Gaming Expansion Brings Newfound Opportunities for Virtual Vendors

As expanded gaming became legalized in Pennsylvania, video gaming terminals, iGaming and sports wagering saw incredible growth. Frank Donaghue and Jack Byrnes of McNees Wallace & Nurick provide their perspectives on the growth of these new areas.

While it is common knowledge that the Pennsylvania Gaming Control Board (the PGCB) regulates all legally operated casinos in Pennsylvania, it may come as a surprise that companies and individuals that are looking to provide goods and services to these casinos and licensed entities may also be subject to the same licensing requirements. The PGCB has a robust and heavily detailed application process and licensing system for entities and individuals that wish to do business with PGCB licensed entities. For many years this was a forgone conclusion for traditional gaming vendors, who were aware of the detailed applications implemented by the PGCB. However, following the major expansion of gaming in 2017 in Pennsylvania, which saw the legalization of interactive gaming (iGaming), video gaming terminals at truck stops (VGTs), fantasy contests, and sports wagering, the pool of likely vendors who will end up conducting business with PGCB licensed entities grew significantly. Gone are the days of thinking of gaming entities solely as brick-and-mortar casinos serviced by the standard vendors – with the advent of new forms of gaming in the Commonwealth and beyond, more vendors and suppliers will need to ensure they have accurately completed the PGCB’s application process and are in compliance with all gaming licensing requirements. Therefore, the purpose of this article will be to outline these new areas of gaming and the likely new vendors who will be entering these new gaming frontiers – the new normal.

The PGCB requires licenses and certificates for various forms of gaming, including slot machine licenses for casino land-based gaming, interactive gaming certificates for iGaming endeavors such as online slots and table games, sports waging certificates for land-based and online sports wagering, and terminal operator licenses for VGT operations. When entities with any of these various licenses and certificates engage third-party persons or entities for goods and services, additional PGCB licensing requirements may apply. These third-party vendors, also known as gaming service providers, are natural persons or entities that provide non-gaming goods or services to those entities that currently have, or are applying for, the above-mentioned licenses and certificates. Traditionally, the goods and services provided by these vendors were those typically associated with gaming establishments, from construction contractors and transportation services, to cleaning services, security services, food distributors, and many more (the PGCB supplies a full list of currently approved registered vendors on their website). While the above-mentioned vendors may all be subject to PGCB regulations, several natural persons and entities are exempted from the gaming service provider registration and certification requirements including public utilities, insurance companies, alcoholic beverage manufacturers and suppliers that are regulated by the Liquor Control Board, shipping services, among others.

Over the past few years, with the expanded field of virtual gaming options in Pennsylvania, many more vendors who were not traditionally subject to PGCB licensing have now find they need to go through the rigorous application process in order to capitalize on a robust new marketplace. For example, since gaming can be achieved through a variety of mobile devices, many vendors who specialize in location tracking are being utilized by gaming entities to ensure that all mobile wagers are made within state lines. Similarly, there are new opportunities for vendors who offer tools that allow for gamers to track and set limits on their wagers, which both promotes responsible gaming and allows for accurate virtual records to be retained.

The proliferation of online sportsbooks and iGaming have also led to a boom in affiliate marketing arrangements between PGCB licensees and virtual marketers, who, depending on whether they have a flat fee or profit-sharing arrangement with the licensee, will need to be either registered or certified with the PGCB. These affiliates, who often have sports or gaming related content as a center point of their own business, such as gambling tips, sports insights, and tracking wagering trends, can arrange promotional agreements with PGCB licensed entities that lead to a profitable symbiotic relationship between the two parties. These vendors, who, outside of purely affiliate/ promotional capacities, also offer services such as software development and implementation, digital marketing and consulting, and sports data collection services, have been able to capitalize on an area of commerce that continues to evolve in both the legal and technological realms. Indeed, this area has been so inundated with new developments that vendors will often need assistance of counsel just to determine the correct level and type of licensing they require– whether as a gaming service provider, supplier or manufacturer. Vendors should be aware that the PGCB always has the discretion to require licensure at a higher level than may seem necessary at first glance.

Moreover, Kevin O’Toole, the executive director of the PGCB, recently shared in March 2021 that they are working toward implementing a regulatory framework that would allow for cashless funding sources in casinos, which would open a lucrative marketplace for mobile banking vendors offering cashless payment alternatives for brick-and-mortar slot machine licensees. This incoming innovation opens yet another door for vendors to partner with PGCB licensed entities in order to offer IT infrastructure that can support cashless payments, virtual wallets, and rewards cards, which are increasingly popular with gaming consumers.

The PGCB’s licensing requirements for vendors are based on the total dollar amount of business that is done with a gaming license or certificate holder. Should a vendor’s total dollar amount of business with one or more gaming license holders be, or will become, greater than $100,000, but less than $500,000, within a consecutive 12-month period, the vendor will need to follow the necessary steps to become a Registered Gaming Service Provider. The application fee for a gaming service provider license is $500 for the vendor, along with $60 for each qualifier. These qualifiers are individuals who are either: officers or directors of the applicant entity; an individual who has direct or indirect ownership of 10 percent or more in the applicant entity; or a salesperson or other employee who is or will solicit business from, or have regular contact with, the applicant entity. Once registered, the vendor will need to pay a registration fee of $2,000 which will allow the vendor to be registered with the PGCB for 4 years.

Should a vendor’s total dollar amount of business with one or more gaming license holders be, or will become, greater than $500,000 within a consecutive 12-month period, the vendor will need to follow the necessary steps to become a Certified Gaming Service Provider. This application process, in addition to being much more in-depth and intensive, will involve a $2,500 application fee, and ultimately a $4,000 certification fee, which shall be valid for 4 years. In addition to these increased fees, the vendors will need to provide:

• A Gaming Service Provider Private Holding Company Form for each affiliate, intermediary, subsidiary, holding company or trust that has a 20 percent or greater direct interest in the applicant. The fee is $500 per application.

• A Personal History Disclosure Form for each owner, officer, and director and each salesperson who solicits business from or has regular contact with any representative of a slot machine licensee or applicant. The fee is $1,000 per application. These certifications are valid for four years.

• A gaming employee application and disclosure information form for any employee who will be performing job duties in a restricted area or have any contact with gaming equipment. The application fee is $350.

• A non-gaming employee application and disclosure information form for any employee who will be performing job duties on the gaming floor but whose job duties do not require the employee to touch or have contact with gaming equipment other than exterior cleaning. The application fee is $60.

While the application process can be time consuming and intensive, failure to abide by these licensing guidelines may result in substantial fines and disciplinary actions for both the vendor and the licensee. In the past, the PGCB has levied individual fines in the hundreds of thousands of dollars against licensees that engaged in business with unregistered vendors. In these instances, it was immaterial whether the licensee or the vendor knew of their licensing requirement.

In conclusion, the gaming industry is continuing to evolve and adapt at breakneck speed along with the pace of technological advances. These advances are leading to opportunities for vendors who, prior to the expansion of gaming regulations over the past four years, were traditionally left out of the lucrative gaming industry. Today, these vendors are coming mostly from the online and information technology spheres and are quickly aligning themselves with the PGCB’s stringent and rigorous regulations in order to place themselves in prime position to capitalize on a booming market. Although the process may be intensive, noncompliance can often bring about much bigger headaches than compliance for those wishing to explore their options in the gaming industry, the gaming and sports wagering attorneys at McNees are ready to provide insight into this complex registration and certification process.

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