FISCAL NOTE

Date Requested: January 14, 2020
Time Requested: 11:42 AM
Agency: Lottery Commission, WV
CBD Number: Version: Bill Number: Resolution Number:
1731 Introduced HB4191
CBD Subject: Legal Gaming


FUND(S):

Lottery

Sources of Revenue:

Special Fund

Legislation creates:

Creates New Program



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


    Summarize in a clear and concise manner what impact this measure will have on costs and revenues of state government.
    
    HB 4191 would increase Lottery’s costs significantly as it relates to licensing and ongoing enforcement. On the revenue side, there is no way to project income with any reasonable certainty.
    
    Additional licensing and security staff would be required to implement this legislation with revenue from a $1,000 license fee collected only every five (5) years and a 10% privilege tax on operator “receipts” that do not have a specified method of calculation.
    
    



Fiscal Note Detail


Effect of Proposal Fiscal Year
2020
Increase/Decrease
(use"-")
2021
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 0 0
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 0 0


Explanation of above estimates (including long-range effect):


    Please explain increases and decreases in personal services, current expenses, repairs and alterations, assets, other costs and revenues, including assumptions and data sources and delineation between start-up and ongoing costs. Please also include a long-range schedule of costs and revenues if fiscal impact is expected to vary in future years.
    
    Licensing: HB 4191 creates a new category of license entitled “social sports wagering operator” in W.Va. Code §29-22D-1 et seq., the Sports Wagering Act, which imposes a $1,000 license fee for a 5 year license. As defined in the proposed legislation, any holder of a Class A license issued by ABCA may qualify to conduct social sports wagering, as long as that individual or entity also obtains a license from the Lottery Commission to operate a social sports wagering business.
    
    According to information from ABCA, there are approximately 2,580 Class A licensees who could apply for a social sports wagering operator’s license. By contrast, the Sports Wagering Act authorizes five (5) “operator” licenses at the racetracks and the Greenbrier at a fee of $ 100,000 for a five (5) year license.
    
    HB 4191 creates a new section §29-22D-6a. Under subsection (c) of that new section, issuance of new social operator licenses must conform to the current provisions of the Sports Wagering Act and Commission rules, which include (for an operator) criminal background checks, at a cost of $ 13.25 per individual, and review of both personal and business financial records of each owner and all key employees by a CPA firm, at a cost of $120 ($370 for partner) per hour under Lottery’s current contract for these services. Employees of a social operator involved in social sports betting may also be required to obtain occupational licenses. These individuals undergo criminal background checks as well.
    
    HB 4191 also requires that social sports wagering operator licensees enter into a management services contract to operate a mobile app or other digital platform (proposed legislation limits MSP to one). The bill requires that the Lottery Commission approve these contracts. Additional staff will also be required to handle the process of reviewing these agreements and preparing materials for the Commission’s review. On an on going basis, HB 4191 requires that the Lottery Commission approve any material change to a management services contract. With approximately 2,580 qualified licensees, the approval process will involve substantial investment of staff resources.
    
    Lottery estimates that it will need at least five (5) additional staff in legal and licensing. HB 4191 requires social operator licenses to be issued “immediately” at §29-22D-6a(c) upon application and payment of the fee, imposing strict time lines on the issuance of the new license.
    
    Security and Enforcement: To ensure that operator’s comply with the Sports Wagering Act and Commission rules, additional security personnel, who have on-site inspection and compliance duties, would be required. Currently, the Lottery Security Division has 16 investigators in four (4) regions to ensure compliance by limited video lottery operators (34)* and retailers (1,226)*. The Lottery Security Division employs three (3) additional investigators to inspect traditional lottery retail establishments. Lottery estimates that it will need anywhere from four to eight additional investigators.
    
    The Lottery spent $5.1 million administering the Limited Video Lottery Act, which requires licensure of over 1,000 establishments and review of operator/retailer agreements, as well as ongoing compliance inspections. Lottery estimates that administration of HB4191 would cost in the range of 2.5 to 5.1 million. Please note that Lottery receives only 15% of the 10% privilege tax as an administrative fee.
    
    Revenue: HB 4191 imposes a 10% privilege tax on “social sports wagering receipts.” The bill defines “social wagering receipts” as the “total receipts received by a licensed social wagering operator from social sports wagering.” The bill does not define “receipts,” so it is unclear at what point the 10% tax would be deducted. Furthermore, it would be extremely speculative to estimate revenue without a study or marketing research to estimate with any reasonable certainty the bar and restaurant participation, the interest by patrons in proposition betting on the various categories offered, or the number of bets or games per week.
    
    *Based upon December 2019 data.
    
    
    



Memorandum


    Please identify any areas of vagueness, technical defects, reasons a bill would not have a fiscal impact, and/or any special issues not captured elsewhere on this form.



    Person submitting Fiscal Note: Tracy L. Webb, General Counsel
    Email Address: twebb@wvlottery.com