IGB Meeting Update: April 2023

Every month, the Illinois Gaming Board (“IGB”) meets to discuss any changes in the Illinois gaming market and issue licensing and disciplinary decisions. What follows is a repost of the notes by our friends at Fox Rothschild in their “At Stake” Newsletter. You can also find official IGB meeting minutes on the IGB website. The minutes of each IGB meeting are typically posted following the next scheduled meeting of the Board.

Following our typical synopsis of the IGB’s meeting, we also have included a brief summary of the IGB’s Public Hearing on the Proposed Vertical Integration and Sales Agents Rules. During the IGB meeting the Administrator did say that a transcript of the public hearing will be made available to the public but you can find our notes below.

As always – if you have any questions pertaining to any of the topics discussed, please reach out.

April IGB Meeting

Today’s monthly meeting was a hybrid, with in-person accessibility at 160 N. LaSalle St., Fifth Floor Auditorium and remote access via livestream. Present at this meeting were Chairman Schmadeke, Member Hayden, Member Garcia, and (new) Member Kolar. Member Kolar’s biography is now available on the IGB’s website and can be found here: Illinois Gaming Board - About Us.

The meeting began with the approval of the Regular Board Meeting Minutes from Thursday, March 16, 2023, and continued with the Administrator’s comments as there were no comments from Board Members.

Administrator Comments

Administrator Fruchter began his brief comments by officially welcoming Member Kolar and stated that he and the staff look forward to working with him. The Administrator continued by mentioning the vertical integration rules and issuing a reminder that a public hearing on the rules would be taking place shortly after meeting. Importantly, the Administrator stated that all in-person comments and written comments previously submitted would be included in the hearing transcript and made available to the public.

Next, the Administrator provided a brief update regarding 815 Entertainment, LLC d/b/a Hard Rock Casino Rockford, stating that it had a successful practice run and it has since been approved to offer table games at its temporary location.

The Administrator then announced that, by popular demand, he was going to resume sharing the revenue numbers for all categories. He stated that there are currently 12 operating casinos, nine sportsbooks, and 8,299 licensed video gaming establishments operating 4,702 video gaming terminals (VGTs). 

Video Gaming (March)

• Total Revenue: NTI - $266 million
• State Tax Share: $77 million
• Local Tax Share: $13 million

Casino (March)

• Total Revenue: AGR - $131 million
• State Tax Share: $20.5 million
• Local Tax Share: $7.4 million

Sports Wagering (February)

• Total Revenue: Handle - $880 million
• State Tax Share: $10 million
• Local Tax Share: $730,000

All Industries (Jan-Feb/March)

• Tax Total: $343 million
• State Tax Share: $285 million
• Local Tax Share: $58 million

Public Commentary

During the public commentary section, Kevin McGourty again addressed the Board to urge it to file complaints regarding alleged mistreatment by IGB and ISP agents.

Administrative Matters

The Administrator continued the meeting with a presentation of video gaming rules. The first matter was Proposed Video Gaming Rule 1800.1750 regarding Problem Gambling Signage. This is a newly proposed rule that would require terminal operators (TOs) to provide problem gaming signage to locations that the locations then will be required to post on terminals and redemption machines. The signage will be required to state that there is help for problem gambling and provide access to available resources. This proposed rule is similar to the requirements for casinos and sports wagering. While certain locations and TOs previously have taken it upon themselves to post similar signs, this new rule will be a requirement.

Next, the Administrator discussed an amendment to Rule 1800.580, regarding renewal fees. The Administrator stated that the point of the amendment would be to improve the efficiency and effectiveness of the rule and minimize confusion that has arisen from the annual fee terms and the license terms for video gaming. The result will be that licensees will be required to pay the licensee fees at the begin term of the license.

The Board approved the submission of both to the Secretary of State Index Department. You can view emergency or adopted rules on the IGB’s website: Illinois Gaming Board - Video Gaming Applicable Law & Standards. After proposed rules are published by the Secretary of State Index Department, they too are listed on the IGB’s website at the aforementioned link.

