While we are pleased to see the Virginia Division of Charitable Gaming ("DCG") continuing to progress through the rule promulgation process relating to electronic pull-tabs, the latest draft of rules raise some significant concerns regarding the overall viability of the program.  The combination of requirements and restrictions outlined in the current draft greatly increase the likelihood that the electronic pull-tab program will fail to benefit the charitable organizations throughout the Commonwealth of Virginia.  Such an outcome would be absolutely inconsistent with the result envisioned by the sponsors of this legislation when the General Assembly passed the legislation to enable electronic pull-tabs. 

The most problematic items from this draft are: 

§         Requirement for a single Central System to service all Player Terminals throughout the Commonwealth of Virginia (Part III, section H)

§         Requirement for a Real-Time Payment Ticket Validation System (Part III, section E, item 23)

§         Restrictions on game denominations (Part III, section F, item 5)

§         Restrictions on sounds and animations (Part III, section F, items 2, 3, & 4)

§         Restrictions on game payouts (Part III, section O, item 4)

§         Restrictions on gross sales (Part II, section C, item 1) 

As we have pointed out in the past, designing the Virginia electronic pull-tab program around a single central system will increase the overall cost of the program.  In addition to the acquisition, implementation, and operation costs associated with a DCG-operated central system, the current draft of the rules would appear to require costly full-time data connections between the central system and every player terminal throughout the state.  All program costs will directly or indirectly be paid for by Virginia’s charitable organizations. 

The system requirements contained in the current draft of the rules essentially describe a system that could be used in a casino.  Such a system would undoubtedly be highly secure.  Unfortunately, it is also going to be quite expensive.  Instead of setting out to end up with a system equivalent to Ft. Knox, regardless of cost, a better approach would be to evaluate what security measures and costs are appropriate, given the scope of the program.  For example, real-time validation of cash-out tickets is almost surely not necessary in member-based organizations.  Employee training, procedures, and water-marked paper are sufficient to prevent fraud at virtually all sites.  We recognize that omitting the requirement for the Ticket Validation System represents a departure from the GLI-14 standard.  However, based on the fact that the electronic pull-tabs will be sold in member-based, charitable organizations and not casinos, this requirement is not necessary.  In fact, many states that currently implement electronic gaming do not employ validation in venues with small placements of terminals because of the costs associated with these systems.  Even without the requirement for a Ticket Validation System, the electronic pull-tab program can still incorporate the security and integrity required by the Division of Charitable Gaming. 

At the same time, the restrictions identified above will have a negative impact on both the experience of the players and potential revenue for the charities.  We recognize the need to protect the player from games that offer a significant advantage to the house.  However, establishing a maximum payout is not at all in the player's best interest.  Along the same lines, limiting the denomination of games available does not benefit the player.  In allowing the charities of Virginia to offer electronic pull-tabs, it was the stated goal of the state law makers to help the charitable organizations raise additional funds.  Setting limits on the gross sales of electronic pull-tabs is certainly not consistent with this goal.  In order for the electronic pull-tab program to be successful, the games offered need to be competitive with similar products available in neighboring states, both in terms of entertainment value and payout.  If the DCG adopts rules that put the electronic pull-tab program at a competitive disadvantage, the program will not generate the expected returns for the VA charities. 

Our suggested changes to the rules (submitted in a separate post) would help to make the forthcoming electronic pull-tab program more consistent with the intent of the enabling legislation.  We strongly urge the Division to re-evaluate the direction being taken on the electronic pull-tab rules.  The Division of Charitable Gaming is clearly chartered with ensuring the integrity and transparency of all charitable gaming products offered throughout the Commonwealth of Virginia.  However, by over-regulating the electronic pull-tab program before it is even launched, the Division would be doing a great disservice to the state's charities that could otherwise benefit from this program.