it is their job to create proper public policy I believe that the majority position a fifty one position is actually proper public policy because keeping control and control not just being legal control or control on an org chart but control in terms of money with the licensee's is the ideal public policy position for the state the amendment speaks to the casinos being able to book the bets and it is been my position that it's not just good for me to make that call my half of my business but it is so obviously correct that it should be a matter of public policy of that answers your question it does except for each casino already has the ability to do that in this fifty percent rule actually ties the hands of each casino together in in a sense and I mean I get it I mean I think I fully understand the game and and and what's being played here and I I think you said it best when he said it was your interest represent your you know your your bosses in your entity and I completely respect that I just think that elected that I think it's just important that we point out kind of what will ultimately be the goal and I mean that means that all the auto mechanic holding hands we can you know hear forward and there's gonna be limitations placed on you in those the first the market will be the biggest benefactor in those that are not will not be and I think that's hopefully everyone was able to see that as we were you know going through this process and also understand that the rule probably originated with casino you know with the casinos themselves as opposed to with the commission I get it I understand it but again members we have the right to ask questions in this committee to make sure we understand what the outcome is going to be and I don't want to feel like we're on you know him from doing that even if for only limited be able to take up you know whether or not it it conflicts are violates federal state law thank. Senator sample you're recognized for a question thank you Mr chairman. Carlson that I'd if you mentioned you're alluded to control what we go and I'm sitting here thinking you've you're gonna ultimately have about half a billion dollars tied up in in your casino and and Jefferson County. And I understand why that we will the fifty percent but I'm I'm still sitting here as a former business owner wondering why you would or why do you even want someone that would come in and could possibly jeopardize your license. And and cause you problems to the extent that you might have to have to shut the business down wine or you were you even taken in the story of the even considering this because. But three of yeah I would say that you've got you know. A billion and a half or more money tied up in it and you could ultimately lose everything if state operated and of an illegal manner. So mobile sports betting is something that I think Arkansas has been slower than other states to to move towards I can speak from only my experience. A on permits wagering was attractive in the beginning but we continue to hear every day from our patrons that this is something that they want any something that many states are moving towards Louisiana recently launched a just in time for the Super Bowl we had hoped to be right there with them and that didn't work out the market is requesting this extension of our brick and mortar business senator I would I would think of it is this it's a it's like E. commerce. So if you open a store on main street and you sell you know widgets you've got to move online because your customers are demanding and our fear was that if we did not move with the requests that frankly time might pass us by with something that we didn't see coming a big position change for me was when I saw a man I used to work for in respect greatly the governor call for rules for mobile wagering at that point I knew it was time. Thank you right the wire act violations are very real Mr Renzo from Joe comply spoke to these gentlemen are lawyers for the casinos I'm an executive for one and believe me I'm very familiar with the wire act because my neck is the one that's hanging out there if the geo complies technology doesn't work trust me it works. And if we don't control the percentage within in and simply allow each casino to taking and set their own rules well that wouldn't mean that eventually want to say no would have all of all the sports book and the other two would be. Without it it's possible I think the competitive market place very good Southland has a very large market share because of its proximity to Memphis and Oaklawn and Saracen we started to get out like I. Michael friends for central Arkansas was business by Thai this market needs to be regulated and I believe these rules rightly regulate the market place and that's what we're here for yes so thank you and I wanted to give the other representatives that are at the table opportunity to speak I also want to take questions a representative each you signed up for a question do you have a question specifically for Mr Saffo or more generally for the all the representatives at once because I want to give them a chance to. Okay so if you Mr ever you're recognized Mister Lancaster wants to go first thank you Mr chairman again just the Oaklawn is been around for a hundred years and I'm proud to be here to support on their behalf the proposed the rules of the racing commission has adopted we don't believe that these rules impose any burdens on interstate commerce there in violation of the United States Commerce Clause we thank these rules are a reflection on regulatory policy consistent with amendment one hundred and there is an appropriate regulatory safeguards go back to the language of amendment one hundred say aye amendment one hundred says casino licensees may accept sports wagers. That's what expressly says it does not say anything about third party vendors it says casino licensees may accept sports wagers. The racing commission I believe based on the the testimony in at the hearing I believe they were