Casino

The Casino portion of the meeting began with the initial consideration of owner’s license renewal of The Rock Island Boatworks, LLC d/b/a Bally’s Quad Cities Casino & Hotel.

The meeting continued with a presentation from Penn Entertainment regarding Rule 230(d)(1)(F) and (J) Requests Regarding Proposed Casino Relocation Projects and Request for Waiver of Two-Meeting Rule, respectively, for HC Aurora, LLC d/b/a Hollywood Casino Aurora and HC Joliet, LLC d/b/a Hollywood Casino Joliet. According to the presentation, the licensees are expected to break ground on the projects by the end of 2023 with a goal completion date of the end of 2025.  While the Administrator pointed out that he had been delegated the authority to approve such requests, he declined to do so given the scope and importance of the projections but did recommend approval to the Board. As such, the Board approved the waiver of the two-meeting rule and the approval of the proposals. The Administrator stated that the IGB will continue to work cooperatively with the licensees and they encourage this project and those like it.

Next, the Board approved the following Key Person and Level 1 Occupational licensee applicants:

• Frederick S. Anderson, for his role as Internal Auditor for 815 Entertainment, LLC d/b/a Hard Rock Casino Rockford
• Jerry Rubenmeyer for his role as Surveillance Manager for Alton Casino, LLC d/b/a Argosy Casino Alton
• Adolfo Vilches for his role as Director of Security for Midwest Gaming & Entertainment LLC d/b/a Rivers Casino Des Plaines
• Wolfe Gaming Trust Dated April 21, 2020 as a Key Person/Trust suitability for House Advantage, LLC

The meeting continued with the approval of 78 Level 2 and 73 Level 3 occupational licenses and the denial of two level 2/ level 3 occupational applicants.

The Administrator then issued renewals to the occupational licensees that were up for renewal and had provided updated information, timely paid their renewal fees, and complied with all other requirements. Lastly, one individual was denied an occupational license for statutory eligibility.

Sports Wagering

The Sports Wagering section of the meeting began with the Board granting an initial management services provider license to Sports Illinois LLC.

Sports Wagering continued with the Board approving the occupational applications and granting licenses to 106 Level 2 and one Level 3 applicants. The Administrator then granted renewals to the Level 1, 2, and 3 licensees that were up for renewal, had provided updated information to the IGB, timely paid their renewal fees and complied with all other requirements.

Video Gaming

The Administrator began the Video Gaming session with initial licenses being issued to 49 terminal handlers, one terminal technician and 92 video gaming locations. Additionally, the Administrator rescinded the nonrenewal issued against Martin & Bayley, Inc. d/b/a Huck’s Convenience Store #197 and issued it a renewal.

The Board then denied the applications of three terminal handlers/technicians and the following nine locations, including five found allegedly statutorily ineligible:

• Chalky’s LLC d/b/a Club 13
• Countyline 2913 Inc. d/b/a Countyline Gaming
• RTS of Elk Grove Village LLC d/b/a Real Time Sports Bar
• TEJ’s Sports Connection Inc. d/b/a TEJ’s Sports Connection
• Danvilles Main Street Bar & Grill, Inc. d/b/a Danvilles Main Street Bar & Grill Inc
• Giochi LLC d/b/a Trojan Horse
• Ogle County Brewery LLC d/b/a Ogle County Brewery
• NSCG Whistle Stop Café LLC d/b/a Whistle Stop Cafe
• Tequila Jalisco Mexican Restaurant Inc. d/b/a Tequila Sante Fe Mexican Restaurant

The final matter of the meeting was Rule 320 Final Board Orders for matters 17-UP-007, Accel v. Midwest Electronics (Shimerren), and 21-UP-010, Eureka v. Union Bar and Grille and T’s (Union Bar). In both matters, the Board voted to adopt the Administrative Law Judge’s decision in its entirety as a final Board order. As a reminder, all Rule 320 decisions are available on the IGB’s website and can be found here: Illinois Gaming Board - Video Rule 320 Petitions.

