S00018 Summary:

Add Art 15 §§1500 - 1506, RWB L; amd §225.00, add §225.36, Pen L
Allows certain interactive poker games be considered games of skill rather than games of luck; includes definitions, authorization, required safeguards and minimum standards, the scope of licensing review and state tax implications; makes corresponding penal law amendments.
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S00018 Actions:

04/03/2019PRINT NUMBER 18A
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S00018 Committee Votes:

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S00018 Floor Votes:

There are no votes for this bill in this legislative session.
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S00018 Text:

                STATE OF NEW YORK
                               2019-2020 Regular Sessions
                    IN SENATE
                                     January 9, 2019
        Introduced  by  Sens.  ADDABBO, FUNKE -- read twice and ordered printed,
          and when printed to be committed to the Committee  on  Racing,  Gaming
          and  Wagering -- committee discharged, bill amended, ordered reprinted
          as amended and recommitted to said committee

        AN ACT to amend the racing, pari-mutuel wagering and  breeding  law  and
          the penal law, in relation to allowing certain interactive poker games
          The  People of the State of New York, represented in Senate and Assem-
        bly, do enact as follows:
     1    Section 1. The  racing,  pari-mutuel  wagering  and  breeding  law  is
     2  amended by adding a new article 15 to read as follows:
     3                                 ARTICLE 15
     4                             INTERACTIVE GAMING
     5  Section 1500. Legislative findings and purpose.
     6          1501. Definitions.
     7          1502. Authorization.
     8          1503. Required safeguards/minimum standards.
     9          1504. Scope of licensing review.
    10          1505. State tax.
    11          1506. Disposition of taxes.
    12    § 1500. Legislative findings and purpose. The legislature hereby finds
    13  and  declares  that: 1. Under the New York penal law a person engages in
    14  gambling when he or she stakes or risks  something  of  value  upon  the
    15  outcome  of  a  contest of chance or a future contingent event not under
    16  his or her control or influence, upon an agreement or understanding that
    17  he or she will receive something of value in  the  event  of  a  certain
    18  outcome.
    19    2.  A contest of chance is defined as any contest, game, gaming scheme
    20  or gaming device in which the outcome depends in a material degree  upon
    21  an  element of chance, notwithstanding that skill of the contestants may
    22  also be a factor therein. (Subdivision 1 of section 225.00 of the  penal

         EXPLANATION--Matter in italics (underscored) is new; matter in brackets
                              [ ] is old law to be omitted.

