PaymentsCompliance: U.S. Senate Bill Takes Aim At CFPB’s Funding And Oversight


The Consumer Financial Protection Bureau (CFPB), which was created by the U.S. Congress in response to the financial crisis in 2008, is among the federal government’s most controversial agencies, with some lawmakers describing it as a “rogue agency.”

Republican Senator David Perdue of Georgia, who has been leading efforts in the Senate to reform the regulator and have its new prepaid card rule repealed, said the agency was a “real problem” due to a lack of congressional oversight.

“The CFPB is the only agency that we can find that has no oversight from Congress,” Perdue told attendees Wednesday at the Power of Prepaid 2019 conference in Washington, D.C.

The CFPB — created as part of the 2010 financial regulatory overhaul known as Dodd-Frank — enforces protections for consumers primarily in the areas of student loans, mortgages and credit cards. The agency has taken aim at for-profit colleges and pay-day lending.

Perdue and other Republicans have criticized the CFPB for supposedly being too independent, arguing that its single director has too much unchecked authority.

He has now reintroduced the CFPB Accountability Act of 2019, which would subject the agency to the annual congressional funding process and oversight. Dodd-Frank established the CFPB’s budget at as much as 12 percent of the annual operating expense.

Perdue filed his first bill in 2015 and has introduced this proposal in every session of Congress.

“The CFPB is the only agency that we can find that has no oversight from Congress. Sooner or later, we are going to get a vote on it,” said Perdue, a former chief executive of Reebok and Dollar General Stores and a member of the Senate Banking Committee.

The senator also expressed his frustration with forming any kind of consensus in Congress.

“Your industry is no different,” Perdue said. “You have the CFPB elephant sitting there threatening all of [your] enterprises and the idea of over-regulations … we’re already proven that didn’t work.”

Perdue, who was elected to the Senate in 2014, was also one of several lawmakers to introduce a bill to stop the CFPB from implementing a rule that provided protections for consumers of prepaid card accounts.

In 2017, Perdue said the rule would “stifle growth” in the electronic payments industry. The legislative effort fell short and the CFPB’s prepaid rule went into effect on April 1, 2019.

The effective prepaid rule date was originally October 1, 2017, which was then amended to April 1, 2018, before being further delayed.

The delays were in response to industry and Republican criticism that the proposed rule was overly complex and would impose too great a burden on payment providers and prepaid account companies.

“We got them to the table to negotiate the prepaid rule, giving you something that you can live with for a while, but we aren’t done with that yet,” Perdue said.

In general, the final rule requires financial institutions to provide consumers with information regarding fees, as well as short and long-form disclosure statements prior to the acquisition of the account.

Under the amended rule, if a financial institution proves pre-acquisition disclosures in writing, and a consumer subsequently completes the acquisition process online or by telephone, the financial institution need not provide the disclosures again electronically or orally.

The amended rule also does not require a financial institution to provide the long-form disclosure if it had not obtained the consumer’s contact information.

The CFPB eliminated the need to deliver a long-form disclosure after the card is purchased without e-sign consent, as long as the information is included in the packaging.

Brian Tate, president and chief executive of the Innovative Payments Association (IPA), reminded attendees at the same event that the CFPB’s final rule is now in place and yet “the sky hasn’t fallen.”

He noted that prepaid accounts had become a “critical part of the financial industry.”

Those categories of prepaid accounts include general-purpose reloadable cards, gift cards, government benefits or disbursement cards, and incentive or payroll cards.

“Once and for all, we can say we are a regulated industry,” said Tate, whose association hosts the Power of Prepaid conference. “That’s a good thing. It means we have arrived.”


PaymentsCompliance: In-Depth: Marijuana Businesses Face Up To Payments Problem


Despite the perception that U.S. legalized marijuana has a payments problem, industry executives and analysts believe an increasing number of financial institutions are quietly opening their doors to the industry.

