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A bill to regulate sales agents and brokers in Illinois' multibillion-dollar video gaming terminal (VGT) industry is pitting state gaming regulators against the powerful Democratic legislator who authored the measure.
House Bill 3729, authored by House Deputy Majority Leader Robert Rita, would amend the Illinois Video Gaming Act to prohibit a terminal operator from compensating a sales agent or broker based on a percentage of the after-tax profits from a VGT.
Sales agents or brokers also could not be compensated “based on the net terminal income from a video gaming terminal or attributed to licensed establishments, or any other compensation metric based upon the performance of a video gaming terminal in various licensed establishments.”
“What this bill does is regulate sales agents and brokers for terminal operators for the video gaming terminal industry,” Rita said. “This legislation is not intended to impede any investigations that have been started. It’s to root out corruption … [close] loopholes in this industry.”
Rita said he has spoken with the Illinois Gaming Board (IGB) in recent years about trying to tighten the regulations to make sure the VGT industry is operating with integrity.
His bill also seeks to prohibit any “current or potential licensed establishment from accepting anything of value from a terminal operator or sales agent and broker as any incentive or inducement to locate video gaming terminals in that establishment and licensed establishments.”
Despite Rita defending his legislation before the House Gaming Committee last week, Jim Miller, director of policy for the IGB, made it clear the agency opposes the bill due to concerns it would preempt an ongoing investigation into alleged misconduct. The regulator also believes the bill could favor powerful operators and complicate vertical integration rules.
The IGB announced an investigation at its March 13 board meeting, after records requests had been issued to terminal operators regarding potential activities surrounding sales agents' use agreements and revenue-share arrangements.
Marcus Fruchter, the IGB’s executive director, confirmed the investigation into conduct surrounding revenue-sharing agreements and how such agreements are reached but did not offer any specific details about the investigation.
Fruchter also reminded the VGT industry of the current “prohibition against inducements” set by the state's regulations, as well as other ethical conduct and compliance requirements.
“We may have more to say about that in the future, but I think it is an important reminder for people to be mindful of as they are going about their businesses in our important Illinois video gaming business,” Fruchter added.
Currently, there are 58 licensed terminal operators in Illinois.
Previously, the IGB has conducted investigations into inducements ranging from cash payments to luxury watches, and allegations of VGT route operators promising to build rooms for VGTs in exchange for a bar or other host location agreeing to install its machines at their facility.
Illinois gaming law prohibits terminal operators from giving anything of value to a video gaming establishment as an incentive or inducement to locate machines in an establishment.
Miller told members of the House Gaming Committee that IGB staff had heard from the gaming industry about alleged loopholes in various administrative rules, “hypothetical situations that described conduct … the IGB believes is already prohibited by existing law.”
“In our opinion, what is needed, and what the IGB is actively investigating and seeking to gather, is actual evidence of misconduct that will support disciplinary actions and inform whether any loopholes exist and require any changes to the rules or legislation,” Miller told the committee.
“At the conclusion of this investigation, we expect to have more solutions to offer this committee and to [Representative] Rita regarding these matters.”
Miller expressed concern that Rita's legislation could favor the larger VGT operators at the expense of the smaller licensees, as well as suppress competition among licensees. That would be a violation of Section 25 of the Video Gaming Act, which requires the IGB to prevent conduct that could lead to “undue economic concentration in the video gaming industry.”
Finally, Miller said, the crux of HB 3729 is a prohibition on family relationships between sales agents and licensed establishments, which is addressed in a proposed rulemaking that is currently at an advanced stage before the Illinois General Assembly's Joint Committee on Administrative Rules.
“The IGB supports legislation to increase ethics, integrity, compliance and fair competition in the video gaming industry, and shares [Representative] Rita’s desire to root out illegal conduct and bad actors. But we will oppose HB 3729 until the present investigation is concluded,” Miller added.
Rita, who is a member of the gaming committee, said he is working on language to address the IGB’s concerns.
The gaming committee unanimously passed HB 3729 on Wednesday (March 19), sending it to the House floor.
As of Monday (March 24), the bill had received its second reading in the House but had not been scheduled for a final vote.
Illinois first legalized VGTs in 2009, permitting licensed establishments to have up to five terminals if they also had a liquor license. But VGTs did not appear in bars and taverns until 2012, due to the IGB taking three years to evaluate applications and select a central system to monitor all of the state’s terminals.
As of February 28, there were 48,672 VGTs in 8,647 locations statewide. VGTs generated more than $3bn in annual revenue last year, compared with $1.68bn in gaming revenue generated by the state's 16 licensed casinos.
