Protecting Pennsylvania’s Gaming Market from Bad Actors: Lawmakers are at a Crossroads

by Hazel Trice Edney

 

In May 2018, the Supreme Court handed down a landmark decision that opened the door for legal sports betting throughout the country and sent state leaders scrambling to get their markets up and running. Today, fans and consumers can place wagers in 13 states, and legislation to legalize sports betting is pending in 24 states.

Pennsylvania has emerged as an early leader in the rapidly growing industry, where gaming has provided more than 33,000 jobs and generated $2.5 billion in taxes over the past 15 years. More than that, the kind of jobs that the industry provides – a diversity of positions requiring a variety levels of education – are a source of stable income in many African-American and other minority communities. Consider that 66 percent of the state’s gaming industry employees do not have a four-year college degree – 38 percent are racial minorities and 43 percent are women.

Pennsylvania’s burgeoning sports betting market is expected to become an even more integral part of the state’s robust and growing gaming industry, having brought in more than $266 million in sports bets in November 2019 alone and thus bringing Pennsylvania’s industry total to $1.1 billion in its first year. Many believe that it could lead to an uptick in hiring, providing a boost to working families and opening up more opportunities for them, especially lower-income communities.

But despite the promise of this economic windfall, some experts are sounding the alarm about some of the gaming operators entering U.S. markets, particularly those arriving in U.S. shores from abroad, warning that these companies are slipping into the U.S. gaming markets without appropriate regulatory scrutiny and, therefore, pose a potential risk.

In the brick-and-mortar casino business, the risk of money laundering has long been one of the chief concerns of law-enforcement officials and gaming regulators. Now, as foreign operators unveil online platforms for sports betting here in the U.S., experts warn about that online gaming could be used to easily transfer ill-gotten funds from one person to another person or to steal money using accounts set up with stolen credit card numbers and the identities of victims.

By virtue of its size, Pennsylvania is in a notable position to help set the direction of online gaming in the country, largely because smaller states on the sidelines will likely follow its lead on which online companies it will permit to operate online gaming platforms.

Experts point to a Malta-based international gaming company’s partnership with Erie’s Presque Isle Downs, which saw more than $3.6 million wagered on sports in November. That company, SBTech, operates more than 50 sports betting kiosks at the location and has indicated that it plans to expand its presence in the state.

But the company has faced scrutiny in the past. In Oregon, much of SB Tech’s background came under intense review after it scored a lucrative contract to provide mobile betting technology to the state. SBTech has been alleged to illegally operate in black markets such as China. Stoking more fear and speculation about SBTech’s activity abroad, the company has been alleged to have dealings in Turkey and Iran.

SBTech has denied these allegations, telling The Oregonian, “To be very clear, SBTech does not operate in any black markets.”

Now, SBTech is taking notable steps to keep its contractual arrangement with the state of Oregon from public view.

The European company has filed multiple lawsuits to keep out of public view details involving its online betting operation in Oregon after the state’s Department of Justice granted Legal Sports Report access to the contract between SBTech and the Oregon Lottery. The defendants include LSR are the state lottery, the state DOJ and The Oregonian, a newspaper that also wants to inspect the contract.

 

In this context, questions still linger. Therefore, there might be cold comfort to residents in Erie County, where many public services – from meals and recreational activities for senior citizens, to sports programs for children and local cultural events – depend on gambling revenue. Those familiar with the Pennsylvania market say the risk posed by any questionable operator to the fortitude of the gaming industry goes far beyond the ability to bet on the big game. They worry that minority communities could be the first to deal with any fallout.

In recent years, Pennsylvania’s gaming industry has been a key supporter of minority communities. In 2018, the Erie County Gaming Revenue Authority (ECGRA) announced a $5 million investment to support the expansion of the Erie Urban Entrepreneur Program. At the time, Senator Daniel Laughlin applauded the move, saying “Investing in small business growth is a smart way to extend ECGRA economic development dollars into minority communities across Erie County.”

Pennsylvania Auditor General Eugene DePasquale announced in November 2019 a performance audit on the state’s lottery to ensure that it has necessary measures in place to mitigate fraud. “Seniors, lottery players and the general public deserve to know if every dollar of those prizes was claimed in accordance with the law,”DePasquale said.

Asked about the potential disruption a bad actor from abroad could cause, Doug Harbach, a spokesman for the Pennsylvania Gaming Control Board, stressed the importance of  thorough investigations of all companies and vendors desiring to do business on any level of the gaming operations because of potential risks.

“Everyone is scrutinized for everything for background from potential crimes to their tax records,” Harbach said. “The risk is that criminal activity usually occurs by allowing individuals to get in the back door…Some of these are foreign firms that want to do business in the Pennsylvania gaming industry.”

Beyond SBTech, the question for lawmakers is how to properly vet foreign companies bidding for lucrative state contracts going forward.

“Our investigators have gone candidly around the world to conduct these investigations but in regards to these individuals that we scrutinize, it also involves vendors. So, when I say they get in the back door, we make sure that anybody who wants to do business with a casino or some other gaming entity operating in the state, that they also have a significant background investigation done and their license application and come finally before the board before they get approval,” Harbach said. “That’s important because that’s exactly where you want to thwart any malfeasance, and that is through unsavory vendors.”

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