“I would say instead of unbanked, it’s underbanked,” said Dustin Eide, chief executive of CanPay, a debit-based, digital payments network for the cannabis industry. In total, 33 U.S. states now have some sort of legalization of marijuana.

Eide told attendees at this month’s Power of Prepaid 2019 conference in Washington, D.C. that his company now has approximately 40 financial institutions in its network that are banking cannabis businesses under the federal guidelines.

“If you look at the SARs (suspicious activity reports) filings, the number of institutions banking the business has increased in recent years,” Eide said. “It is growing, but there are markets that are unserved or underserved … and there are markets that are almost entirely banked.”

Adam Crabtree, chief executive of data analytics firm NCS Analytics, agreed, saying that in older markets, including Washington and Colorado, “almost everyone who wants an account can get it.”

Crabtree added, however, that in newer markets — California and Nevada — banking services for medical and recreational cannabis businesses remain much tougher to access.

Cannabis’s status as a schedule-one narcotic means federally-chartered banks, the card networks and the traditional payments ecosystem have stayed away for the most part from an industry expected to be worth between $20bn and $50bn by 2021.

Eide and Crabtree were joined for the 40-minute discussion on navigating the challenges surrounding payments in the cannabis industry by Brian Tate, president and chief executive of the Innovative Payments Association.

A significant challenge comes from the federal level, where cannabis is still illegal, said Eide, adding that it “creates a lot of confusion and challenges when it comes to what is required to bank these businesses.”

To complicate the issue even further, the business of legal cannabis became even more fraught with uncertainty when former U.S. Attorney General Jeff Session ended an Obama administration policy that gave the marijuana business a degree of safety from federal prosecutions.

Sessions’ decision struck down 2013 Cole Memorandum, a policy memo written by Deputy Attorney General James Cole that mostly protected marijuana legal states from federal scrutiny.

The Cole Memorandum instructed U.S. attorneys to focus on drug cartels and cross-border trafficking, not marijuana businesses complying with state regulations.

The memo also established a safe harbor for financial institutions that provide, or intend to provide, deposit and lending services to persons or businesses involved in the marijuana industry.

“One of the things that comes up quite frequently is that there isn’t one bank that doesn’t have one of these businesses as a client, whether they know it or not,” said Adam Crabtree of NCS Analytics. 

That was followed by guidance from the Financial Crimes Enforcement Network (FinCEN) that supported the safe harbor provision for financial institutions, but that due to federal criminal laws required banks providing services to file several special-purpose SARs.

However, Attorney General William Barr has said he will not use federal resources to “go after” companies if they are complying with state law.

During a Senate committee hearing this month, Barr reiterated that he would prefer the U.S. Congress enacts legislation allowing states to legalize marijuana instead of continuing the current approach, under which a number of states have ended cannabis prohibition in conflict with federal law.

Barr added that the Department of Justice (DOJ) is actively reviewing legislation that would provide safety for states that legalize marijuana.

According to FinCEN, a bureau of the U.S. Department of the Treasury, there are 511 financial institutions “knowingly” servicing cannabis businesses.

“One of the things that comes up quite frequently is that there isn’t one bank that doesn’t have one of these businesses as a client, whether they know it or not,” Crabtree said.

Crabtree said the number of financial institutions servicing these companies is constantly growing, but a relatively small number are public about it.

“There is a difference between filing the required SARS and putting a sign on the front of the branch,” Crabtree said.

But there could be legislative relief on the way, including two bills in Congress that would decriminalize marijuana on the federal level, and protect financial institutions that service the cannabis industry.

“Every day, we wake up and with the stroke of a pen our whole business could go away,” said Dustin Eide of CanPay. 

The bill, the Secure and Fair Enforcement (SAFE) Banking Act, was drafted to create protections for depository institutions that provide financial services to cannabis-related legitimate businesses and service provides for those businesses.

Last month, the House Committee on Financial Services voted 45 to 15 to pass the SAFE Act (H.R. 1595), sending the measure to the House floor for a vote.

