Analysis
By Cole Boehler
Number crunchers have wonderful computer tools at their disposal today. They simply load a spread-sheet program, then customize it so it will deliver that data they need, then put the correct sums in the correct cells, push a button and the computed data spills out.
And government bodies sometimes enjoy a similar aid when it comes to writing rules to implement legislation: just go to another jurisdiction that has already gone through the process, borrow their rules as a template, customize and refine them to work for our purposes, then implement them.
Such is almost the case with HB616 which was passed by the 2007 Montana Legislature and signed into law by the Governor. It authorizes merging several forms of legal wagering into a hybrid known as fantasy sports league pari-mutuel wagering (covered in depth in the Dec. 2007 Montana Tavern Times).
Montana has rules, and thus templates, for simulcast and pari-mutuel wagering, which it has operated and regulated for years. Some of those rules were incorporated as a basis into this draft. And the state legalized fantasy sports leagues and implemented administrative rules almost 15 years ago, too, so has some understanding of what is required to make that activity work.
The trick, then, is writing new rules to encompass all three concepts that comprise the new hybrid.
Horse racing, with a long tradition in Montana, is a struggling industry. It now only occurs in Billings, Great Falls and possibly Miles City with Missoula recently having opted out of the circuit. Some observers believe the sport and business needs an infusion of money for reasonable purses and other overhead expenses to keep it alive.
The failure of horse racing could send economic jolts into a few communities, but also throughout the horse breeding and training industries in the state.
Recognizing this situation, the Governor created a task force in 2005 to study the matter, and out of those deliberations came HB616.
It proposes to merge three wagering concepts already legal in the state: pari-mutuel, which is traditional race betting; simulcast, which is a technologically driven race wagering system where players in one location can place bets on races across the country via telephone wires and an integrated "tote" system; and fantasy sports wagering where players wager a fixed amount at the beginning of a sports season, select and trade athletes to form a "fantasy" team, then compute individual player stats to determine an end-of-season winner.
An enabling statute requires a set of administrative rules be drafted, massaged, presented to the public in a hearing, possibly altered again, and then be published in the Administrative Register before they are official and carry the weight of law, all before the statute can take effect.
HB616 calls for the Board of Horse Racing, a body that has regulated pari-mutuel and simulcast for decades, to be the administrative body which oversees the pari-mutuel fantasy league regulation. The board created a subcommittee that, along with its attorney, Carol Morris, was charged with writing and implementing a new set of rules.
It took eight months and hundreds of hours of painstaking work to get to the point where a second, 36-page rules draft was ready for the subcommittee to begin the fine tuning process, which it did January 16 at Jorgenson's in Helena.
And to the surprise of the subcommittee members, most of whom had never dealt with the rules-making task, a small audience of 10 was also in attendance to observe and comment upon the contents of the draft and its language.
Montana Tavern Association Government Affairs Counsel Mark Staples was present as were members of the Cascade County Tavern Association, another lobbyist from a major systems manufacturer, a representative of the trade press and a few others.
Even after slogging five and a half hours through the dense minutiae contained in the draft, the committee found it had worked through just nine-pages or 25 percent of the material. Yet that appears to be the "meat" of the draft, with the balance largely "boilerplate" language that, nonetheless, will require careful scrutiny.
A number of committee members commented on the need to move slowly and with caution in order to "get it right...the first time."
However, even some of the concept's most fundamental underpinnings were still subject to lengthy discussion and redirection. The rules draft, for example, specified that there be one network provider.
In current theory, the network provider would present a proposal to the board, then, assuming it passes muster, would be licensed to operate a "totalizer system" or "tote," a central computer used to post bets, calculate odds, track all wagers, wins and payouts. These systems are in wide use today.
A network provider would also be responsible for developing or acquiring the new software that would be required to handle this hybrid form of wagering and run it on a sophisticated computer mainframe known in this context as a "hub."
Further, a network provider would need to furnish self-serve video terminals upon which would be displayed betting propositions and odds and which would incorporate a bill validator and wager ticket printer, which ticket the bettor would need to later claim win prizes.
The provider would also need to be able to perform installations of video terminals in locations licensed to offer the game and training for the location operator and service personnel.
While most agreed a single network provider would simplify regulation and logistics, that approach could severely crimp development of game concepts and even hardware, it was said, and that especially initially it was crucial to foster utmost competition to ensure maximum opportunities for locations to offer the wagering system.
The committee decided to delete the reference to single provider, which led MTA's Staples to commend the committee for demonstrating it's commitment to the principle that any qualified business licensed for Class III gaming won't be arbitrarily excluded from participation on the whim of any potential vendor.
"Exclusivity will breed opposition," Staples said. "It should be specified in the rules that if a location is eligible, it cannot be excluded. You cannot allow arbitrary discrimination."
Staples said he understood that while no network provider could be compelled to install the system in a location, vigorous market competition among numerous providers would certainly yield a marketplace driven to maximize the number of locations where it could be feasibly offered.
Staples asked that language be inserted that made it clear it is the board's intention that no one company or group of licensees could exercise exclusivity. The committee directed it' attorney to create and insert such language.
However, it was noted the network operator(s) would only receive 6 percent of the total amount wagered, as specified in the statute, and splitting this already small slice of the total pie between numerous networks, especially in light of substantial anticipated investments in hardware and software, could make it infeasible for all of them.
It was also suggested splitting the total amount wagered between a number of networks might mean small wager pools and subsequently only small wins for players, leaning out the potential payout and fun factor.
There was even some discussion regarding whether a means could be devised to use several competitive networks using the same communications protocol tied into one central "tote" or computer hub that would combined pools and reduce hardware investments.
It was also suggested market forces--the need for some requisite volume and scale and efficiencies--might ultimately dictate that only one network would survive the initial competitive melee anyway with marginal networks forced out of the market rapidly.
In the end, it was agreed, at least for the time being, to not restrict the number of networks that could be licensed, yet to limit the system to a single tote hub, though how that could be logistically structured with requisite security features remained unclear.
A question from the audience regarding the lack of any language requiring a criminal background investigation of a network provider applicant had the committee promising to include such language in the next draft.
Also, as with any draft some language was included that served simply as a placeholder until more considered language could be substituted, for example, the license fees in the draft. In fact, the draft fees were at odds from one section to the next.
One fee, though, that drew some attention was a proposed $1,000 permit for a location to be licensed. It was noted this was highly unrealistic as many establishments may not see $1,000 in returns on the system. It was also noted that the Montana Administrative Procedures ACT stipulates that license fees need to be commensurate with the actual costs incurred for issuing the license.
A more practical fee for the location might be $50, it was suggested.
The committee agreed to meet again Feb. 7 at 10 a.m. at Jorgenson's in Helena to review the revisions, and to take up amending the remaining draft rules.
Source: The Montana Tavern Times, February, 2008, published monthly by Continental Communications, 125 W. Granite St., Suite 102, Butte, MT 59701.