concerned about that and I believe Bayern expressed concerns about the casino licensees really need to be the one with the stake in the game they need to be the one with the vested interest in the mobile sports wagering platform to be consistent with amendment one hundred and it's fifty percent rule was discussed and the conclusion I believe the racing commission came to was that it was an appropriate regulatory safeguards to remain consistent with the specific express language of amendment one hundred St casino licensees may accept sports wagers I recognize the fact that the attorney general's office has is that there's no express prohibition against allowing third party vendors in the room the racing commission heard debate on on this point we disagreed with with part of the rule that allows each casino operator to have to mobile wagering platforms we believe it should be one we respect the racing commission's regulatory authority we respect their decision when they adopted the rule allowing up to two mobile sports wagering platforms and we do not object to that rule. But the the the intent of the rule is to make sure that we remain consistent with amendment one hundred the requirement that it be the casino licensees that really have a stake in the game the feeling was that really if you have the the revenue should a share that we have in place here that would be a and appropriate regulatory oversight on that point this type of rule is not unusual in the casino again world there are other instances in casino regulations were limitations. How are placed on the amount of revenue that may be paid to the third party vendors so it is not anything unusual. In the casino gaming a regulatory work and in short the racing commission after hearing testimony after receiving public comments both for and against and it buys from Byron they adopted this rule we believe it's an appropriate regulatory safeguard and it's good to remain consistent with amendment one hundred requirement that it be the casino licensees that except this the sports wagers thank you. Mr location I'll remind you that we're up against a hard stop at nine and I want to give people time to ask questions press wishes started at seven but a public garden feathers if you could just keep it brief thank you thank you got and I will again my name is Steve Lancaster I'm here representing Southland casino racing Southland has also been a code community member in the state for well over fifty years it since the passage of amendment one hundred Southland has invested more than three hundred million dollars in the West Memphis community building or facility and and proving and increasing it by the time this is over will have implored about twelve hundred people we're constructing a twenty story hotel again in West Memphis that's going to be great for that community and in the last few years Southland as a body has. Contributed over million dollars to various charities in in our community. Of. What what I want to speak to today is the the Commerce Clause argument that's been been put forward I think we can all agree as Mr Burris said that the casino licensee is allowed to accept wagers on sporting events that is our responsibility under amendment one hundred and the the rule rule twenty accurately places that responsibility on the casino licensee. The the racing commission under Amendment one hundred is given responsibility to regulate gaming that includes a sports wagering of the racing commission has oversight responsibilities payment of taxes responsibilities they've got to make sure the regulation is fair impartial and stringent. And that is the purpose of these rules and that also is the strong local benefit that rule twenty provides and is what must be weighed against any incidental of a burden on interstate commerce and that it is my understanding is the only question that's before this body today is does a rule twenty violate the Commerce Clause were particularly the dormant Commerce Clause. And that in in just real summary that the dormant Commerce Clause prohibits states from enacting laws that discriminate against interstate commerce by burdening out of state competitors to benefit in state competitors. And there's a two step analysis the law follows to to do that and determine whether there is a violation the first is whether the the law the rule has a discriminatory effect on its face and here that is certainly not the case the the rule applies to any vendor whether or they are local or out of state it did. Must be recognized that there is not an in state vendor at this time but there there could be and they would be subject to to the same rule I'll also point out that there are out of state vendors who we are we are working with. who will be a vendor for us in a mobile wagering and they are able to comply with this rule so it is not a matter that this is affecting in keeping out every out of state then people are able to work through this. The the second test so we again we believe that the first test is easily met. The the second one is that the law regulates to effectuate legitimate local public interest and the effect on interstate commerce is only incidental the rule is up held unless it is clearly excessive in relation to local benefits. And again we've we've pointed out of Carlton and skip have talked about that that local benefit that responsibility that the racing commission at an amendment one hundred has placed upon us as the casino licensees to conduct mobile wagering in what is already an extremely tightly regulate industry then there is that rule is to be allowed in and forced unless any incidental burden on interstate commerce it that rule clearly is excessive in relation to the local benefit and and again the local benefit is what of. What this needs to be weighed against. Here the the effect on interstate commerce doesn't even rise to incidental again it applies evenly to to whether you're in state or out of state again we've got out of state vendors who are who are complying