        S. 18--A                            2
     1  law).  Thus,  games of chance may involve some skill, but in those games
     2  the level of skill does not determine  the  outcome  regardless  of  the
     3  degree  of  skill employed. See People v. Turner, 165 Misc. 2d 222, 224,
     4  629  N.Y.S.2d  661,  662  (Crim.  Ct.  1995). On the other hand, where a
     5  contest pits the skill levels of the players  against  each  other,  New
     6  York courts have found a game to be one of skill rather than chance. See
     7  People  v.  Hunt,  162 Misc. 2d 70, 72, 616 N.Y.S.2d 168, 170 (Crim. Ct.
     8  1994) ("Played fairly, skill rather than chance is the  material  compo-
     9  nent of three-card monte.");
    10    3.  Poker  in many instances has been defined as a game of skill and a
    11  New York federal court in U.S. v. DiCristina, 886 F. Supp. 2d 164,  224,
    12  assessed that under federal law poker was predominantly a game of skill;
    13    4.  New  York  courts  have  interpreted  New York law to apply a more
    14  rigorous test in identifying a "contest of chance" than  is  applied  by
    15  most  states  in  this  nation  and  the  courts have found that where a
    16  contest pits the skill levels of the players against each  other,  those
    17  games  are  games  of  skill  and  not games of chance. Furthermore, the
    18  courts have not limited the  legislature's  ability  to  determine  that
    19  certain  forms  of  poker  should fall outside the general definition of
    20  gambling since those games are games of skill;
    21    5. Texas Hold'em poker involves two cards  dealt  face  down  to  each
    22  player  and  then  five  community cards placed face-up by the dealer, a
    23  series of three, then two additional single cards, with  players  deter-
    24  mining  whether  to  check,  bet,  raise  or fold after each deal. Omaha
    25  Hold'em poker is a similar game, in which  each  player  is  dealt  four
    26  cards  and  makes  his  or her best hand using exactly two of them, plus
    27  exactly three of the five community cards. These games are considered to
    28  be complex forms of poker which involve player  strategy  and  decision-
    29  making and which pit the skill levels of the players against each other.
    30  As games of skill, these forms of poker do not fall under the definition
    31  of gambling as prohibited by the penal law; and
    32    6.  The  legislature  further finds that as the internet has become an
    33  integral part of society, and internet poker  a  major  form  of  enter-
    34  tainment  for  many  consumers,  any  interactive gaming enforcement and
    35  regulatory structure must begin from the bedrock  premise  that  partic-
    36  ipation  in a lawful and licensed gaming industry is a privilege and not
    37  a right, and that regulatory oversight  is  intended  to  safeguard  the
    38  integrity of the games and participants and to ensure accountability and
    39  the public trust.
    40    §  1501.  Definitions.  As  used  in this article, the following terms
    41  shall have the following meanings:
    42    1. "Authorized game" means Omaha Hold'em and Texas Hold'em  poker,  as
    43  well as any other poker game that the commission determines is the mate-
    44  rial  equivalent  of  either of those, whether in a cash game or tourna-
    45  ment.
    46    2. "Authorized participants" means persons who are  either  physically
    47  present  in this state when placing a wager or who otherwise are permit-
    48  ted by applicable law, as determined  by  the  commission,  to  place  a
    49  wager.  The  intermediate  routing of electronic data in connection with
    50  interactive gaming shall not determine  the  location  or  locations  in
    51  which a wager is initiated, received or otherwise made.
    52    3.  "Core  function"  means  any of the following: (a) the management,
    53  administration or control of  wagers  on  interactive  gaming;  (b)  the
    54  management,  administration  or  control  of  the games with which those
    55  wagers are associated; or (c) the development, maintenance, provision or
    56  operation of an interactive gaming platform.

        S. 18--A                            3
     1    4. "Commission" means the New York state gaming commission.
     2    5.  "Division"  means  the division of gaming, established under para-
     3  graph (c) of subdivision two of section one hundred three of this  chap-
     4  ter.
     5    6.  "Interactive gaming" means the conduct of games through the use of
     6  the internet or other communications technology that  allows  a  person,
     7  utilizing  money,  checks,  electronic  checks,  electronic transfers of
     8  money, credit cards, debit cards or any other instrumentality, to trans-
     9  mit to a computer information to assist in the placing of  a  wager  and
    10  corresponding  information  related  to  the  display  of the game, game
    11  outcomes or other similar information. The term  does  not  include  the
    12  conduct  of  (a)  non-gambling  games  that  do  not otherwise require a
    13  license under state or federal law; or (b)  games  that  occur  entirely
    14  among  participants  who  are located on a licensed casino premises. For
    15  purposes of this provision, "communications technology" means any method
    16  used and the components employed by an establishment to  facilitate  the
    17  transmission of information, including, without limitation, transmission
    18  and  reception by systems based on wire, cable, radio, microwave, light,
    19  optics or computer data networks,  including,  without  limitation,  the
    20  internet and intranets.
    21    7. "Interactive gaming gross revenue" means the total of all sums paid
    22  to a licensee from interactive gaming involving authorized participants,
    23  less  only  the  total  of  all sums paid out as winnings to patrons and
    24  promotional gaming credits; provided, however, that the cash  equivalent
    25  value  of any merchandise or other non-cash thing of value included in a
    26  contest or tournament shall not be included in the  total  of  all  sums
    27  paid  out as winnings to players for purposes of determining interactive
    28  gaming gross revenue.
    29    (a) Neither amounts deposited with a licensee for purposes of interac-
    30  tive gaming nor amounts taken in fraudulent acts perpetrated  against  a
    31  licensee for which the licensee is not reimbursed shall be considered to
    32  have been "paid" to the licensee for purposes of calculating interactive
    33  gaming gross revenue.
    34    (b)  "Promotional  gaming credit" includes bonuses, promotions and any
    35  amount received by a licensee from a patron for which the  licensee  can
    36  demonstrate that it or its affiliate has not received cash.
    37    8.  "Interactive  gaming  platform" means the combination of hardware,
    38  software and data networks used to manage, administer or control  wagers
    39  on  interactive  gaming or the games with which those wagers are associ-
    40  ated.
    41    9. "Internet"  means  a  computer  network  of  interoperable  packet-
    42  switched data networks.
    43    10.  "Licensee"  means  a  person who is licensed by the commission to
    44  offer interactive  gaming,  using  an  interactive  gaming  platform  to
    45  authorized  participants.  A  licensee  may utilize multiple interactive
    46  gaming platforms provided that each platform is approved by the  commis-
    47  sion.
    48    11.  "Omaha  Hold'em  poker"  means  the  poker game marketed as Omaha
    49  Hold'em poker or Omaha poker in which each player is  dealt  four  cards
    50  and  must  make  his  or  her  best hand using exactly two of them, plus
    51  exactly three of the five community cards.
    52    12. "Significant vendor" means any person who offers or  who  proposes
    53  to  offer  any  of  the  following  services with respect to interactive
    54  gaming:  (a) a core function; (b) sale, licensing or  other  receipt  of
    55  compensation  for  selling  or  licensing a database or customer list of
    56  individuals residing in the United States selected in whole or  in  part