The other proposal, known as the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act, would exempt state-legal marijuana businesses from the federal Controlled Substances Act, and establishes that money obtained from the sale of legal marijuana does not constitute proceeds of unlawful activity.

Barr recently told members of the Senate Commerce, Justice, Science and Related Agencies Subcommittee that he has not specifically looked at the STATES Act yet, but the bill is currently being circulated internally through the DOJ “for comment.”

“Once we get those comments, we’ll be able to work with you on any concerns about the STATES law, but I would much rather that approach — the approach taken by the STATES Act — than where we currently are,” Barr said.

But even if both bills are passed and signed into law, banks and credit unions are expected to remain cautious about servicing the cannabis industry.

“Every day, we wake up and with the stroke of a pen our whole business could go away,” Eide said.

GamblingCompliance: New York Regulators Approve Sports-Betting Rules


Sports betting is one step closer to becoming a reality for a few commercial and tribal casinos in New York after state gaming regulators approved regulations that could make it possible for wagering to begin after a 60-day public comment period.

The New York State Gaming Commission (NYSGC) voted unanimously on Monday to approve the rules that will apply initially to four upstate commercial casinos and later Native American casinos.

Rob Williams, NYSGC executive director, described the proposal as a “solid regulatory structure” that will get sports betting up and running as soon as possible.

There were no comments or questions from the six commissioners before approving the regulations, which were posted on the NYSGC’s website following the meeting.

The four upstate casinos where sports betting could be launched would be Tioga Downs partnering with FanDuel, del Lago Resort & Casino alongside DraftKings, Rush Street Gaming’s Rivers Casino & Resort in Schenectady, and Resorts World Catskills with partner bet365.

“Rush Street Gaming looks forward to implementing responsible practices for on-premise sports betting at Rivers Casino & Resort,” CEO Greg Carlin said in a statement on Monday. “We’re grateful to Governor [Andrew] Cuomo for making sports betting a priority in 2019 and to the state gaming commission for taking the first steps towards regulating this industry.”

In accordance with state law, in-person sports betting would be accepted only at the casinos and betting will not be offered on mobile phones.

Gaming regulators, and some lawmakers, including Governor Cuomo, a Democrat, have indicated that a state constitutional change is needed to allow mobile sports betting and to expand wagering on professional and collegiate games across the state.

But Democratic state Senator Joseph Addabbo recently told GamblingCompliance that he wants to look into the details of what can be done legislatively to legalize online betting without amending the state’s constitution. 

The rules adopted by the gaming commission include a requirement that casinos build sports wagering lounges of a minimum size to accept bets. Betting kiosks would be allowed, but must be located within the lounge or another on-site location as approved by the NYSGC.

Under the proposed rules, the casinos would have to submit a detailed plan, including what types of wagers they want to offer on which sports. It would be up to the commission to approve the specific types of bets each casino can accept.

Monday’s draft rules, which borrow in large part from regulations in place in neighboring New Jersey, also appeared to walk back a potential ban on esports betting.

Language in an earlier draft version of the regulations obtained by Legal Sports Report had included a restriction permitting bets only on sporting events that include “elements of physical skill or exertion.” That provision was not among the 33 pages of proposed rules released on Monday.

Wagering on professional sports and most college sports would be allowed, but no wagers could be placed on any collegiate sporting events that take place in New York or feature a New York-based team.

In other words, bets on St. Johns or Syracuse college basketball games would be prohibited.

Gross revenue from sports betting would be taxed at 10 percent. The tax rate was included in a 2013 casino expansion law that also permitted the new casinos to offer sports betting if federal law change permitted it, as it did when the U.S. Supreme Court struck down the Professional and Amateur Sports Protection Act (PASPA) in May.

Not everyone was pleased with Monday’s vote by the gaming commission.