The meeting was then concluded.

Public Hearing: Vertical Integration and Sales Agents Rules

Following the regularly scheduled IGB meeting, the Administrator and staff held a public hearing regarding the proposed vertical integration and sales agent rules, specifically Rule 1800.322 on restrictions on use agreements, Rule 1800.450 on restrictions on multiple licenses and amendments to Rule 1800.430 regarding Persons with Significant Influence or Control.

The hearing was a hybrid presentation with in-person accessibility at 160 N. LaSalle St., Fifth Floor Auditorium and access via livestream on the IGB website. The hearing concerned the proposed amendments, above, as published in the 2/24/23 Illinois Register implementing P.A. 102-689, which expands the Video Gaming Act’s prohibitions against “vertical integration” (having different tiers of video gaming licensees, such as a terminal operator and gaming establishment, under the same ownership). The proposed rule can be found in its entirety here: February 24, 2023 - Illinois Register Volume 47, Issue 8, page 2540.

Video gaming establishments, terminal operators and their sales agents are affected by this rulemaking.  As interested parties know, the proposals explicitly state that all licensees are limited to one tier of the video gaming industry — either the terminal operator side (terminal operators, technicians, handlers, sales agents) or the establishment side (licensed establishments).

Please note that, while the hearing took place today, the comment period remains open. If you wish to submit any more ideas, suggestions, compliments or complaints to the IGB, please contact us and we will work with you to prepare those submissions.

The hearing began with the Administrator providing a brief summary of the proposals as well as the IGB’s goal to more cohesively align what the Video Gaming Act (VGA) states and what rules are in place to further support and effectuate the VGA. 

According to the Administrator, the VGA has prohibited vertical integration since its enactment in 2009, specifically Section 30 which prohibits a terminal operator (TO) from holding an establishment license. The Administrator also stated that the VGA’s “tiered structure” was upheld by the 2019 Appellate Court decision in Dotty’s Café v. Illinois Gaming Board, 2019 IL App (1st) 173207.

The Administrator stated that while certain practices have evolved in the industry, the IGB is proposing these rules to align current practices with the rules and VGA. Such alignment would avoid lengthy and costly investigations into situations where the IGB believes the VGA is not being upheld, thereby tending to discredit the Illinois gaming industry.

The first speaker was Kimberly Schultz, Executive Director of the Joint Committee on Administrative Rules (JCAR or the Committee). Ms. Schultz stated that her questions and comments were her own and in no way representative of the Committee or its members. Ms. Schultz had a number of questions for the Administrator and staff.

Firstly, Ms. Schultz wanted to know if there was a particular problem the rules are trying to address or a particular licensee or incident that prompted these rules? The IGB stated that there wasn’t, but they believe prohibition of vertical integration is stated in the VGA and hasn’t been appropriately addressed in the rules. Further, the IGB stated that the Dotty’s decision reaffirmed their view as did the General Assembly in the recent gaming expansion. The Administrator continued that they are being good stewards of the industry by ensuring that industry practices align with the intent of the VGA and the Legislature.

Staff added that there are concerns over lines between tiers (TOs and establishments) becoming blurred and that these rules are an attempt to make those lines cleaner. Ms. Schultz asked what harm comes to the public when these lines are blurred? The IGB stated that the harm is when practices are developing that are against the law, or the VGA.

Ms. Schultz then asked where there is prohibition of vertical integration for Sports Wagering or Casinos, to which the IGB replied it is specific to Video Gaming. Ms. Schultz then asked whether other states have similar prohibitions in video gaming. The IGB stated that it did not know specifically, but it is difficult to compare other jurisdictions to Illinois because the Illinois video gaming industry is the biggest in the world. Rather, the IGB stated that it is more appropriate to draw comparisons to other highly regulated Illinois industries, like the Illinois alcoholic beverages industry, as was done in the Dotty’s case.