        S. 18--A                            4
     1  because  they  placed  wagers  or participated in gambling games with or
     2  through an internet website or operator (or any  derivative  of  such  a
     3  database  or  customer list); (c) provision of any trademark, tradename,
     4  service  mark or similar intellectual property under which a licensee or
     5  significant vendor identifies interactive games  to  customers;  or  (d)
     6  provision  of any product, service or asset to a licensee or significant
     7  vendor in return for a percentage of  interactive  gaming  revenue  (not
     8  including  fees  to  financial  institutions  and  payment providers for
     9  facilitating a deposit or withdrawal by an authorized participant).  The
    10  term  "significant  vendor"  shall  not  include  a provider of goods or
    11  services to a licensee that are not specifically designed  for  use  and
    12  not principally used in connection with interactive gaming.
    13    13.  "Texas  Hold'em  poker" means the type of poker marketed as Texas
    14  Hold'em poker that involves two cards being  dealt  face  down  to  each
    15  player and then five community cards being placed face-up by the dealer,
    16  a  series of three then two additional single cards, with players having
    17  the option to check, bet, raise or fold after each deal.
    18    § 1502. Authorization.  1. The commission shall,  within  one  hundred
    19  eighty days of the date this article becomes law, promulgate regulations
    20  to  implement interactive gaming in this state and shall authorize up to
    21  eleven licenses  to  operate  interactive  gaming  involving  authorized
    22  participants, subject to the provisions of this article and other appli-
    23  cable provisions of law.
    24    2. Applicants eligible to apply for a license pursuant to this article
    25  shall be those entities:
    26    (a)  licensed  by the state pursuant to section sixteen hundred seven-
    27  teen-a of the tax law to operate video lottery gaming and has experience
    28  in the operation of interactive gaming by being licensed in a state with
    29  comparable licensing requirements or guarantees acquisition of  adequate
    30  business  competence  and  experience  in  the  operation of interactive
    31  gaming; or
    32    (b) licensed by the state to  operate  a  class  III  gaming  facility
    33  pursuant  to  article thirteen of this chapter and has experience in the
    34  operation of interactive gaming by being licensed in a state with compa-
    35  rable licensing requirements or guarantees acquisition of adequate busi-
    36  ness competence and experience in the operation of interactive gaming.
    37    3. The commission shall, to the extent practicable, issue licenses  to
    38  multiple  applicants  no  sooner  than one hundred eighty days after the
    39  promulgation of regulations in order to ensure a robust and  competitive
    40  market  for  consumers  and  to  prevent early licensees from gaining an
    41  unfair competitive advantage.
    42    4. No person may operate, manage  or  make  available  an  interactive
    43  gaming  platform or act as a significant vendor with respect to interac-
    44  tive gaming that is offered to persons  located  in  this  state  unless
    45  licensed by the commission pursuant to this article and only those games
    46  authorized by the commission shall be permitted.
    47    5.  License  applicants may form a partnership, joint venture or other
    48  contractual arrangement in order to  facilitate  the  purposes  of  this
    49  article.
    50    6. Any person found suitable by the commission may be issued a license
    51  as an operator or significant vendor pursuant to this article. In deter-
    52  mining suitability, the commission shall consider those factors it deems
    53  relevant in its discretion, including but not limited to:
    54    (a)  Whether  the applicant is a person of good character, honesty and
    55  integrity;

