Legislature(2023 - 2024)BELTZ 105 (TSBldg)
04/22/2024 01:30 PM Senate LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB273 | |
| SB146 | |
| HB253 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 273 | TELECONFERENCED | |
| += | SB 146 | TELECONFERENCED | |
| += | SB 257 | TELECONFERENCED | |
| *+ | HB 253 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
SB 146-GAMING; ELECTRONIC PULL-TABS
1:52:00 PM
CHAIR BJORKMAN reconvened the meeting and announced the
consideration of SENATE BILL NO. 146 "An Act relating to pull-
tabs; relating to persons prohibited from involvement in gaming;
and relating to the duties of the Department of Revenue."
1:52:47 PM
MICHAEL WILLIAMS, Acting Deputy Director, Tax Division,
Department of Revenue (DOR), Anchorage, Alaska, provided an
overview of SB 146 which would expand the scope of pull-tab
games. Provisions of the bill include:
• Expansion of Gaming Format: SB 146 would allow the
inclusion of electronic pull tab systems (E-tabs),
alongside traditional paper pull tabs.
• Definition: AS 05.15.690 defines pull tab games as games of
chance where participants purchase tickets to uncover
concealed symbols, which can lead to prizes.
• Prize Limits: SB 146 would increase the maximum annual
prize limits per operator:
• From $500,000 to $2 million for electronic pull tab
games each year.
• From $500,000 to $1 million for other gaming
activities.
• New Limitations: Specific limitations for electronic pull
tabs would include:
• A maximum of 15,000 tickets per series.
• Vendors would be limited to five electronic devices on
premises.
• Operators would be limited to ten electronic devices
on premises.
• There would be no restrictions on the number of
devices for permittees.
• Regulation: The Department would be required to establish
regulations regarding the quality and data security of the
electronic devices used, and regulation completion and
timing will be determined based on passage of the
legislation.
• Revenue Impact Uncertainty: The revenue impacts of the bill
cannot be precisely determined. It is unclear whether
electronic pull tabs will increase overall gaming activity
or simply offer an alternative to existing paper pull tabs.
• Revenue Sources: The state would generate revenue through:
o A three percent pull tab tax on gross receipts after
payouts per pull tab game.
o Annual licensing fees:
$2,500 for manufacturers
$1,000 for distributors
$50 for vendors per year per location
o A one percent tax on net proceeds for permittees with
gross receipts over $20,000 for all gaming.
• Historical Revenue: Over the past four years, state
revenues from pull tabs averaged about $2 million annually,
$3 million for FY 2022. If there were any incremental state
revenues the amounts were not significant.
• Implementation costs of SB 146 were indeterminate and would
depend on further study and work with electronic pull tab
vendor can occur to better understand how adding this game
will impact both current programing and personnel
resources. A charitable gaming program uses the current tax
revenue management system so the department is uncertain,
at this time, if it would need to create additional
interfaces between new electronic pull-tab systems and
trends. The department is unsure if this would require
additional personnel.
1:57:10 PM
SENATOR GRAY-JACKSON asked why the maximum payout for E-tabs was
proposed at $2 million while existing permittees are raised from
$500,000 to only $1 million.
1:57:35 PM
MR. WILLIAMS answered that was a policy decision that is part of
SB 146 and he could not provide an answer beyond that.
1:57:47 PM
SENATOR GRAY-JACKSON asked how E-tabs would affect each of the
charitable gaming types: self-directed vendor, multi-beneficiary
permittee and operator.
1:58:03 PM
MR. WILLIAMS said the revenue managed by DOR would remain
largely the same. He said he would defer the question to
industry representatives for a more complete answer as to the
impact to vendors, distributors, and individual permittees.
1:59:42 PM
CHAIR BJORKMAN solicited a motion.
1:59:48 PM
SENATOR GRAY-JACKSON moved to adopt the committee substitute
(CS) for SB 146, work order 33-GS1054\S, as the working
document.
2:00:01 PM
CHAIR BJORKMAN objected for purposes of discussion.
2:00:04 PM
CHAIR BJORKMAN [announced invited testimony for SB 146.]
2:00:22 PM
MATT FISCHER, Co-owner, Alaska Wholesale, LLC, Kasilof, Alaska,
introduced himself and began a presentation titled 907
PullTabs.Com.
2:00:47 PM
MR. FISCHER moved to slide 2:
[Original punctuation provided.]
Who we are
• Independent Alaska distributor with a 30+ year
history
• Alaska Wholesale Inc. was started by former
Senator Paul Fischer.
• Restructured after his death as a new
company Alaska Wholesale LLC
• Started with the sole purpose of ensuring
non-profits had access to low-cost pull-tabs
and bingo paper
• Family Owned; I am a lifelong Alaskan.
• Serve the entire state of Alaska
• One of three remain distributors with primary
business of gaming supplies
• The only Distributor being actively run by the
owner
• Unique perspective, as we deal with all
components in the industry on a daily basis,
from manufacturers to the players
2:02:08 PM
MR. FISCHER moved to slide 3:
[Original punctuation provided.]