“While we’re gratified the State Gaming Commission took the first step in authorizing sports betting in New York … we think it’s important our million-plus customers and all Western New York sports fans and communities benefit from sports betting opportunities in their own back yard,” said Henry Wojtaszek, president and CEO of Batavia Downs Gaming and Western Regional Off-Track Betting.

Wojtaszek said sports betting should be allowed at Western Regional Off-Track Betting and at OTBs around the state.

“As currently proposed, a [Buffalo] Bills fan would have to go to a Native American casino or drive 90-minutes to place a bet on the Bills,” he said. “That’s not exactly convenient, and it won’t provide critical tax revenue to local governments.”

Meanwhile, online companies, including DraftKings and FanDuel, have been lobbying Empire State lawmakers to follow their counterparts in New Jersey by authorizing mobile sports wagering.

Last week, FanDuel launched a website urging customers to write to lawmakers and urge them to pass a mobile-betting law. 

“It’s time to speak up and bring mobile sports betting to New York,” the company wrote. “Without your help, New York’s sports betting will be limited to the casinos very far away from where many New Yorkers live.”

PaymentsCompliance: U.S. Financial Institutions Still Wary Of Banking Marijuana Businesses


U.S. marijuana companies were expected to generate as much as $10bn in retail sales last year, a figure that is only going to increase as more states consider legalizing recreational marijuana.

But much of that money will go unbanked by financial institutions concerned about possible federal sanctions for servicing businesses considered illegal under federal law.

As of December 31, medical marijuana was legal in 33 states, while ten states had legalized the recreational use of cannabis.

“This is an unbanked industry,” said Dan Kim, assistant general counsel, global financial crimes legal with JP Morgan Chase. “Our position aligns with federal law.”

Kim told attendees at the 19th National Forum on Prepaid Card Compliance last week in Washington, D.C. that few institutions are willing to process credit or prepaid card transactions for cannabis merchants.

According to Kim, the major credit card networks do not allow merchants to use their cards for marijuana purchases and will close any account they find out of compliance with their policies.

“There is no merchant code for merchants dealing in cannabis,” Kim added.

However, states are considering ways to address the banking issues, eager to end the days of marijuana businesses owners carrying large bags of cash into local and state government buildings to pay their taxes, or using money orders to pay employees and vendors.

Some of the proposals include privately funded banks just for the marijuana industry, closed-loop payment processing systems, similar to prepaid debit cards and even state-owned banks.

“If you have a federal charter, it would be very difficult to get services,” Kim said. “State chartered banks not aligned with the Federal Deposit Insurance Corp. (FDIC) and some credit unions may take the risk.”

Kim said the issue is ultimately determined by what a firm’s risk tolerance is. Any financial institution banking cannabis businesses is taking a risk, he said.

A significant challenge is that banks and credit unions that serve marijuana businesses must follow a complicated maze of federal guidance, memos and costly compliance rules. Otherwise, a financial institution risks losing its charter.

Risky or not, there are some banks and credit unions that will do business with the marijuana industry.

“There are about 400 banks doing business with these companies according to SARs (suspicious activity report) data,” said Nicole Ibbotson, general counsel with InComm Financial Services Inc. “Not many do it publicly, but those who do have a waiting list two to three years long.”

Ibbotson and Kim were joined for the 45-minute discussion on exploring the regulatory framework and latest guidance on the purchase of cannabis with prepaid cards by Barrie Van Brackle, a partner at Orrick, Herrington and Sutcliffe.

Ibbotson noted that one credit union near Denver, Colorado, had accepted $931 in deposits in 2017. Safe Harbor Private Banking, a division of Partner Colorado, provides checking accounts expressly for the marijuana industry despite the risk of being deemed in breach of federal law.

Van Brackle agreed that some marijuana businesses have found banks to do business with, but none of those financial institutions would fall into the “too big to fail” category.

“I’m not passing judgement; tomorrow it could be legal,” Van Brackle said. “We’ve all identified banks that will bank it.”