        S. 18--A                            5

     1    (b) Whether the applicant is person whose prior  activities,  criminal
     2  record, if any, reputation, habits and associations do not:
     3    (i)  pose  a  threat  to the public interest or to the effective regu-
     4  lation and control of interactive gaming; or
     5    (ii) create or enhance the dangers of unsuitable,  unfair  or  illegal
     6  practices,  methods  and activities in the conduct of interactive gaming
     7  or in the carrying on of the business and financial  arrangements  inci-
     8  dental to such gaming;
     9    (c)  Whether  the  applicant  is  capable of and likely to conduct the
    10  activities for which the applicant is licensed in  accordance  with  the
    11  provisions  of this article, any regulations prescribed under this arti-
    12  cle and all other applicable laws;
    13    (d) Whether the applicant has or guarantees  acquisition  of  adequate
    14  business  competence  and experience in the operation of licensed gaming
    15  or of interactive gaming in this state or in  a  state  with  comparable
    16  licensing requirements; and
    17    (e)  Whether the applicant has or will obtain sufficient financing for
    18  the nature of the proposed operation and from a suitable source.
    19    7. The commission further shall develop standards by which to evaluate
    20  and approve  interactive  gaming  platforms  for  use  with  interactive
    21  gaming.  Interactive gaming platforms must be approved by the commission
    22  before being used by a licensee or significant vendor to conduct  inter-
    23  active gaming in this state.
    24    8. The commission shall require all licensees to pay a one-time fee of
    25  ten million dollars.  Such fee paid by each licensee shall be applied to
    26  satisfy,  in  whole or in part, as applicable, that licensee's tax obli-
    27  gation pursuant to section fifteen hundred five of this article in sixty
    28  equal monthly installments, allocated to each of the first sixty  months
    29  of  tax  owed  after the licensee has begun operating interactive gaming
    30  pursuant to this article. No amounts not required to be used to  satisfy
    31  such  tax obligation during that period shall be allocated to payment of
    32  such tax obligation after that period.
    33    9. Licenses issued by the commission shall remain in  effect  for  ten
    34  years.
    35    10.  The  commission,  by regulation, may authorize and promulgate any
    36  rules necessary to implement agreements with other states, or authorized
    37  agencies thereof (a) to enable patrons in those states to participate in
    38  interactive gaming offered by licensees under this  article  or  (b)  to
    39  enable  patrons  in  this  state  to  participate  in interactive gaming
    40  offered by licensees under the laws of those other states, provided that
    41  such other state or authorized agency applies suitability standards  and
    42  review materially consistent with the provisions of this article.
    43    11.  Any  regulations  adopted  pursuant  to  subdivision  ten of this
    44  section must set forth provisions that address:
    45    (a) Any arrangements to share revenue between New York and  any  other
    46  state or agency within another state; and
    47    (b) Arrangements to ensure the integrity of interactive gaming offered
    48  pursuant  to any such agreement and the protection of patrons located in
    49  this state.
    50    12. The commission may delegate its responsibilities to administer the
    51  provisions of this article to the division, as it sees fit,  except  for
    52  its responsibilities to approve licenses.
    53    §  1503.  Required safeguards/minimum standards.  The commission shall
    54  require licensees to implement measures to meet the standards set out in
    55  this section, along with such other standards that the commission in its
    56  discretion may choose to require.

