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Top gaming regulators in Pa. met with industry lobbyists before coming out against a casino competitor

by Angela Couloumbis of Spotlight PA |

Lobbyists for Parx Casino had been frustrated by the board’s hands-off position toward one of its fiercest business competitors.
JAMES BLOCKER / Philadelphia Inquirer

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HARRISBURG — On a mid-January morning in 2020, the state’s top gambling regulators privately gathered inside a conference room at their downtown Harrisburg offices with lobbyists for Parx Casino, the largest in the state.

The lobbyists had worked for weeks to land the meeting with the two highest-ranking members of the Pennsylvania Gaming Control Board: Executive Director Kevin O’Toole and then-Chief Counsel Doug Sherman.

The representatives of the Bucks County casino had been frustrated by the board’s hands-off position toward one of its fiercest business competitors — unregulated slots-like machines called skill games — and wanted that to change.

Parx got its wish: Within weeks, the board shed its neutral stance and aligned with Parx and others in a court fight to declare skill games illegal.

The meeting that day was the culmination of an intense, behind-the-scenes push to influence the decision-making of the agency tasked with being an independent arbiter of gambling in Pennsylvania. The effort is captured in emails and other documents, obtained by Spotlight PA, that are now part of a bare-knuckle legal fight over expanding gambling in Pennsylvania.

The records provide a glimpse into the vigorous lobbying of public officials that the public rarely sees. Pennsylvania law requires lobbyists to disclose only a bare minimum of information about their activities. They do not have to name the public officials they lobby, or even identify the issue they want officials to support.

The emails also raise questions about whether the Gaming Control Board should have disclosed the meeting to the public. The landmark 2004 law that legalized gambling in Pennsylvania makes clear that the regulatory agency should be impervious to outside influence by requiring it to adopt a rigorous code of conduct. That policy places strict controls on when and how the board’s members and its top staff can interact with outsiders, including lawmakers. Those rules are even more exacting when it comes to conversations with the people the agency regulates.

It also requires disclosure on public logs when top members of the agency have contact with those outsiders. The Jan. 17, 2020 meeting was not included in those logs. In fact, the logs haven’t been updated in years.

In an interview, gaming board spokesperson Doug Harbach said the board’s position is that the meeting with Parx’s lobbyists didn’t qualify as a discussion that had to be disclosed under the agency’s ethics code.

He also said the meeting with Parx’s lobbyists did not influence the board’s stance on skill games, and that it was instead fueled by a number of factors, including a judge’s remarks in the fall of 2019 in one of the myriad court rulings involving skill games.

“There is nothing wrong with the [board] having discussions or taking some action with the industry when the matter is in both of our best interest,” he said. “From our standpoint, we always look at ways to protect the public in all things gaming … And that pertains to the matter of unregulated skill games.”

Parx Casino spokesperson Pete Shelly acknowledged the casino’s lobbyists sought a meeting with the board to discuss the ongoing court case, because “this is what advocates do.”

“This should not be surprising, nor is it impermissible in any way,” Shelly said.

A skills game machine seen in Lancaster County
BLAINE SHAHAN | LNP/LancasterOnline
A skills game machine seen in Lancaster County

Pace-O-Matic, the company that makes the software for the majority of skill games in Pennsylvania, alleges the board allowed itself to fall prey to outside pressure from casino lobbyists, and has sued the agency and others for targeting its industry. The company is embroiled in multiple legal fights with the state and others over its ability to continue operating its games in Pennsylvania.

Said spokesperson Mike Barley: “The casinos are controlling the Gaming Control Board.”

The fight over how or even whether to legalize skill games has been playing out for nearly a decade. But it intensified in the past few years as the games proliferated across the state. State Police officials now estimate there are more than 50,000 machines in gas stations, convenience stores, bars, social clubs and other establishments across Pennsylvania — and that is a conservative estimate.

State lawmakers could resolve the matter through legislation but have been unable to agree on a plan to deal with the dispute, in part because of the powerful competing interests that operate in Pennsylvania’s gambling landscape — many with deep pockets.