Legal Uncertainty Reigns as Political Landscape Shifts

To complicate the issue, the business of legal and recreational marijuana became even more fraught with uncertainty on January 4, 2018.

On that date, U.S. Attorney General Jeff Session issued a memo ending an Obama administration policy that gave the marijuana industry a significant degree of safety from federal prosecution.

In 2013, Deputy Attorney General James Cole created a policy memo that mostly protected marijuana legal states from federal scrutiny. The Cole Memorandum instructed U.S. attorneys to focus on drug cartels and cross-border trafficking, not marijuana businesses complying with state regulations.

The memo also established a safe harbor for financial institutions that provide, or intend to provide, deposit and lending services to persons or businesses involved in the marijuana industry.

That was followed by FinCEN guidance that supported the safe harbor provision for financial institutions, but that due to federal criminal laws required banks providing services to file several special-purpose SARs.

Sessions said future prosecutions of legal marijuana businesses in individual states should be left to the discretion of individual U.S. attorneys.

However, Attorney General nominee William Barr last month signaled a change in policy around federal prosecution of business owners in states that have enacted laws legalizing marijuana and various cannabis products.

During his confirmation hearing, Barr told the Senate Judiciary Committee he does not plan to use federal resources to “go after” companies if they are complying with state law.

“I think it’s a mistake to back off on marijuana,” Barr said. “However, if we want a federal approach, if we want states to have their own laws, then let’s get there and let’s get there the right way.”

Barr said U.S. Department of Justice policy should align with congressional legislation.

Ibbotson suggested marijuana businesses owners could use a stored-valued or private-label card on a closed loop payment network.

“The consumer can fund it and then use it,” said Ibbotson, adding there are businesses out there like PayQwick, which services marijuana businesses in Colorado and Washington. PayQwick users download an app they can load with money from their bank account, and then use it to pay for purchases at a contracting store.

The company does not mention it serves the marijuana industry on its website. Instead, it describes its services as a “compliance-based electronic payment hub that empowers cash intensive businesses to pay and get paid electronically using a smartphone, tablet or desktop computer”.

Ibbotson said it is not just banks that are cautious about marijuana. There are “not a lot of law firms are comfortable about issuing advice”, he said. “It’s a very tricky subject. We believe the (federal) law will change and all the banks will get into it.”

GamblingCompliance: D.C. Lottery Prepared To Regulate And Operate Sports Betting


After failing to implement sports betting before a federal ban was adopted, the D.C. Lottery is now ready to take the lead as operator and regulatory authority if a bill is passed by the city council, according to the lottery’s director.

In November 1989, the Office of Lottery and Charitable Games Control Board, which oversees the D.C. Lottery, tried to raise revenues by introducing a sports pool lottery, only to back down after strong opposition from professional sports leagues.

Now, 20 years later, a sports-betting bill introduced by District of Columbia Councilman Jack Evans is expected to be signed into law by the end of the year, authorizing wagering on professional and collegiate sports in the U.S. capital provided Congress does not object during a mandatory review period.

The D.C. Lottery’s role in a legal market would be one of regulator and operator, with the current version of Evans’ bill granting the agency a monopoly for mobile sports betting outside retail sportsbook venues.

“We are well equipped to both regulate and operate sports betting,” Beth Bresnahan, executive director of the D.C. Lottery, told GamblingCompliance during an interview on Wednesday at the lottery’s offices overlooking the Anacostia River.

“I think that we are unique. We are a city and we do not have casinos,” Bresnahan said. “We want to ensure larger operators can participate absent a casino, while keeping the retail market in play.”

Monumental Sports and Entertainment CEO Ted Leonsis has been bullish about offering betting on sports within the Capital One Arena, the downtown D.C. venue that hosts the NHL’s Washington Capitals and NBA’s Washington Wizards.

MGM Resorts International and other gaming companies also have expressed an interest in coming into the district and building sportsbooks similar to those in Las Vegas.

Bresnahan told GamblingCompliance she is not against those operators participating in a legal betting market, as long as the district benefits economically.

