To be eligible to obtain a casino operator license, the bill requires each applicant to make a $300 million minimum capital investment.

Legalized casino gambling and sports wagering are approaching the finish line in Virginia following the recent passage of two bills by the Virginia General Assembly. Senate Bill 36 and House Bill 896, both awaiting the signature of Virginia Governor Ralph Northam, would permit five land-based casinos, online sports betting and up to 2,000 additional historical horse racing machines. This Alert provides an overview of the legislation.

Senate Bill 36 and Casino Approval

Senate Bill 36 permits the Virginia Lottery Board to issue one casino license in each of the following five cities: Norfolk, Bristol, Danville, Portsmouth and Richmond. Each city’s casino is contingent on prior approval from local voters during the November 2020 general election. Specifically, the bill provides that each city may designate its “preferred casino gaming operator.” Next, the Virginia Lottery Board will need to certify the selected operators. If the designated casino is certified, the casino will then be placed on the November 2020 general election ballot for approval from the city’s voters. This procedure will be the same for each of the five designated cities.

To be eligible to obtain a casino operator license, the bill requires each applicant to make a $300 million minimum capital investment, including the value of the real property upon which the casino is to be located. Moreover, the operator must have at least a 20 percent equity interest in the casino. The Senate bill also requires each casino to pay a $15 million licensing fee, covering an initial term of 10 years. The five approved casinos will be able to offer slot machines, table games and on-premises online casino gaming. The bill also gives the Lottery Board the discretion to allow a casino to operate for up to two years in a temporary facility, provided that it is built on the same site that will house the permanent facility.

Under SB 36, casino operators will also be entitled to operate sports books on casino premises. SB 36 does not authorize casino operators to conduct online and mobile sports betting. Notably, under HB 896, casino operators are entitled to preferential treatment in the process of awarding the 12 new online and mobile sport-betting licenses. 

The bill establishes a graduated tax based upon the casino’s annual “adjusted gross gaming revenue” (commonly referred to in other jurisdictions as “net win”) of 18 percent on the casino’s first $200 million of gross gaming revenue, 23 percent on gross gaming revenue between $200 million and $400 million, and 30 percent on gross gaming revenue over $400 million. The bill’s tax provisions do not distinguish between revenue from slots and table games. 

In order to offset the impact of expanded gaming on Colonial Downs Group, which owns and operates Virginia’s only horse racetrack as well as off-track betting facilities and historical horse racing machines, the bill permits the addition of 600 historical horse racing machines each time a local casino referendum passes, up to a maximum of 2,000 additional machines. Up to 1,650 of the machines permitted by the bill may be located in Dumfries, Virginia, which is approximately 30 miles from Washington, D.C.

House Bill 896 and the Authorization of Mobile Sports Betting

HB 896 permits statewide mobile sports betting through 12 online-only operators. The House bill requires the Lottery Board to give “substantial and preferred consideration” to the casinos in the granting of sports betting licenses. This provision arguably conflicts with a provision in Senate Bill 36 that requires the Lottery Board to issue a sports betting license to any of the state’s licensed casinos, regardless of whether the operator otherwise meets the requirements. Assuming that all five casinos seek and obtain sports betting licenses, under the House bill, only seven of the 12 authorized licenses would be available for mobile-only operators.

The licensing criteria include “past experience, financial viability, compliance with applicable laws and regulations, and successes with sports betting operations in other states.” The bill imposes a 15 percent tax rate on the license holder’s adjusted gross gaming revenue. The commencement of sports betting is not linked to the commencement of casino operations. The operators are required to pay a $250,000 application fee, and if approved, a $200,000 renewal fee every three years. The legislation prohibits any wagering on Virginia collegiate sports and proposition bets on any individual collegiate athlete. Other notable requirements include requiring operators to purchase official league data to settle in-play wagers, but allow the operators to use any data source to settle end-of-game bets.

Finally, HB 896 also requires the Lottery Board to give “substantial and preferred consideration” to certain professional sports teams. Only a major league sports franchise headquartered in Virginia or one that plays five or more regular season games per year at a facility in the commonwealth is eligible for the preferred consideration. Accordingly, the bill may provide a path for the National Football League’s Washington Redskins to obtain a sports betting license if it chooses to construct its new football stadium in Virginia. Any sports betting license issued to a major league sports franchise will not count toward the 12 authorized licenses.

Casinos and Sports Betting

The two bills are designed not only to increase tax revenue―by keeping gambling dollars in Virginia rather than neighboring states―but also to create jobs and revitalize struggling Virginia cities. A potential timeline for the effectiveness of the legislation and commencement of operations follows:

• Both bills are not final and are subject to the governor’s approval. Significantly, the governor may also suggest changes to the legislation as a condition of signing―all of which must occur by April 7, 2020.
• The Virginia Lottery Board must first precertify the five selected casino operators. Note that precertification does not equal licensing, which will occur only after traditional suitability investigations.
• Once certified, the casinos must notify the clerk of the city by August 14, 2020, (81 days prior to the 2020 general election) in order to be presented on the ballot.
• The Virginia Lottery Board must promulgate sports betting regulations by September 15, 2020, and must implement a consumer protection program before granting any sports betting licenses.
• The casino regulations must be effective within 280 days of the bill’s enactment.
• In a November 2019 report, Virginia’s Joint Legislative Audit Review Commission estimated that casinos would open approximately four years after the passage of legislation. That report, however, contemplated a competitive selection process, which is not part of these bills. In our view, assuming the precertified casinos commence construction soon after the November referenda rather than waiting for final suitability and licensing determination, casinos could open by late 2023, and sooner if the Lottery Board authorizes any temporary casinos.
• As noted above, the sports betting bill is not linked to the casino bill or the commencement of casino operations. Accordingly, the seven mobile-only sports betting operations could start operating much sooner.

For Further Information

If you have any questions about this Alert, please contact Frank A. DiGiacomo, Robert L. Ruben, William M. Gantz, Adam Berger, Joseph Caputi, any of the attorneys in our Gaming Industry Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.