Employing popular emerging technologies in the regulation of commercial gaming is not always a winning strategy.

Author:Ma, Di
 
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  1. BACKGROUND ON NEW YORK COMMERCIAL GAMING (1)

    On July 30, 2013, Governor Andrew M. Cuomo signed the Upstate New York Gaming Economic Development Act ("Act"), which authorized commercial gaming in the Hudson Valley/Catskill, Capital District-Saratoga, and Central-Southern Tier regions of the state. (2) The legislative intent was to "boost economic development, create thousands of well-paying jobs and provide added revenue to the state" (3) and gaming revenues were to be used to "increase support for education beyond that of the state's education formulae and to provide real property tax relief to localities[.]" (4) Initially, up to four commercial gaming facilities were authorized in these approved regions (5) and a Gaming Facility Location Board, appointed by the Gaming Commission, (6) was tasked with sifting through the Request for Application ("RFA") process and ultimately making a recommendation on which gaming facility license applicants should be selected. (7)

    [FIGURE 1 OMITTED]

    Sixteen applicants met the June 30, 2014, RFA deadline. (9) An extensive evaluation period, which included applicants presenting to the Gaming Facility Location Board (10) and the Board traveling to each region to solicit comments from the public, followed. (11) This was also a costly process. Due to the magnitude of technical knowledge required, New York State contracted with Taft, Stettinius & Hollister LLP, a law firm that features lobbyists for big gaming companies, to assist the board members with analysis of the gaming industry and individual applications. (12) It was reported that the total bill from Taft for its consulting services during this selection process came close to $5 million. (13) After a long and drawn out process, a final decision was made near the year's end. (14)

    On December 17, 2014, the Gaming Facility Location Board held a press conference at the Empire State Plaza and announced its recommendation for three casinos--Montreign Resort Casino (15) from the Hudson Valley/Catskill region, Rivers Casino & Resort at Mohawk Harbor (16) from the Capital region, and Lago Resort & Casino (17) from the Central-Southern Tier region. (18) Not unexpectedly, there were uproars over the announcement as people felt that Orange County and the "true" Southern Tier were shut out. (19) After much political pressure, Governor Cuomo wrote a December 26, 2014, letter to the Gaming Commission, asking for a new bid exclusive to the Southern Tier region. (20) During a January 13, 2015, meeting, the Gaming Facility Location Board decided unanimously to open a new round of bids for the fourth possible license. (21) For purposes of this article, subsequent RFAs do not impact the immediate next step for the Gaming Commission--drafting regulations. The Act gave each gaming facility licensee a strict two year deadline for project completion from the date of licensure, threatening to impose a fine upwards of $50 million. (22) This means that the Gaming Commission must prescribe a complete set of commercial gaming regulations by late 2016 or early 2017, as the licensing process started as soon as the Gaming Facility Location Board announced its first round of RFA winners.

    Part II of this article will explain why effective regulation is crucial to achieve the legislative intent behind promoting commercial gaming. Part III will offer a brief overview into the current models of commercial gaming regulation. Part IV will describe three emerging technologies available in the casino industry--facial recognition, play management tools, and the "lock up" feature--in greater depth and detail how jurisdictions like Massachusetts and Ohio have tried to incorporate those mechanisms into their regulatory schemes. Part IV will argue why New York should not jump the gun to imitate the other states. Part V will address special concerns unique to the New York State Gaming Commission, namely unification of all gaming regulations between commercial, Native American, and video lottery gaming. Part VI will conclude that although emerging technologies are attractive to regulators, the proposed benefits are not outweighed by the costs to the casino companies.

  2. IMPORTANCE OF COMMERCIAL GAMING REGULATION

    Why care at all about how casinos are regulated in New York? As cliche as it sounds, it's for the common good. According to the New York State Gaming Commission, new casinos are estimated to bring in:

    * Nearly $1 billion in construction spending;

    * 6,700 construction jobs;

    * 2,900 permanent jobs;

    * $238.2 million in new education aid and property tax relief; and

    * $192 million in aid to local governments. (23)

    The revenue distribution across the state to school aid or property tax relief and local government aid is about $430 million. (24) Through the enactment of the Act, Governor Cuomo also negotiated with Native American nations to share 10% revenue with all counties in their region. (25) Looking to the neighboring jurisdictions, these numbers are far from wishful thinking as Pennsylvania gained $1.5 billion in revenue and 16,000 in jobs and Connecticut gained $300 million in revenue and 14,000 in jobs thanks to commercial gaming. (26) With these large sums of money at stake, protecting the integrity of the gaming industry should be everyone's concern.