        S. 18--A                            6
     1    (a) Appropriate safeguards  to  ensure,  to  a  reasonable  degree  of
     2  certainty,  that participants in interactive gaming are not younger than
     3  twenty-one years of age.
     4    (b)  Appropriate  safeguards  to  ensure,  to  a  reasonable degree of
     5  certainty,  that  participants  in  interactive  gaming  are  physically
     6  located  within the state or such other jurisdiction that the commission
     7  has determined to be permissible.
     8    (c) Appropriate safeguards to  protect,  to  a  reasonable  degree  of
     9  certainty,  the  privacy and online security of participants in interac-
    10  tive gaming.
    11    (d) Appropriate safeguards  to  ensure,  to  a  reasonable  degree  of
    12  certainty,  that  the  interactive  gaming  is  fair and honest and that
    13  appropriate measures are in place to deter, detect and,  to  the  extent
    14  reasonably  possible,  to prevent cheating, including collusion, and use
    15  of cheating devices,  including  use  of  software  programs  (sometimes
    16  referred to as "bots") that make bets or wagers according to algorithms.
    17    (e)  Appropriate  safeguards  to  minimize  compulsive  gaming  and to
    18  provide notice to participants of resources to help problem gamblers.
    19    (f) Appropriate safeguards to ensure participants' funds are  held  in
    20  accounts  segregated  from  the  funds  of  licensees  and otherwise are
    21  protected from corporate insolvency, financial risk or criminal or civil
    22  actions against the licensee.
    23    § 1504. Scope of licensing review.  1. In connection with any  license
    24  issued  pursuant  to  this  article, the licensee, significant vendor or
    25  applicant shall identify and the commission shall review the suitability
    26  of such licensee's, significant vendor's  or  applicant's  owner,  chief
    27  executive  officer,  chief  financial  officer  and any other officer or
    28  employee who the commission  deems  is  significantly  involved  in  the
    29  management  or  control of the licensee, significant vendor or applicant
    30  or of the interactive gaming platform.   "Owner" for  purposes  of  this
    31  provision  means any person who directly or indirectly holds any benefi-
    32  cial or ownership interest in the applicant of five percent  or  greater
    33  or  any amount of ownership that the commission determines to be signif-
    34  icant ownership of the licensee, significant vendor, or applicant.
    35    2. Institutional investors are subject to the provisions  set  out  in
    36  this section.
    37    (a) An institutional investor holding under twenty-five percent of the
    38  equity  securities  of  a  licensee's or significant vendor's (or appli-
    39  cant's) holding or intermediary companies, shall be granted a waiver  of
    40  any investigation of suitability or other requirement if such securities
    41  are  those  of a corporation, whether publicly traded or privately held,
    42  and its holdings  of  such  securities  were  purchased  for  investment
    43  purposes  only  and it files a certified statement to the effect that it
    44  has no intention of influencing or affecting the affairs of the  issuer,
    45  the  licensee (or significant vendor or applicant, as applicable) or its
    46  holding or intermediary companies; provided, however, that it  shall  be
    47  permitted to vote on matters put to the vote of the outstanding security
    48  holders.  The  commission  may  grant  such a waiver to an institutional
    49  investor holding a higher percentage of such securities upon  a  showing
    50  of  good cause and if the conditions specified above are met. Any insti-
    51  tutional investor granted a waiver under  this  paragraph  which  subse-
    52  quently  determines  to  influence  or  affect the affairs of the issuer
    53  shall provide not less than thirty days' notice of such intent and shall
    54  file with the commission a  request  for  determination  of  suitability
    55  before taking any action that may influence or affect the affairs of the
    56  issuer; provided, however, that it shall be permitted to vote on matters

