Virginia Lottery Signals Agreement To Be State's Primary Gaming Regulator

October 20, 2022
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As legal gambling in its various forms continues to grow in Virginia, a new report calls on legislators to amend the law to allow the state lottery to oversee and regulate most gaming in the state, a proposal supported by lottery officials.

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As legal gambling in its various forms continues to grow in Virginia, a new report calls on legislators to amend the law to allow the state lottery to oversee and regulate most gaming in the state, a proposal supported by lottery officials.

“We agree with [the] recommendation that the lottery’s mission and expertise make it best positioned to become Virginia’s central gaming agency,” Jennifer Mullen, a lottery spokeswoman, told VIXIO GamblingCompliance on Wednesday (October 19).

Currently, the Virginia Lottery regulates the state lottery, online sports betting and land-based casino gambling, while the Virginia Racing Commission (VRC) oversees horseracing and historic horseracing (HHR) machines, which began operating in 2019. The Virginia Department of Agriculture and Consumer Services (VDACS) regulates charitable gaming as well as fantasy sports.

The report, released on October 11 and authored by the state’s nonpartisan Joint Legislative Audit and Review Commission (JLARC), noted that gaming regulation is not the primary function of the VRC and VDACS.

“Both agencies need more staff and better technology to ensure that all gaming under their purview operates with integrity,” JLARC staff wrote in an 85-page report on the oversight and administration of gaming in Virginia.

Among the report’s recommendations was designating the Virginia Lottery as the state’s central gaming regulator and renaming the agency Virginia Lottery and Gaming, similar to the body in neighboring Maryland.

JLARC staff also suggested establishing a policy office within the lottery to monitor new developments, trends and unregulated forms of gaming.

Licensing of HHR would also be transferred to the lottery from the racing commission, to strengthen regulatory oversight of the industry, and one position would be added to the lottery board filled by a VRC member.

Democratic state Senator Janet Howell, chair of the JLARC who hosted a hearing Monday on the report, said it was too early in the process to comment on the proposed reorganizations.

It is unclear if the report will be seen as a legislative priority when the Virginia General Assembly reconvenes in Richmond on January 11, 2023. The legislature meets for only 46 days in odd-numbered years.

“As the report noted, the lottery has seamlessly transformed from an enterprise agency focused on operating a lottery to an agency with the additional core mission of regulating gaming,” Mullen said. “We have done so while maintaining a positive workplace culture and with no shortcoming in agency operations.”

The JLARC report found the single agency would offer a point of contact for emerging gaming-related issues and would concentrate regulatory staff’s industry knowledge in one place. A central gaming agency would also streamline technology involved with gaming regulation and better ensure the state’s problem gambling efforts.

“[The Virginia] Lottery has demonstrated the ability to respond effectively to its expanded gaming responsibilities and is well positioned to become Virginia’s central gaming agency,” JLARC staff wrote.

Mullen said the lottery would apply the same high standards to drive successful results if assigned additional forms of gaming regulatory oversight.

“To safeguard the success of lottery operations and profits to support K-12 education and the continued constructive rollout of casino and sports-betting oversight, the appropriate time and resources would be critical for success,” Mullen said.

The report found the agency’s technology and staff experience could improve regulation of HHR and charitable gaming but consolidating gaming regulation under the lottery would cost about $5.7m, which is $3.5m more than is currently being spent on regulating HHR and charitable gaming.

To oversee the industry, the Virginia Lottery would need to hire 20 new employees, and 21 existing positions would be transferred from VDACS to the lottery.

According to the report, the racing commission would continue regulating live racing, but historical horseracing machines (HHR) would fall under the lottery’s authority.

“If the goal of decision-makers is to ensure effective and efficient regulation across multiple forms of gaming, with one agency serving as a single point of contact, the Virginia Lottery stands ready to assist in accomplishing that mission,” Mullen said.

For decades, legal gambling in Virginia was limited to charitable gaming, pari-mutuel wagering on races and the traditional state lottery games. Wagering reached $3.4bn in 2018 when only those three forms of gambling were available.

But as surrounding states have legalized various forms of gambling from casinos to sports betting, the General Assembly in 2020 passed bills that were signed by former Democratic Governor Ralph Northam to legalize casino gambling and sports wagering, while also approving the lottery to directly operate interactive lottery games.

Earlier, electronic pull tabs were introduced as a new form of charitable gaming in 2012, while HHR machines began operating in 2019.

Last year, residents in Virginia wagered $9.4bn on all forms of legal gambling. Researchers noted the growth in gaming occurred before any casinos opened and while sports betting was still ramping up.

In a summary of their findings, the JLARC wrote that inadequate staffing, expertise or regulations was why neither the racing commission nor the VDACS was recommended to potentially be the regulator of gaming in the state.

With four employees, the VRC does not have adequate staff to effectively regulate historic horseracing, which has become large-scale commercial gaming with more than 2,600 machines at six Rosie’s locations, and the racing industry does not have the same level of regulation as gaming, the JLARC found.

“Effective regulation contributes to Virginians’ perceptions of the gaming industry’s fairness and reputability, but VRC has not taken actions necessary to effectively regulate large-scale commercial gaming, which HHR has become,” the JLARC wrote.

Similarly, the report concluded the VDACS, which regulates electronic pull tabs, poker and bingo, lacks the sufficient staff to do the job. VDACS has 21 positions dedicated to regulating charitable gambling, but ten positions are vacant, the report found.

Mike Wallace, a spokesman with VDACS, told VIXIO the agency “has no comment on the report.” Messages left with racing commission officials were not returned.

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