It’s going to be an interesting Summer for aspiring entrants into the regulated US interactive casino gaming markets. Pennsylvania – now accepting license applications  – has joined New Jersey as a point of intrigue. The New Jersey market is steadily becoming a known quantity, and we’re consequently seeing more and more parties stepping onto that dance floor.  Pennsylvania, where the plan is for a roll-out of online casino gambling on July 15, is more of a mystery.

The pies in both states have been sliced and divided among holders of land-based casino licenses, and for outsiders, opportunity lies in partnerships with those licensees.

The states’ approaches differ from one another in many ways, but at a high level, they both authorize operators, vendors, rev-share affiliates and CPA affiliates.

Pennsylvania is significantly more expensive when it comes to licensing fees and tax rates. Another difference not to be overlooked is that in Pennsylvania, a software supplier can be approved without having a contract already in place with a state-licensed operator, whereas in New Jersey, a pre-existing relationship is necessary. This could be big for less established suppliers, who can add “already licensed” to the list of pluses they bring to the table.

Following are a few FAQs related to licensing in the two states:

What are the cost variables?

In addition to the base fees, both states require licensure of casino employees and background checks on key persons, so the more persons (natural and/or legal) involved in the operation, the higher the fees. New Jersey tacks on hourly fees, so again, the more time needed for due diligence and processing, the higher the cost. Prospective applicants should also be aware of fees that are specific to the type of license they are seeking. For example, an entity holding an Internet gaming permit in New Jersey is on the hook for an annual “Responsible Internet Gaming Fee” at $250,000. Fee tables are accessible online at https://www.nj.gov/oag/ge/docs/Reports/fee_schedule.pdf (New Jersey) and www.gamingcontrolboard.pa.gov/?p=266 (Pennsylvania).

Travel costs are a consideration for overseas applicants. While it is not necessary to be in the state, meeting face-to-face with regulators is never a bad idea.

Finally, legal fees can vary depending on the complexity of the organization and what needs to be done to bring a potential applicant into compliance. (See below: “Do I really need to be paying lawyers to handle all this?”)

How long does it take?

The answer is . . . wait for it . . . it depends. This is probably the most commonly asked question among prospective applicants, and it is asked over and over again because it doesn’t seem to get answered. The bottom line is that the pace and timeliness of application review is dictated partially by the preparedness of the applicant, and the rest is at the discretion of the regulators. As is the case with costs, the duration of the process can vary depending on the complexity and history of the applicant’s business. To an extent, the amount of time needed for a suitability investigation correlates with the size and/or complexity of the applying entity. We typically generate timetables based on the experiences of similarly situated applicants, but nothing is set in stone. Naturally, the time needed for investigation also increases with the level  of regulatory oversight that is necessary. Affiliates have gained approval in New Jersey, for example, in a matter of weeks. On the other hand applicants should expect a significantly longer turnaround if technology approval is required. As a general rule, you need to be thinking in terms of months, not weeks.

Importantly though, both states issue conditional licenses enabling applicants to commence business within the state pending final approval.

What are the main considerations made during license review?

We encourage all our clients to study the application forms to get an idea of what will be required of them. New Jersey forms are available online at https://www.nj.gov/oag/ge/forms.html. Pennsylvania forms are available at https://gamingcontrolboard.pa.gov/?p=296.

In a nutshell, the review focuses on technology (if applicable), key persons and the background and structure of the company. Be prepared to provide financial disclosures, criminal history, employment history, share structure, history of legal proceedings, asset disclosures and just about everything else you can think of that would enable the inspectors to know the company and its key personnel inside and out.

Do I really need to be paying lawyers to handle all this?

For the bulk of the prep work, no. We are equipped to take on whatever needs to be done, but applicants without in-house counsel should avoid paying legal fees for the hours spent tracking down records, filling out forms, etc. if possible. That said, retaining counsel is advisable for handling a number of tasks, including (among other things):

  • developing an overall strategy, or at least assuring that the existing game plan covers all bases;
  • assuring that the applicant’s business is structured in a manner that is compliant with the regulations (and restructuring if necessary);
  • assuring that critical steps are not overlooked or mishandled and that all forms are filled out properly;
  • liaising with regulators to address issues that the regulations do not clearly address (something that is more common than you might think);
  • assessing, ahead of the process, whether the potential applicant is qualified for licensure;
  • (if possible), providing a roadmap that enables unqualified potential applicants to become qualified;
  • (if possible) enabling potential applicants to isolate themselves from activities and relationships that could prevent approval;
  • drafting licensing agreements between the applicant and partnering casino licensees; and
  • identifying what proprietary information needs to be disclosed if disclosures are necessary.

Author: Mark Balestra, Segev LLP

Mark Balestra’s hands-on approach toward practicing law recognizes that every client has a unique set of needs and circumstances that call for tailored, nuanced legal solutions. Based in St. Louis, Mr. Balestra has guided clients in a variety of capacities in the gaming and gambling industry for nearly 20 years. His expertise spans a number of gaming-related industry sectors, including online gambling, poker, skill gaming, fantasy sports, e-sports and tribal gaming.

He is a member of the Missouri Bar, the American Bar Association, the Bar Association of Metropolitan St. Louis and International Masters of Gaming Law. Contact Mark directly at: m.balestra@segev.ca

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This article is for informational purposes only, does not constitute legal advice, and should not be relied upon as legal advice.