This note addresses the impact of Brexit on the gaming industry. It is one of a series of GTM Alerts designed to assist businesses in identifying the legal issues to consider and address in response to the UK’s referendum vote of 23 June 2016 to withdraw from the European Union. In particular, it considers the impact that Brexit might have on gaming companies located in the UK and Gibraltar. Gibraltar is a self-governing British overseas territory which joined the EU in 1973 at the same time as the UK as part of the UK rather than as a separate Member State. As a result, if the UK leaves the EU, then so too must Gibraltar.
May 31 through June 2, 2016, members of Greenberg Traurig’s Global Gaming Practice participated in the 2016 International Gaming Summit hosted by the International Association of Gaming Advisors (IAGA). The Summit, for the first time, was held in conjunction with the Gaming Regulators European Forum (GREF). The Malta Gaming Authority also co-hosted the event. The Summit took place in St. Julian’s, Malta, where approximately 220 delegates from 36 countries across five continents met and discussed the gaming industry’s most pressing issues.
Greenberg Traurig Co-Chair of the Global Gaming Practice and President of IAGA at the time, Martha A. Sabol, made opening remarks at the Summit and presided over the President’s dinner. Other members of Greenberg Traurig’s Global Gaming Practice participated in the Summit, including Co-Chair Mark Clayton, who moderated a panel on social gaming, e-sports, and fantasy sports, as well as participated in the GLI University Regulations Seminar. Clayton also helped oversee the conference’s program committee.
The Summit program focused on critical issues facing the global gaming industry including anti-money laundering compliance initiatives, daily fantasy sports issues, casino expansion into emerging markets, financing, responsible gaming, online gaming, e-sports, and other pressing issues. Topic experts from every major gaming jurisdiction, including some of the gaming industry’s most highly regarded executives, general counsels, compliance officers, and financial advisors, attended and engaged in lively panel discussions.
Greenberg Traurig’s Martha Sabol addresses attendees at the IAGA Summit.
The casino industry overwhelmingly voiced its displeasure last year when the U.S. Internal Revenue Service (IRS) suggested that slot machine jackpot reporting requirements be lowered from $1,200 to $600.
Gaming leaders from the 40 states that are home to land-based casinos, riverboat casinos, race track casinos, and Indian casinos, said reducing the jackpot levels would create an unnecessary burden on the businesses and customers.
The IRS may have listened.
In April 2015, American Gaming Association CEO Geoff Freeman told a group of casino leaders at a meeting in Pittsburgh that the IRS had seemingly backed away from the proposed changes.
While many in the gaming industry are hoping that is true, we are still awaiting a definitive resolution. The IRS has been radio silent on the matter since June 2015 when it hosted a public hearing in Washington D.C. to gauge response to the idea.
The American Gaming Association came out strongly against the IRS’s proposed changes as soon as the news was announced. The organization gathered background information and sought input from its membership. Freeman and other gaming leaders even testified in opposition at the public hearing.
Under current rules, when a player wins $1,200 or more on a slot machine, the game locks up and cannot be played while the customer is required to fill out a W2-G form in order to report the winnings to the IRS. The process often takes anywhere from 10 minutes to a half-hour.
The gaming industry was concerned that lowering the reporting levels to $600 would increase the number of reports that would have to be filled out by customers. The activity would be time consuming for both casino employees and customers. One Wall Street gaming analyst estimated the lost time on the machines necessary to fulfill the new reporting rules could cost casinos more than $500,000 in lost revenue. Longer down time from slot machine play means less revenue for the casinos and a reduction in tax dollars for state and local governments.
The IRS first enacted the $1,200 reporting threshold for slot machines, table games, and keno in 1977. At that time, the only legal gambling options in the U.S. existed in Nevada with casinos and parimutuel racing.
Much has changed. In today’s ever-expanding gaming world, where casinos offer customers state-of-the-art slot machines that utilize cashless gaming technology, a jackpot of $600 happens on a far more frequent basis.
Many casino customers, in protesting the IRS proposal, suggested the jackpot reporting limits be raised to reflect inflation. Seniors worried their Medicare premiums would increase because their adjusted gross income would rise based on the figures compiled through additional jackpot reporting forms.
Freeman told CDC Gaming Reports in April that the casino industry spoke “with one voice” in opposition to the IRS proposal.
This matter goes to show how gaming, or any industry, can face risk from misunderstanding by the public or a government agency.
GT will continue to report on further developments. Subscribe to GT’s Gaming blog to receive updates.