“We need to be careful that we don’t oversaturate the market,” she said.

The D.C. Lottery has 408 retail locations, but not all retailers are expected to offer sports betting, according to Bresnahan. Instead, she expects about 20 percent of retail locations to participate.

“What the offerings will be will depend on the legislation,” she said. “It could include kiosks where you can make simple straight bets or parlays.”

Bresnahan noted that changes could still be made to Evans’ bill as it has to be approved by the D.C. Council’s Committee on Finance and Revenue, before being voted on twice by the full council.

In its current form, Evans’ bill would allow private operators to obtain licenses for retail betting, but any mobile bets offered would have to be “initiated and received or otherwise made exclusively within the physical confines of the approved sports wagering facility.”

The D.C. Lottery, in contrast, could offer online and mobile wagering anywhere within the District of Columbia.

“It is absolutely crucial to our success that there is a mobile component,” said Bresnahan, adding her agency played an “advisory role as the district’s sole gaming entity” when it came Evans’ bill.

Bresnahan was “hopeful” the district would legalize sports betting.

“It sounds like all parties are interested and realize that this is a good opportunity to capture revenue,” she said.

iLottery Lacking

Gaining entry into the mobile market is an area where the D.C Lottery has so far been unsuccessful.

In 2012, the D.C. Council repealed earlier legislation authorizing the lottery to offer online lottery, casino and poker games within the district’s borders.

Currently, Georgia, Illinois, Kentucky, Pennsylvania, New Hampshire and Michigan offer lottery products online.

Bresnahan said establishing an online presence is about aligning “our products with the way people” prefer to shop these days.

“I have a 22-year-old brother, who is constantly on his phone or playing a video game that is more elaborate than walking into a store … buying a paper ticket and waiting a couple of days to see if he won.”

Bresnahan, who was named executive director in January, previously served as assistant executive director and later executive director with the Massachusetts Lottery, where she helped revamp existing products and launch new games.

“Our outlook is good,” Bresnahan said of the D.C. Lottery.

“Coming from one of the biggest, most successful lotteries to one of the smallest you think you’d have everything figured out on day one and that definitely isn’t the case.”

Bresnahan said operating the nation’s smallest lottery by jurisdictional boundaries makes it difficult to find the right-sized games to be both attractive and profitable.

“Knowing you have two very successful lotteries surrounding you [in Maryland and Virginia] … the question is, how do we compete?”

In an effort to attract new players, the D.C. Lottery in September released a $30 instant ticket with a top prize of $1m. But those tickets were met with some opposition by lotto players who could head over the Potomac River into Virginia and buy a $10 ticket for a chance at $1m.

Bresnahan told GamblingCompliance that in her conversations with consumers she reminded them that the odds of winning $1m in Virginia are about one in 13m, while the odds of winning $1m in the district are one in 150,000.

“We are really trying to change the mindset here,” Bresnahan said. “We are not competing; we are distinguishing ourselves. It’s taking time.”

Bresnahan noted that sales and revenues have been down at the D.C. Lottery over the last five to six years, but the agency is turning things around with a rise in sales seen over the last ten weeks.

In fiscal year 2017, the D.C. Lottery transferred $45.6m to the city’s general fund from total sales of about $218.7m, which is down from $68.3m sent to the city from total revenues of more than $242.4m in 2013, according to figures released by the lottery.

“The increase wasn’t huge, but Powerball and Mega Millions help,” Bresnahan said. “When jackpots soar like that you get the casual player coming through the door.”

GamblingCompliance: Maryland, Virginia Tipped To Follow D.C. With Sports-Betting Bills


Gordon Medenica, Maryland’s gaming and lottery czar, expects lawmakers to introduce a sports-betting bill when they return to Annapolis in January, as the state risks falling further behind its neighbors.

“We expect sports-betting legislation to be taken up again this coming session as there seems to be broad support for some form of sports betting in Maryland,” said Medenica, director of the Maryland Lottery and Gaming Control Agency that both operates the state’s lottery and regulates its six casinos.

