Las Vegas Sun

March 29, 2024

Insiders wonder if gaming commission needed

Editor's note: In 2001, West Virginia lawmakers set out to control illegal gambling by creating a state-run industry that allowed bars, restaurants and fraternal organizations to operate video lottery machines. Despite its detractors, the Limited Video Lottery Act has been a financial windfall for the state and has created million-dollar mini-casinos across West Virginia. This is the last of a three-part report examining the industry.

WEIRTON, W.Va. -- It's no secret there are problems with West Virginia's 4-year-old video poker industry. Even some club owners are now complaining.

The question facing lawmakers is how to fix them -- and how to plan for what could lie ahead.

Dan Guida, president of the West Virginia Limited Video Lottery Retailers Association, says many problems are common knowledge. Too many clubs have sprung up too close together. Some bars have too little cash to pay winning tickets on demand. Little-known, allegedly nonprofit fraternal clubs have formed to get extra machines.

But Guida says the trouble runs deeper than that. He and other retailers suspect that out-of-state investors and machine-leasing companies are skirting the law, effectively controlling some clubs and skimming their profits through silent partnerships and overpriced property leases.

Lottery Commission officials say they are unaware of any such behind-the-scenes dealings.

"Nothing is impossible, but we're not knowingly letting people skirt our laws," says John Melton, the commission's lawyer.

About 18 percent of clubs own their machines, while the other 82 percent lease them, commission officials said.

Guida and other retailers believe stricter enforcement of existing laws and Lottery Commission rules could solve most of the industry's problems. But some experts say it might be time for West Virginia to re-examine its regulatory structure.

Lottery Director John Musgrave did not respond to telephone messages and questions e-mailed last week by the Associated Press. Public records, however, indicate there is enforcement on some fronts.

During the fiscal year that ended June 30, the commission issued 209 citations, up from 151 the year before. And clubs paid a total of $24,751 in fines compared to $16,410 the previous year.

The most common offenses last fiscal year involved surveillance equipment that was out of compliance and illegal advertising or promotional activities. But some fines were tiny, including the average $20 imposed for failing to pay winning tickets immediately and in full.

Guida, who owns seven clubs in the Northern Panhandle, says more should be done.

"Obviously, they've made some mistakes in this thing," he says. "I don't want them to be in the business of shutting people down, and everybody ought to be given fair warning. ... They just need to enforce what's already in the law."

The 2001 Limited Video Lottery Act allowed up to 9,000 machines in adult-only settings across the state and gave the Lottery the power to license and regulate clubs.

West Virginia is one of a few states, including Oregon and South Dakota, where video poker machines are regulated by a Lottery Commission. In most others, including Nevada, Louisiana and Montana, responsibility for slots lies with a gaming commission.

"I suspect the Lottery Commission could do the job in West Virginia, if they have the fortitude to choose a public policy direction and hold to it. That might not be easy, however," says Bill Eadington, director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada-Reno.

And problems could grow if lawmakers agreed to expand the state's gambling industry by allowing table games at West Virginia's four racetracks. The Lottery Commission currently regulates slots at the tracks, which had 11,520 machines as of last week.

Though legislation that died in previous sessions would have given the Lottery oversight of table games, Eadington says no other state handles them that way: All 11 states with "true casinos" have gaming commissions.

"Everybody else has gravitated to gaming commissions because when you get into the casino operations, there are a lot of eccentric and unique characteristics, especially around fraud and accounting," he says. "If you have a Lottery Commission, or if you have a regulatory body that doesn't focus on that, you may not get the expertise you need."

Gambling industry consultant I. Nelson Rose, a professor at Whittier Law School in Costa Mesa, Calif., says it could even be a conflict of interest for a lottery commission -- already an owner and promoter of gambling -- to regulate a competing business.

"West Virginia should do what every other state has done, which is set up an independent commission with expertise and make it politically neutral," he says.

That means appointing members from both political parties who have expertise in law enforcement, accounting and other areas. Neither the members nor their families should have any direct or indirect interest in the industry, and Rose says terms should be long enough to outlast the administration of any single governor.

"The problem with West Virginia, as has happened in other states, is it's being done piecemeal," he says.

So far, though, no one in West Virginia is openly discussing change.

House Speaker Bob Kiss says there have been no discussions about replacing or supplementing the Lottery Commission. The issue is unlikely to be raised even if the focus of this week's special legislative session turns to gambling, he says, because it's an issue that requires more study.

"It is not an insignificant investment in people, equipment and other items to do that regulatory function," says Kiss, D-Raleigh. "If you're going to be housing it someplace else, I don't want to be duplicating those expenses."

The state now has a deputy director for video lottery security and 20 full-time inspectors who handle the machines at both video poker bars and racetracks, says Lottery spokeswoman Libby White. A separate staff of six handles licensing.

Melton says table games would require new skills, but he's confident the agency can continue to evolve.

"Every time gambling has expanded here, the same questions have been asked, but there isn't anybody in West Virginia who has close to the exposure and skill level we've developed here out of necessity," he says. "Yeah, you could come up with another agency. But the thing is, if you go to someone else, they start from scratch -- whereas if you give it to us, we're already there."

Though Rose says New Jersey has an excellent -- and expensive -- regulatory system for its Atlantic City casinos, Melton says West Virginia's industry is so small it would never experience problems on a similar scale.

"The question is, 'Can you manage the task? " he says. "I don't have any doubts we can manage the task."

But Eadington warns that table games bring unique challenges, including cheaters who target places where the games are new and the security personnel inexperienced.

"It's a very small portion of revenues and profits, but perhaps a disproportionate problem on the headaches side," he says.

West Virginia's racetrack casinos say they need table games to remain competitive and to balance the expected loss of gamblers to slot parlors that will soon open in Pennsylvania. But Eadington says 80 percent of the revenues in Las Vegas casinos come from slots, and the machines have dominated the nation's gambling scene for 20 years.

"Would adding table games draw new people? Yes, probably. But incrementally," he says. "When you look at benefits versus risks, this may be a hard one to justify."

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