The inaction has allowed skill games to operate in a regulatory no man’s land: They are not specifically authorized in the state’s gambling law, which means they’ve been able to avoid the hefty taxes paid by casino slots on revenues — and make more money off their machines.

Pace-O-Matic has long argued its games differ from traditional slots. The company says its games require a level of player skill, rather than chance, to win and achieve a payout. As a result, the company argues it should not be subject to the same 54% tax on revenues paid by casino slots, though Pace-O-Matic officials say they are open to being formally licensed and regulated.

Casinos and other gambling companies dismiss those arguments as semantic. Skill games, they say, look, feel and play like traditional slots. They contend the industry operates illegally in Pennsylvania and has benefitted from legislative indecision.

Some casinos, like Parx, have taken this opposition a step further, focusing their lobbying efforts on banning skill games outright rather than bringing them under the gambling law.

Big money is at stake. In January, the Gaming Control Board announced a record year of revenue generated from slots, table games, sports wagering, and other forms of gambling in 2022: a whopping $5.2 billion. That was up nearly a half billion dollars from 2021, another banner year for gambling.

Parx Casino, based in Bensalem, led the pack of the state’s 16 casinos and mini-casinos in revenue generated from slots, raking in nearly $394 million last year. At $204.8 million, it came in second in revenue raised from table games.

As Spotlight PA previously reported, Parx began escalating its lobbying efforts to outlaw skill games in 2019, ghost-writing a bill introduced by former state Sen. Tommy Tomlinson (R., Bucks) to ban the machines. Parx lobbyists also participated in strategic planning sessions with Tomlinson, and drafted talking points and other key documents for his office relating to skill games, the news organization reported.

The batch of emails newly obtained by Spotlight PA shows lobbyists for Parx were again strategizing with Tomlinson’s office in the weeks leading up to the Jan. 17, 2020 meeting with the Gaming Control Board’s executive director and chief counsel.

In fact, Tomlinson’s office appears to have been instrumental in helping Parx land the meeting with the board.

In a Dec. 18, 2019 email, Ryan Skoczylas, Tomlinson’s then-chief of staff, told three lobbyists for Parx that the senator had met with someone from the Pennsylvania Gaming Control Board.

Tomlinson, Skoczylas wrote, had “beat up” someone identified only as “Dan of the PGCB” about the agency’s testimony before a state House committee that oversees gambling, but the meeting otherwise “went pretty well.”

As Spotlight PA previously reported, Parx began escalating its lobbying efforts to outlaw skill games in 2019, ghost-writing a bill introduced by former state Sen. Tommy Tomlinson (R., Bucks) to ban the machines.
As Spotlight PA previously reported, Parx began escalating its lobbying efforts to outlaw skill games in 2019, ghost-writing a bill introduced by former state Sen. Tommy Tomlinson (R., Bucks) to ban the machines.

Legislative records show the state House’s Gaming Oversight Committee held a hearing on skill games about six weeks before Skoczylas’ email. There, the gaming board’s executive director, Kevin O’Toole, along with the board’s then-chief counsel, Doug Sherman, avoided opining on whether to legalize skill games, saying the board preferred to cede matters of gambling policy to the legislature and the governor.

“Tommy made two requests,” Skoczylas continued. “The first that the PGCB lawyers meet with you three to discuss the court case and why the PGCB should be opposed to skill games.” Skoczylas also asked the lobbyists to help draft a letter Tomlinson wanted to send to the gaming board that would call on the agency to oppose skill games.

The court case Skoczylas referenced in the email was a lawsuit involving the legality of Pace-O-Matic’s skill games before the state’s Commonwealth Court. Parx wanted the Gaming Control Board to take a stand against the skills industry.

Skoczylas did not respond to multiple requests for comment.

Subsequent emails between Skoczylas and Parx lobbyists Sean Schafer and Mark Stewart show Tomlinson’s office was also trying to help the casino land a meeting with then Gov. Tom Wolf’s top lawyer, as well as an attorney for the state Attorney General’s Office that was handling the lawsuit.