Earlier this year, a bill calling for a voter referendum on the issue passed the House of Delegates, but not the Senate, as stakeholders clashed over whether wagering should be limited to casinos or extended to racetracks as well. That failure to approve any bill pushed a potential referendum until 2020, the next election year.

Lawmakers in the District of Columbia are presently considering a bill that would bring sports betting to the national’s capital as early as Spring 2019. Meanwhile, a legislative effort is also expected in neighboring Virginia when the new session begins early next year.

“We are very aware of the potential competition for sports betting in neighboring jurisdictions, with Delaware and West Virginia already in operation and Pennsylvania launching soon,” Medenica said.

Medenica said Washington, D.C. could be an “especially relevant competitor, as so many Marylanders commute into D.C. for work.”

The bill in the District of Columbia would make the D.C. Lottery both regulator and operator of sports betting.

Unlike Maryland, the district has no casinos.

When asked if there was a role for the Maryland Lottery in a legal sports-betting market, Medenica said he thinks wagering on games “is a natural adjunct to the existing gaming activities in the state and has the potential to drive traffic to casinos and lottery retailers.”

“However, we remain realistic about the incremental revenue opportunities that sports betting presents,” Medenica told GamblingCompliance.

Officials with the Virginia Lottery declined to comment.

On Monday, Virginia Delegate Mark Sickles confirmed he would release a sports-betting bill before lawmakers return to work on the second Wednesday in January.

Political opposition to gambling in Richmond may be softening due to the success of MGM Resorts’ National Harbor casino just over the Potomac River in Maryland. Analysts estimate some 40 percent of MGM National Harbor’s business comes from Virginia.

Sports betting is also not the only gambling issue before Virginia lawmakers.

The federally-recognized Pamunkey Indian Tribe want to build a $700m casino in New Kent County between Hampton Roads and Richmond. In the southwestern part of the state, a local business group is seeking legislative approval to build a casino in a vacant mall in Bristol.

Earlier this year, Virginia legalized slots-like historical racing machines at the famous Colonial Downs racetrack and a network of off-track betting outlets throughout the state.

What impact those developments will have on a sports-betting bill making it through the state legislature next year is unknown, but at least one lobbyist believes legal wagering on games in D.C. will force Virginia legislators to act.

“They are just going to watch tax dollars flow from Virginia into the district,” said Brian Hess, a lobbyist for the Sports Fans Coalition, which advocates for consumer protections.

“I’ve been engaged in Virginia for a long time. It is going to pass one way or another,” said Hess, who added that with a short 45-day session next year, he expects a bill to be introduced as soon as lawmakers reconvene on January 9.

Virginia Governor Ralph Northam, a Democrat, has not taken a position on sports betting.

Nearly six months to the day since the U.S. Supreme Court overturned a federal ban on sports betting, wagering has already spread to five states beyond Nevada, while three others — Arkansas, Pennsylvania and Rhode Island — have also passed legislation.

Medenica, the Maryland gaming regulator and lottery director who previously served in a similar role in New York, does not expect the expansion to cannibalize existing gambling revenue streams.

“The shift from an illegal to legal sports-betting environment may only move dollars from one entity to another without significant disruption to current popular forms of gaming, such as casino and lotteries,” he said.

“And as we all know, sports betting is a very low-margin activity, with high volatility and meager profitability.”

GamblingCompliance:California Tribes And Card Clubs Find Fault With Sports-Betting Initiative


The California attorney general’s decision to approve a citizen-filed initiative that aims to put the legalization of sports betting on the ballot in 2020 has drawn concern and opposition from a tribal gaming trade group, card rooms and the state’s gaming regulator.

The effort, led by Russell Lowery, a Sacramento-based lobbyist with ties to the California card-room industry, will have to collect the signatures of 585,407 registered voters by February 2019 to qualify for the November 2020 state-wide ballot.