    Additionally, it is relevant to point out the downside of the casino industry. New York is entering into this industry during a time when six casinos in Atlantic City have closed since 2014 (27) and the revenues took a dip in Pennsylvania from 2012 to 2014, the second largest gambling market in the United States. (28) Northeast Native American favorites-Foxwoods Resort Casino and Mohegan Sun-are both fighting to cut costs to mitigate the decline in gaming revenue. (29) Within the New York state borders, there are already six upstate Native American casinos and nine video lottery terminals known as "racinos." (30) Citing market saturation, many criticize the legalization of commercial gaming in New York as fifteen years too late. (31) Careful regulation would strike a delicate balance between facilitating the growth of the New York gambling industry and protecting the interests of various stakeholders.

  3. INTRODUCTION TO THE REGULATORY SCHEMES

    The Act mandated that commercial casinos will be regulated "tightly" and "strictly" to ensure public confidence in the integrity of all commercial gaming within the State. (32) However, the Gaming Commission does not want to violate New York's interest in being a business-friendly state, rationalizing that tight and effective regulatory control does not have to be "overly burdensome." (33) In commercial gaming, there are two classic approaches to regulation--the Nevada model and the New Jersey model. (34) The Nevada model simply treats casinos as any other business with the ultimate goal of maximizing economic benefits for the state. (35) This approach has been credited as the reason why Las Vegas has achieved a longstanding prominence as the gambling mecca in the United States. (36) The New Jersey model sees casinos as a unique line of business that is vulnerable to malfeasance and emphasizes a broader and more meticulous role for government oversight and intervention. (37) As a result, this regulatory framework has been blamed for why gambling never reached its economic potential in New Jersey. (38) As more states move to legalize commercial gaming, (39) many are moving toward a hybrid approach. (40)

    What makes casino regulation even more interesting today is the added component of emerging technologies like facial recognition, play management tools, and the "lock-up" feature. Facial recognition technology pinpoints a face after detecting a human body on a video feed, and then compares that image against a pre-existing database of faces for a match. (41) According to the FBI, it uses geometric or photometric data to identify someone or verify someone's identity. (42) Play management tools enable a player to voluntarily set limits such as how much he or she wants to spend at a slot machine. (43) The "lock up" feature stops a gambling transaction once a player wins $600 or more, meaning a player cannot resume play until a slot attendee or table game dealer takes down the necessary information for the appropriate state withholding tax. (44) Although this technology has been on the market, most games are set to a threshold of $1,200 according to federal regulations despite some state regulators' attempts at a lower threshold level. (45) The next section will discuss how ambitious states like Massachusetts and Ohio have incorporated these darling technologies into their regulations and what New York can learn from their experiences.

  4. EMERGING TECHNOLOGIES IN COMMERCIAL GAMING

    1. Facial Recognition

      Twenty-four hour surveillance is mandatory for commercial casinos but no jurisdiction mandates facial recognition yet. (46) Video surveillance, in absence of facial recognition, is already sophisticated at certain casinos. (47) It is estimated that a typical Las Vegas-style casino resort would employ more than 3,000 to 5,000 cameras around the property, and each camera is "powerful enough to 'read serial numbers on bills.'" (48) Yet casinos, like the now-defunct Trump properties in Atlantic City and many more in Las Vegas, voluntarily employ facial recognition to catch cheats. (49) The big casinos use facial recognition software for various reasons. For example, Venetian Las Vegas started to use facial recognition for advertising purposes. (50) The camera system analyzes the patrons' demographics and displays custom suggestions for restaurants and entertainment on digital screens. (51) However, most casinos use high-tech video equipment for their intended purposes: protecting property or money, complying with gaming regulations, and ensuring safety of employees and guests. (52) Facial recognition technology can be very advanced. For example, some cameras scan for...

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