When asked, the IGB stated that it did not know how many licensees would be impacted by these changes and had not undertaken a study on it. Furthermore, the IGB stated that the reason and motivation to propose these rules is to ensure compliance with the mandates set forth in VGA and not to impact any one specific licensee or group of licensees. This measure is not punitive but rather to align the rules and the VGA.

Ms. Schultz continued her questioning and asked about the proposed rule the IGB presented to JCAR in 2017. JCAR ultimately objected to and the IGB subsequently withdrew that rule and stated that it would work with stakeholders. Specifically, Ms. Schultz wanted to know if the IGB took that rule into consideration when drafting these new rules. The IGB stated that the 2017 rule did not inform the decision to move forward with these new rules and that while it was aware of the earlier rule, this is a new rule drafted from scratch. And that now there was a different Administration and a different Board. The Administrator pointed out that over the last four years, the IGB has been taking a fresh look at all aspects of gaming to increase transparency and effectiveness and move things forward.

Ms. Schultz was curious as to whether, as the IGB had indicated in 2017, IGB would engage in open dialogue with stakeholders regarding these proposed rules. The Administrator stated that the way they get stakeholder input is through this rulemaking process. By proposing the rules, they are then able to open the dialogue with stakeholders, such as through this public hearing, and maintain transparency.

Ms. Schultz next turned to Persons with Significant Influence or Control (PSIC), asking where the term comes from, and whether other sources were consulted. The IGB explained that PSICs is a concept that was formed at the inception of video gaming and is analogous to Key Persons, an idea established through the Illinois Gambling Act. The IGB stated that the concept of Key Person/PSICs is not unique to Illinois and it is a standard common to casino regulations.

With her final question, Ms. Schultz asked whether the IGB had a deadline in mind. The IGB stated that it does not and wants to make sure all those interested have a chance to speak and get their opinions heard. 

The Chairman of JCAR, who attended via telephone, also had a few questions. Similar to Ms. Schultz, he stated that he was there on his own behalf and not on the behalf of the Committee or its members. The Chairman asked a bit about the renewal process and the IGB informed him that it would be happy to provide more in-depth answers as the nuances of the renewal process but did state that licensees have a continuing duty to report and update the information that is on the application, TOs are required to make disclosures within the renewal pertaining to the same information that would disclosed through these new rules (such as locations, sales agents, handlers, etc.) and that the renewal was added for a timeframe to help licensees come into compliance, but was not necessarily an integral part of these rules.

The next person to address the Administrator and staff was Belvidere Mayor Clinton Morris. Mayor Morris provided some brief history and demographic information on Belvidere, including his continued goal to help develop bring economic development to Belvidere. He added that in doing so he has been happy to work with Rick Heidner and his real estate company. The Mayor also shared how he believes these rules will negatively impact Belvidere as well as the state of Illinois as a whole and would thwart business development that Illinois desperately needs.

Next, McCook Mayor Terry Carr addressed the Administrator and staff. Mayor Carr stated that he spoke as an establishment owner and not on behalf of McCook. Mayor Carr provided a brief history of his company and stated that it owns IGB licensed establishments but also leases properties to other IGB-licensed establishments. He was curious as to how these rules would impact his business, and its current leases moving forward. He asked if such arrangements would be grandfathered in and stated that he felt it was unfair to change the rules now after his business plan had been nine years in the making and such a change would significantly impact the business plan, particularly related to its current plans.

Rick Heidner of Gold Rush Amusements, Inc. spoke last. Mr. Heidner explained that he is, and has been, a real estate developer and that he has never been prohibited from being a landlord to licensed video gaming establishments, even though he is also owner of a licensed terminal operator. Mr. Heidner stated his view that this is a relationship industry and that nothing forces locations to enter use agreements with Gold Rush if he is the landlord. Mr. Heidner spoke about his business plan and how he considers gaming revenue as part of his investment decisions and that if the proposed rules passed as-is, they would be devasting to his business.

The Administrator thanked everyone for their time and stated the IGB will continue to work on this matter, including taking into consideration all the comments made thus far. He also requested that all who spoke provide written comments so that they may be entered into the record.

The hearing then concluded.