The potential for legalized sports betting has been debated since National Basketball Association Commissioner Adam Silver wrote a New York Times op-ed piece in 2014 suggesting that gambling on professional sports be allowed. The debate on legalizing sports wagering nationwide is still an active discussion. The 1992 Professional and Amateur Sports Protection Act restricts sports betting to four states. While Nevada is the only state with full-scale sports wagering, Delaware, Oregon, and Montana offer small-stakes sports betting and New Jersey has been attempting to legalize sports betting by allowing its Atlantic City casinos to open Las Vegas-style books. The state is awaiting a ruling on the issue by the U.S. Third Circuit Court of Appeals.
Nevada, even with its full-scale sports wagering, continues to find ways to fine tune its laws covering sports betting in order to enhance wagering opportunities for its sports book industry.
In June 2015 lawmakers and state gaming regulators approved new regulations covering entity wagering, which now allow the formation of business groups to place race and sports bets. Investors can join the entities and share in the profits and losses from large wagers at Nevada sports books.
This concept could grow the Nevada’s sports betting industry, which took in more than $4.23 billion in legal wagers in 2015, $231.8 million of that collected from sports books winnings. In fact, backers of entity wagering and gaming industry analysts believe the idea has the potential to triple Nevada’s sports gambling business over the next five years.
Greenberg Traurig client CG Technology (CG), one of Nevada’s largest independent race and sports book operators, was an early proponent behind entity wagering. Under GT’s advisement, CG leadership authored Senate Bill 443, the initial legislation that was signed into law by Gov. Brian Sandoval in June 2015. CG also helped write the regulations that were approved five months later.
Executives from CG (which operates eight Las Vegas sports books), believe that entity wagering solidifies Nevada’s place as the epicenter for sports wagering in North America.
Under the new regulations, Nevada-based business entities can open sports wagering accounts with participating sports books for the purpose of betting on sports and racing. Participants from outside the state are welcomed to invest in the qualified funds. However, the investors are not permitted to direct the wagering activity.
Investors have to be age 21 or over and must submit to the entity their background information, including a government-issued identification card and taxpayer number.
Sports betting investment funds can employ various investment strategies. The structure allows for small minimum investments to increase the number of participants, or larger investments to limit the fund’s size. Profits from any wagers are deposited into the entity’s bank account and used for future wagers or for payouts to investors.
Entity wagering in Nevada does not violate the U.S. Wire Act because the wagers are not transmitted across state lines by the telephone or the Internet.
The nightclub and dayclub industry has become big business for casinos along the Las Vegas Strip. State gaming regulators are now requiring resort operators to take a more stringent approach in monitoring activity inside club venues. These new regulations came out of the 2015 Nevada Legislative session and were approved by the Nevada Gaming Commission.
Under the new regulations, casinos will designate an employee to oversee and monitor the clubs. That employee must be licensed under state gaming regulations as a key employee. Also, promoters and independent hosts for the clubs will have to file written agreements and register with the Nevada Gaming Control Board.
Clubs are a big draw for Las Vegas tourists, particularly the younger customer base that spends time on the Strip enjoying the many lucrative non-gaming entertainment attractions, rather than gambling. According to the Nevada Gaming Control Board, more than 60 percent of the total revenue generated by Las Vegas resorts last year came from non-gaming sources, such as hotel rooms, shopping venues, restaurants, entertainment attractions, and clubs.
Other U.S. jurisdictions and tribal gaming markets are beginning to mirror Las Vegas’s push to add non-gaming attractions. Other gaming regulatory bodies may elect to adopt club venue regulations like Nevada’s.
The club venue regulations identify certain acts as unsuitable methods of operation and expand the requirements for reporting criminal violations. The clubs are also required to file annual reports on their activities.
Additionally, the club venue regulations impose a new registration requirement upon all club venue supervisors, managers, security and surveillance personnel, servers, server assistants, bussers, restroom attendants, and anyone employed or contracted to offer hosting or VIP services.
Security and safety requirements are also included. Operators must assess their calendars on a regular basis to consider the impact on attendance and determine the appropriate number of security personnel needed for an event.
Clubs must also abide by certain requirements for emergency medical support depending on the anticipated size of their events.
Nevada Gaming Commission Chairman Tony Alamo Jr. said the clubs have been good for the gaming industry, providing an economic “shot in the arm.” However, he also said that the clubs need to be controlled and regulated. “I believe these regulation changes do what we set out to do,” Chairman Alamo said.
In March, the Nevada Gaming Commission approved Regulation 15C which changed Nevada’s requirements surrounding casino ownership by private equity funds, a move that could save those Nevada casino companies millions of dollars. Proponents of the changes believe the move will stimulate additional investment.
Private equity firms and large financial institutions became an important ownership category in Nevada over the past decade, investing an estimated $50 billion into the state’s gaming industry. Historically, due to the licensing requirements, a private equity fund could functionally only invest in a publicly traded corporation. Regulation 15C has created a licensing structure that should allow private equity funds that meet certain thresholds to invest in privately held gaming companies.