with this rule it it doesn't prohibit any vendor from contracting of with a casino licensee and that includes Mr Burress's clients they're free to to contract with us Just within the confines of rule twenty and when their business model is what would trip them up for for contracting with us in the rule that is not a unfair burden on interstate commerce that's a business decision that these these groups may I direct you we do have several questions and so if if I'm again I hate to interrupt we have ten minutes there's three people that have signed up to ask questions I'd like to have a chance for at least a brief opportunity for each of them to ask questions if that's. Yes that's fine as a in the again apologize representive easier recognized for a question thank you Mr chairman thank you for the explanation and I. Certainly want the casinos to be successful I've I've of. Been to a few of them and and they're they're beautiful and and I know you have a lot of people working for you. What ice and still struggling with is. You guys can do whatever you want your constitutionally protected monopolies and you can do whatever you want and including signing up with a third party vendor to offer sports betting mobile sports betting or not. The up in my mind the only reason you've got this in here where and and I forget your name on the left hand side here that you referenced the The Amendment several times which really was contradictory to what the attorney general's office said I don't I just can't understand why you think that you need that. Fifty one percent in there to give you the authority to do what you're doing I mean you can already do whatever you want to do with the mobile sports betting third party vendors you can choose to use them or you can choose not to use doesn't make a difference to me either way but I don't understand why you feel like you have to have this rule and have again the government on insuring that you get at least fifty one percent because frankly I think that the reason you want fifty one percent so that all four casinos potentially stay together because when the first one dropped and uses a third party vendor to rest you guys might be behind the ball a little bit I would also wonder how many of the casinos have an app ready to go right now clearly service and does. And and I also again not an attorney in we do have others I'll be quick it. If your argument is that it doesn't violate the Commerce Clause because they're it applies to in state and out of state vendors equally and there currently are no in state vendors are you saying that we are violating the Commerce Clause until there is an in state vendors. Yes Sir the the law is blind about whether it's in state or out of state in its early on who has the ultimate responsibility is skip said who has the the the stake in in complying with without the fee without this rule in here though I don't see how anything changes honestly I mean you guys can choose to use a third party vendor or not I don't really understand why that needs to be in their own maybe I'm missing something so representatives at this is sort of what I said to Senator Dismang And again apologies for the lecture on the scope but I was hoping that we could stay to the Commerce Clause argument I'm glad that we are. I believe me I can't speak for these two I believe that the casino retaining most of the skin in the game which is what we're talking about here right a majority position to the casino. Is important enough that it rises to the level of public policy not independent business decision and that's the reason that we believe it makes sense to be in the role so yes you are correct we can make this decision without the rule but I believe it is appropriate public policy to ensure that the casinos maintain skin in the game. And that's why I'm glad it's in the real. I don't think for a second that if you third party vendor you wouldn't think that a control or universities at we're going to have to get another couple questions I have we're gonna have to make a decision as a committee. Whether we're going to recess and come back so we'll start with we'll try to get to each question briefly represent Garner. You're recognized okay. You're recognized thank you Mr chair I've got a question actually for you at the appropriate time for us to have a I would love we've heard often on some legalese about what the Attorney General has said is okay but we have not heard before that the Attorney General or whether the attorney general's office has determined I've given our charge whether this rule violates commerce the commerce laws has the Attorney General and ask and. And does is there an opinion from the attorney general's office whether this of rule. Violates the Commerce interstate commerce law and if there's somebody from the attorney general's office or are you guys whoever can answer that question. So you know we don't have time obviously right now for the turn General's office to come there here there are several more people now signed up for questions you want to give ample opportunity for the committee to that this issue I don't want to force a vote before people had their questions answered before everybody's had the opportunity to say what they want to say so we're gonna try to recess and will try to meet again in the morning is going to be the first time. Not seven thirty eight o'clock eight o'clock she give us ample time to get in here answer the rest the questions again I apologize for not getting to everyone today we tried to start as early as I felt like we fees we could it's good conversation I think these are all appropriate questions for the committee to asking get things for us to hear right to impose on people to come back again in the morning but there's no time availability this afternoon and I don't feel comfortable pressing this issue with that hearing from the people that are being asked her from so. We'll recess and will adjourn you will meet again morning at eight o'clock thank you Mr chairman.