Alaska Gaming It's about the Nonprofits!
• Alaska's charitable gaming is unique!
• The money that goes to the non-profits
helps to decrease their dependency on
State funds.
o Senior centers
o School Sports
o Tribal organizations
• Legislature designed Alaska charitable gaming to
benefit nonprofits
• All changes in regulation should focus on maximizing
return to the nonprofits.
2:02:38 PM
MR. FISCHER moved to slide 4, titled "How Permits Can Be Run"
and consisting of a table containing descriptions of pull-tab
entities. He emphasized that the Vendors (bars) are not affected
by rising costs of the pull tab tickets. He said the nonprofits
absorb the impact of rising ticket costs.
Self-Directed Permits
• Typically a pull tab store, fraternal organization or Bingo
Hall
• All management and money is controlled by the non-profit
• The cost of a pull tab ticket does matter
Multi-Beneficiary
• Typically a pull tab store or a Bingo Hall
• All management and money is controlled by a maximum of five
permittees working together
• The cost of a pull tab ticket does matter
Operator
• Typically a pull tab store or a Bingo Hall
• Operator is responsible for all costs of gaming and
guarantees non-profits 30 percent ideal net for pull-tabs
and ten percent for Bingo
• The cost of a pull tab ticket does matter
Vendor
• Typically a bar
• Permittee is responsible for game costs. Vendor purchases
game from permittee and is guaranteed a 30 percent profit.
• Pull tab ticket cost has no effect on vendor, a huge effect
on non-profit since they guarantee vendor 30 percent
profit.
2:03:55 PM
MR. FISCHER moved to slide 5 and said his initial position was
that E-tabs are bad for the state of Alaska. He said it was too
easy to buy too many, too fast. He expressed concern that
customers couldn't afford that. He said the price of paper pull
tabs are also increasing to the point that they are becoming
unaffordable for customers.
Slide 5 includes an advertisement for picante sauce suggesting
that a sauce made outside the American southwest could not
satisfy southwest palates. Mr. Fischer drew a parallel
conclusion to the advertisement and asserted that the solution
for the pull tab dilemma in Alaska should be created by
Alaskans.
[Original punctuation provided.]
Development of CSSB 146
Arrow designed SB 146 with their attorneys and
lobbyist from out of state.
Many parts of their bill do not work for Alaska and
clearly show they are not familiar with Alaska Gaming.
I have always been taught, "Don't just complain, find
a solution."
CSSB 146 is the solution to keeping Alaska charitable
gaming successful for decades to come.
Designed by Alaskans for Alaskans!
2:05:16 PM
MR. FISCHER moved to slide 6:
[Original punctuation provided.]
Development of CSSB 146
• After reviewing Arrow's proposed bill, we took
another look at whether E-tabs were right for Alaska
square4 Developed several models that showed, with
increasing paper costs, paper pull-tabs can
not be sustained much longer
square4 Researched other E-tab companies after
hearing Arrow was looking at charging nearly
50percent of the profit for game according
to operators they had talked with
square4 Found Pilot Gaming out of Minnesota
square4 Pilot turned E-tabs into a success from a
complete failure in Minnesota
square4 Outnumbered Arrow sites in Minnesota 31:1
square4 Pilot Games rate for games was a clear
31percent profit share
square4 Worked with Pilot to understand what
statutes were needed to deal with
shortcomings in North Dakota and Minnesota
square4 Met with Operators, Permittees, and Vendors to
see what they would need for E-tabs to work for
Alaskan Nonprofits
2:06:18 PM
MR. FISCHER moved to slide 7. In addition to the points on the
slide he said E-tabs are designed to play slower than paper pull
tabs.
[Original punctuation provided.]
Key Points from Alaska Industry talks
• Concerned about a monopoly
• Worried about cost of e-tabs profits going out
of state
• Worried about bars looking like casinos putting
pull-tab stores and bingo halls out of business•
Worried about tips declining with e-tabs
• Concerned about play being too fast
• Not understanding how permit limits work
• Insist rules are put into statute, and not put
off until regulation time
• Many things are required by the department that
are never reviewed or needed (ex. payroll
reports)
• Some municipalities charging a tax based on gross
sales versus ideal net
• Frustration that the bill was written by out of
state interests
• Concerned that their store sales information
acquired through POS systems will be used/shared
with other stores
• Worried manufacturers will become operators in
effect- Self serve e-tab centers in malls
2:09:04 PM
MR. FISCHER moved to slide 8, titled: "Minnesota compared to
Alaska Gaming", which contains a detailed table presenting
financial data, pull tab and E-tab usage and the changes that
occurred between 2012 and 2023. He said Minnesota appears to
have the best system for pull tabs.
2:09:29 PM
MR. FISCHER moved to slide 9, titled: "What happened to Paper
Pull-tabs in Minnesota with the introduction of E-tabs. The
slide depicts a bar graph comparing annual paper pull tab sales
with E-tab sales from 2012 through 2023 in Minnesota.
