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Clubs, casinos at odds over games

Casino owners don’t agree over new machines for gaming and will seek reimbursement.

MATT ASSAD The Allentown Morning Call

Gov. Ed Rendell and several state lawmakers thought they found a way to boost tax revenues while saving social clubs. The solution: Let the clubs have poker and gambling machines.

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The glitch: The law says if the state expands gaming, it would have to give back to each of the 11 casinos its $50 million licensing fee.

So how do state lawmakers plan to get around the $550 million problem?

“The machines would be video lottery terminals, not slot machines, “ said Rep. Dante Santoni Jr., D-Berks, the House Gaming Oversight Committee chairman who is sponsoring a bill. “They look the same, but technically, they’re different.”

Casino owners don’t think so.

“You can do all the vocabulary gymnastics you want, but when all is said and done, these are slot machines,” said Mohegan Sun Casino President Robert J. Soper. “We feel we are on firm legal ground to say this would be expansion.”

In other words, if the state tries to pass this law, Soper is going to want his $50 million back, and he won’t be the only one. The state has issued 11 gaming licenses to casino operators.

The prospect of a half-billion-dollar hurdle and a potential legal action come as bad news to some clubs that say they’ve been hanging on in the hope the legislation would pass by next year.

“Honestly, I was not aware the law included those provisions, and I follow this stuff more closely than most,” said Jim Schantz, a legislative aide to Sen. Lisa Boscola, D-Northampton, and longtime officer in the Bethlehem Clubman’s Association, which represents 27 clubs in the city. “Sounds like it could be a deal breaker.”

At this point there is no deal, just a bill recommended by Rendell and the House Gaming Oversight Committee that has not come up for a vote. Still, it’s a bill clubs have already begun to count on to save their future.

In recent years, private clubs like Veterans of Foreign Wars posts, American Legion posts and Democratic or Republican social clubs have fallen on hard times. In the past, revenue from a handful of illegal poker machines allowed many of the 3,000 clubs statewide to offer $1 drafts and cheap food to members.

But since the state legalized slot machines, many of the clubs have been repeatedly raided, forcing many to give up their machines. Many have closed and others could follow.

That’s why they celebrated earlier this year when Rendell proposed letting any place with a state liquor license, including private clubs, have up to five gambling machines. He has said a 50 percent tax on proceeds from those machines would generate $550 million a year to be used as tuition aid to low-income students at state colleges and community colleges.

“We’re celebrating our hundredth anniversary in 2012, and without legalized machines, there’s a real question whether we make it that far,” said Doug Toth, president of the Fearless Fire Company club in Allentown. “We’re all hurting right now. This was going to save us.”

A clause in the state’s 2004 gaming law essentially gives casinos exclusivity rights to casino gaming for 10 years. It says that if the state expands gaming, casino operators would get back up to 100 percent of their $50 million license fee. If expansion came within five years of the issuance of the licenses, which happened in early 2007, each would get its entire fee back. That rebate would go down to $41.7 million in Year 6 and continue to go down until it reached $8.3 million in the 10th year.

So according to casino operators, any expansion before 2016 would mean a state rebate to casinos of $91 million to $550 million.

That is, unless casino operators -- or the courts -- buy the idea that putting video lottery terminals in thousands of bars, clubs and restaurants is not an expansion of gaming.

“I’m not going to speak for everyone, but every casino executive I’ve heard talk publicly considers that expansion,” Soper said. “In our view, it would trigger a $50-million reimbursement.”

Santoni, who noted the legal issue may be moot if more support is not found in the state Senate for the bill, said House lawyers say the bill would stand up to a legal challenge.

When sitting side by side, slot machines and video lottery terminals look identical. Same cherries, bars, lucky sevens or poker cards. But there is a fundamental difference that state lawmakers are hanging their hats on. Slot machines are based on a random deal made each time a person plays. Though the odds are preset by the casino, the spin or deal is entirely generated on-site by the machine’s spinning wheels.

Video lottery terminals would be centrally controlled in Harrisburg by the Pennsylvania Lottery. The lottery would deal the cards, cherries or bars. The symbols would appear on the screen the same way, but they would technically be generated more like a scratch-off or quick-pick lottery game.

A few states have used the distinction to get around their own laws, said Robert LaFleur, gaming analyst for Susquehanna Financial Group Gaming.

In New York, where the constitution prohibits casino games, to avoid a constitutional amendment the state has placed video lottery terminals at its race tracks.