Castle Hill Gaming, the only Virginia-based manufacturer of Historical Horse Racing (“HHR”) gaming machines and a company with deep ties to the equine industry, submits the following comments to the Commission’s Historical Horse Racing Regulations (the “Regulations”).

1.The Commission should pass regulations to encourage variation and competition in HHR machines, to the benefit of consumers.

Allowing only few or even one gaming manufacturer to supply HHR machines would be bad for Virginia—for all the reasons that monopolies are disfavored. A concentrated market for HHR machines in Virginia would restrict consumer choice, make it more expensive for consumers (as explained below), and give the market leaders an enormous amount of power over this new industry. By contrast, ensuring multiple gaming manufacturers have the opportunity to participate in this market will give the Commonwealth a diverse range of gaming options for its customers to enjoy, thereby attracting more customers, which will in turn bring in more revenue to the licensee, the equine industry, and the Commonwealth.

Other jurisdictions understand this and have mandated healthy competition between suppliers of gaming machines. For example, the Oklahoma Horse Racing Act spells out the specific “intent and policy of the Legislature that the standards for the games provided in this act shall operate so as to permit a large number of potential vendors to compete to furnish [gaming] devices.” See 3A Okla. Stat. §3A-268(B) (2018) (emphasis added). Oklahoma goes further to state that if any standards for games “serve to limit competition, the [Oklahoma Horse Racing] Commission is authorized to adopt rules modifying such standards so as to encourage competition.” See id. (emphasis added).

Similarly, the United States Congress has passed legislation mandating competition for manufacturers of Bingo-based gaming machines operated on Indian reservations. This legislation effectively limits any one vendor of gaming machines to no more than 30% of the net revenue from any one facility (or 40% in special circumstances approved by the National Indian Gaming Commission). See 25 U.S.C. §2711. 

Allowing a market leader to provide most or all of the HHR machines on the floor at both track and off-track betting facilities would give that vendor a significant degree of control over the management and operation of the casino, the express risk federal legislation safeguards against for Bingo-based gaming machines on Indian reservations. 

If a market leader controls a large amount of the floor for HHR machines in Virginia, much less the entire floor, it could lower the turnover of products to newer games, both because the monopolist manufacturer has less incentive to find the best-performing games and because the track may be unwilling to risk upsetting their key provider. Revenue would be further limited—to the Commonwealth and the equine industry—because players tire of machines, and there would be no incentive for an exclusive vendor to keep up with the rapid pace of new machine development. There is significant variance in the popularity of games, both in general and over time.

For these reasons, the Commission should pass regulations that require use of multiple gaming manufacturers, such as requiring that no one manufacturer have more than 30% of the gaming machines at any one facility, although it would be improper to impact current ownership.

2.The Commission should increase the number of HHR machines.

We echo comments from other stakeholders requesting that the Commission increase the proposed limit of HHR terminals from 3,000 (11VAC10-47-180). This limit needs to be raised in order for the horse racing and gaming industry to be viable as horse racing tracks and off-track betting facilities begin to open. The 3,000 limit restricts business opportunities for suppliers, the licensee, and the Virginia equine industry as a whole. 

We recommend raising the cap by 1,000 a year, up to a total of 3,000 new machines. Effectively, this would allow for 3,000 machines now, 1,000 more in 2020, 1,000 more in 2021, 1,000 more in 2022 for a total of 6,000. By raising the limit of HHR terminals, the Commonwealth will also have an opportunity for increased revenue. 

Respectfully,

Arthur A. Watson III

About Castle Hill

Castle Hill Gaming is the only Virginia-based manufacturer of HHR gaming machines. Founded by members of the same management team who founded pioneering game developer Kesmai and the Charlottesville division of gaming manufacturer Video Gaming Technologies, Castle Hill continues to make its home in Charlottesville. Castle Hill has over 100 gaming titles, and it employs nearly 50 people.

In addition to its broad expertise in the gaming industry, Castle Hill also has deep ties to the equine industry. Two of its board members are owners, breeders, and trainers at farms in Albemarle County as well as members and former Board members of the Virginia Thoroughbred Association.