        S. 18--A                            7
     1  put to the vote of the outstanding security holders. If an institutional
     2  investor  changes  its  investment  intent,  or  if the commission finds
     3  reasonable cause to believe that the institutional investor may be found
     4  unsuitable,  no  action  other  than  divestiture shall be taken by such
     5  investor with respect to its security  holdings  until  there  has  been
     6  compliance  with  any  requirements established by the commission, which
     7  may include the execution of a trust agreement. The licensee (or signif-
     8  icant vendor or applicant, as  applicable)  and  its  relevant  holding,
     9  intermediary  or  subsidiary  company  shall notify the commission imme-
    10  diately of any information about, or actions of, an institutional inves-
    11  tor holding its equity securities where such information or  action  may
    12  impact  upon the eligibility of such institutional investor for a waiver
    13  pursuant to this paragraph.
    14    (b) If at any time the commission finds that an institutional investor
    15  holding any security of a holding or intermediary company of a  licensee
    16  or  significant  vendor  or  applicant,  or,  where relevant, of another
    17  subsidiary company of a holding or intermediary company of a licensee or
    18  significant vendor or applicant which is  related  in  any  way  to  the
    19  financing  of  the licensee or significant vendor or applicant, fails to
    20  comply with the terms of paragraph (a) of this section,  or  if  at  any
    21  time the commission finds that, by reason of the extent or nature of its
    22  holdings,  an institutional investor is in a position to exercise such a
    23  substantial impact upon the  controlling  interests  of  a  licensee  or
    24  significant  vendor or applicant that investigation and determination of
    25  suitability of the institutional investor is necessary  to  protect  the
    26  public  interest, the commission may take any necessary action otherwise
    27  authorized under this article to protect the public interest.
    28    (c) For purposes of this section, an  "institutional  investor"  shall
    29  mean  any retirement fund administered by a public agency for the exclu-
    30  sive benefit of federal, state, or local  public  employees;  investment
    31  company registered under the Investment Company Act of 1940 (15 U.S.C. §
    32  80a-1  et  seq.);  collective  investment trust organized by banks under
    33  Part Nine of the Rules of the Comptroller of the  Currency;  closed  end
    34  investment  trust; chartered or licensed life insurance company or prop-
    35  erty and casualty insurance company;  banking  and  other  chartered  or
    36  licensed  lending  institution;  investment advisor registered under The
    37  Investment Advisors Act of 1940 (15 U.S.C. § 80b-1 et  seq.);  and  such
    38  other  persons  as  the  commission may determine for reasons consistent
    39  with the public interest.
    40    § 1505. State tax. Licensees engaged in  the  business  of  conducting
    41  interactive  gaming  pursuant  to this article shall pay a privilege tax
    42  based on the licensee's interactive gaming gross revenue  at  a  fifteen
    43  percent rate.
    44    §  1506. Disposition of taxes. The commission shall pay into the state
    45  lottery fund all taxes imposed by this article; any interest and  penal-
    46  ties  imposed  by  the commission relating to those taxes; all penalties
    47  levied and collected by the commission; and the appropriate funds,  cash
    48  or prizes forfeited from interactive gaming.
    49    §  2.  Subdivision  1 of section 225.00 of the penal law is amended to
    50  read as follows:
    51    1. "Contest of chance" means  any  contest,  game,  gaming  scheme  or
    52  gaming  device  in  which  the  outcome  depends  [in a material degree]
    53  predominantly upon an element of chance, notwithstanding that  skill  of
    54  the contestants may also be a factor therein.
    55    §  3.  The penal law is amended by adding a new section 225.36 to read
    56  as follows:

        S. 18--A                            8
     1  § 225.36 Interactive gaming offenses and exceptions.
     2    1.  The  knowing and willful offering of unlicensed interactive gaming
     3  to persons in this state,  or  the  knowing  and  willful  provision  of
     4  services with respect thereto, shall constitute a gambling offense under
     5  this article.
     6    2.  Licensed  interactive  gaming  activities  under  section  fifteen
     7  hundred two of the racing, pari-mutuel wagering and breeding  law  shall
     8  not be a gambling offense under this article.
     9    3.  A person offering unlicensed interactive gaming to persons in this
    10  state shall be liable for all taxes set forth in section fifteen hundred
    11  five of the racing, pari-mutuel wagering and breeding law  in  the  same
    12  manner  and amounts as if such person were a licensee. Timely payment of
    13  such taxes shall not constitute a defense to any  prosecution  or  other
    14  proceeding in connection with the interactive gaming except for a prose-
    15  cution or proceeding alleging failure to make such payment.
    16    §  4. Severability clause. If any provision of this act or application
    17  thereof shall for any reason be  adjudged  by  any  court  of  competent
    18  jurisdiction  to  be invalid, such judgment shall not affect, impair, or
    19  invalidate the remainder of the act, but shall be confined in its opera-
    20  tion to the provision thereof directly involved in  the  controversy  in
    21  which the judgment shall have been rendered.
    22    § 5. This act shall take effect on the one hundred eightieth day after
    23  it shall have become a law.
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