The records suggest they made progress with those government lawyers: “The attorneys involved in the state’s brief reached out … and want to have a conversation. We consider that to be good news that they want to talk,” Dick Gmerek, another Parx lobbyist, wrote to Tomlinson’s office on Dec. 30, 2019.

More good news followed in the first few days of 2020. On Jan. 3, Tomlinson’s chief of staff emailed Schafer, Stewart, and Gmerek to let them know he had just gotten off the phone with “Dan from the PGCB.”

“It is Dan’s belief that the Board will be coming out with a statement of support of the PSP’s efforts against the illegal gambling machines,” Skoczylas wrote of Pennsylvania State Police’s efforts to seize skill games on the basis that they were operating illegally.

Within days of that email, a calendar invite with the subject line “Discuss skill games” was issued for the Jan. 17 meeting at the Gaming Control Board, records show. The attendees were O’Toole and Sherman; the Gaming Board’s two legislative liaisons, Dan Stambaugh and Maximilian Flessner; and Parx lobbyists Gmerek and Stewart.

The records do not indicate how long the meeting ran, or if anyone else joined. Later that day, Gmerek emailed O’Toole to thank him for the meeting, with O’Toole responding three minutes later: “It was very helpful Dick.”

Within days of the Jan. 17 gathering, O’Toole, Sherman, and Stambaugh were scheduled to meet separately with Tomlinson, in the senator’s Capitol office, to discuss skill games, emails show. Tomlinson could not be reached for comment.

The Gaming Control Board’s code of ethics sharply restricts when and how companies regulated by the board can communicate with the agency’s board members and certain staff that advise the board.

For instance, the code flat out bars board members, hearing officers, and staff attorneys who advise them from engaging in “ex parte” communications, which are defined as off-the-record conversations on matters that could “reasonably come before the Board in a contested, on the record proceeding.”

Any inadvertent ex parte communications, whether from a lobbyist or a lawmaker, have to be logged and made publicly available.

The agency’s seven-person board, whose members are appointed either by the governor or legislative leaders, also cannot have “non-ex parte” discussions (which are not defined) with representatives of any entity the board regulates unless the meeting takes place at their agency’s offices — and unless that meeting is disclosed on a separate log that is available for public inspection.

The Gaming Control Board keeps two running logs on its website. The first details ex parte communications. The second lists discussions that were held between board members and people representing gambling companies licensed by or applying to the board.

The Jan. 17 meeting between the Gaming Board’s top staff and Parx’s lobbyists is not included on either list. Neither is the meeting between Tomlinson and the Gaming Control Board.

In fact, the latest entry on the ex parte log dates back to March 2013. The latest entry on the list logging discussions between the agency’s board members and the companies it licenses was in May 2016.

Harbach, the Gaming Control Board’s spokesperson, said that neither meeting was required to be disclosed on either log.

According to the board’s lawyers, the meeting with Parx lobbyists did not have to appear on the log that details conversations with applicants or licensees. Only board members are covered by that part of the ethics code, Harbach said.

The agency’s lawyers also said the meetings didn’t amount to an ex-parte communication because skill games are not currently regulated by the agency — and thus, no issue involving skill games was before the board at that time or was reasonably likely to come before the board, according to Harbach.

Still, the agency’s decision to join the lawsuit about the legality of Pace-O-Matic’s games did apparently get considered by the board, according to interviews.

The agency held a public meeting on Feb. 12, 2020, records show. Though board members did not cast an official vote on whether to enter the lawsuit, they were likely told about it in executive session and would have had the power to nix the move, Gaming Board officials acknowledged to Spotlight PA.

This is certain: By late February, the Gaming Board officially shed its hands-off approach to skill games. It petitioned to enter the lawsuit, seeking to declare skill games illegal.

On Feb. 20 of that year, at 3:55 p.m., Sherman, the gaming board’s top lawyer, received confirmation from the court that the board’s petition had been received by the court.

One minute later, Sherman shared the news, forwarding a copy of the confirmation.

The recipient: Parx lobbyist Stewart.

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