“Right now, the conventional wisdom is until we get tribal opposition tamped down, no one really wants to engage,” Lowery, a political consultant with Competitive Edge Advantage, told GamblingCompliance.

Lowery believes with support for sports-betting polling in the low 70s among registered voters in California, now is the time to build a coalition to get his initiative on the ballot.

Some Native American tribes that operate casinos would welcome sports betting. However, tribes are opposed to the ballot initiative, which they argue would also increase the types of gambling allowed at commercial card rooms and racetracks and provide more competition to brick-and-mortar casinos.

“While the ballot initiative deals with sports betting it addresses a lot of other issues as well. We are opposed to the initiative,” said Susan Jensen, executive director of the California Nations Indian Gaming Association (CNIGA).

Jensen disputed Lowery’s poll numbers, saying there is little support among California voters for an expansion of gaming, especially an expansion of games offered by card clubs.

Alongside sports betting, Lowery’s initiative proposes allowing card rooms to offer house-banked games in exchange for tribes being allowed to offer traditional ball and dice games, including craps and roulette.

Lowery has also sought to address tribal concerns by including a constitutional prohibition on all online gambling and requiring California’s governor to reject any future off-reservation casino proposals that are approved by the federal government.

“This version has a lot of merits,” Lowery said. “The most important political dynamic to it is that it takes care of some haymaker issues for the tribes, which is off-reservation gaming and online gaming, which would be prohibited.”

Tribal casinos have been highly critical of the state’s card rooms, accusing them of violating current state laws prohibiting them from having a stake in the games they offer.

In other words, card rooms may collect a fee or rake from each hand, but are prohibited from serving as the house.

Jensen told GamblingCompliance that allowing house-banked games is a non-starter for tribes when it comes to negotiations over legalizing sports betting.

She admitted that house-banked games at card rooms really would not hurt larger tribal casinos, such as Pechanga and San Manuel, because they are located in areas with dense population bases.

“They’d take a little hit, but they are still going to survive,” Jensen said. “It’s the smaller tribes, those in rural markets that just can’t compete. They pull customers from these larger population bases.”

Tribal gaming in California was valued at more than $8bn in gross gaming revenues last year, according to the National Indian Gaming Commission (NIGC).

Jensen warned that should the sports-betting initiative be approved in its current form, then tribal-state compacts and the revenue-sharing agreements between gaming tribes and non-gaming tribes “all goes away.”

Lowery said he has talked with card rooms as well as in-state and out-of-state gaming companies that have expressed an interest in supporting the sports-betting initiative.

But Kyle Kirkland, president of the California Gaming Association, which represents the card-room industry, said his organization was unaware of the initiative prior to its introduction and was “opposed to the initiative when it was introduced.”

“We believe that efforts to expand gaming in California should involve the collective, cooperative effort of industry stakeholders, regulators and elected officials,” Kirkland said.

Lowery agreed, but said the potential of placing an initiative on the ballot could be a “great leverage point” to get a bill passed in the legislature before the proposal even went before the voters.

“My primary interest was in facilitating a conversation on sports betting in a political environment between the legislature and tribes where a deal was never going to come together,” he said.

“The tribes would be forced to negotiate on something in the legislature and if they didn’t then we have an alternative here,” Lowery said. “The legislature tends to work better when there is the right pressure and the initiative does that.”

A survey of 579 California voters conducted by Change Research found that 72 percent of voters approved of legalizing sports betting in California, with the revenues generated going to fund police and other state priorities, including education.

As for regulators, California Gambling Control Commission chairman Jim Evans said he would support legalizing sports betting, but the commission has yet to discuss the issue or the ballot initiative.

“I think anytime you have something in the shadows, you should get it out of the shadows not only for the sake of people getting swindled but … not to mention offshore sports books and the loss of revenue to the state and local communities,” Evans said.

“My position personally, is that it should be legalized and regulated,” Evans said.