2:10:08 PM
MR. FISCHER moved to slide 10, which includes a simple bar graph
expressing the number of pull tab "rips" or E-tab "clicks"
required to spend $100 for each of three pay-out percentages.
[Original punctuation included.]
Pull-tabs as Entertainment
Entertainment- amusement or diversion provided
especially by performers, something diverting or
engaging
• To spend $100 it takes between 490 to 990
clicks/rips (mathematical average)
• Pull-tabs have a guaranteed payout
• It is known that you will be donating between 10
percent to 25 percent every time you play
• Most Pilot e-tab games have "bonus play" built in
that prolongs play of larger payouts, simulating the
time it would take to cash in a ticket while
providing an entertaining experience
2:11:25 PM
MR. FISCHER moved to slide 11.
[Original punctuation included.]
Why CSSB 146
Paper Cost
• Continued increased cost of games from manufacturers
has gotten to a point that we must consider
alternatives.
• Pre-Covid we were seeing tickets for $.02 or less
each. Today we are seeing prices in the $.05 and
$.06 range.
• Our customers' best success comes when they use
games in the 85 percent-90 percent range. With the
increase in paper cost, little is left for the non-
profits.
• To deal with the price increase many nonprofits have
lowered the payout percentage which lowers customer
happiness. This leads to less customers.
• Bingo halls can get by with a lower percentage
because they bring in customers for bingo, and they
play pull-tabs.
• A permittee that uses a vendor makes very little.
2:12:32 PM
MR. FISCHER moved to slide 12.
2:12:35 PM
CHAIR BJORKMAN referred to slide 11 and asked for an explanation
of the 80 percent, 85 percent and 90 percent payouts. He asked
specifically what the percentages applied to.
2:12:49 PM
MR. FISCHER said if someone pays $100 for pull tab tickets, the
non-profit essentially gives back $85 or $90. A higher
percentage means the player wins more often. He noted that pull
tab gaming is different from other gaming in that the payout is
fixed and will never vary. He said a player will always lose
between ten and twenty percent of the money spent to purchase
pull tabs. He noted that the proceeds go to non-profits and [by
design] the players "lose", but they get to play and donate.
2:13:32 PM
MR. FISCHER returned to slide 12. He said a lot of their
customers approached them and asked whether they had a certain
game in a lower pay out percent. It looks identical to another
game but with a lower payout, it kind of tricks the customers.
He said he knew what was happening in this situation. The
charity's board has said they are not making enough money with
the ticket costs higher, they want to lower the game payout
percentages. He said what is going to happen is, when they play
a lower percentage [payout] game, customers are not happy
because they're not winning enough, so [the shops] lose players,
so the board says we're not making enough money, lower your
percentages, they lower them again and the next thing you know
they closed the shop because they are not making any money, no
players are in there.
[Original punctuation included.]
Pull-tab Store Death Spiral
• Many of our customers are in this mode
• We will lose many non-profits in gaming before this
bill passes
• They need relief in ticket prices
square4 E-tabs can help subsidize paper
• E-tabs brings in new customers
• E-tabs allow higher percentage games without
additional cost to non-profits
[Funnel cloud illustration:]
Lower profit due to ticket cost
Customer Lowers game payout to increase profit
Less players due to lower payouts
Less profit due to less players
Customer Lowers game payout to increase profit
Store closes
2:14:06 PM
MR. FISCHER moved to slide 13, which includes a bar graph
comparing the cost for tickets (paper pull tabs) to clicks (E-
tabs) for the three levels of payout percentage.
[Original punctuation included.]
Paper vs E-tabs Price Comparison
• Many concerns focus on the price of E-tabs and
money going out of state
• This is a comparison of paper tickets versus e-
tabs with our company at a 33percent profit share
• The break-even point is at 85percent payouts
• Historically most of our customers aimed for
85percent or above payout average on their games
• Players recycle their money, generally a win will
be replayed
• Higher percentages allow longer entertainment
• Think of a good day fishing versus a bad!
• Not all companies are equal! Don't chose a
company that won't tell you a price and commit to
it long term!
2:14:59 PM
MR. FISCHER moved to slide 14.
[Original punctuation included.]
Penetration Marketing - We need to ensure fair
competition
• When you go into a convenience store and prices
aren't marked, you know you are going to get
gouged at checkout
• Through our partnership with Pilot Games, we
guarantee for a minimum of five years that our
profit sharing rates won't change
• 33percent for permittees
• 31percent for operators (they are expected
to have employees trained for machine
repairs)
• Some companies have been known to offer huge
incentives to place machines, then charge higher
rates
• Through statute we can control this
2:15:45 PM
MR. FISCHER moved to slide 15.
[Original punctuation included.]
Why CSSB 146
Supply Chain
• Manufacturers have been bought up by equity
firms creating less options
• Alaska is now essentially supplied by only
four Manufacturers
• Some Manufacturers have put themselves in a
spot that they can create a monopoly
2:16:07 PM
MR. FISCHER moved to slide 16, a diagram depicting the Pull-tab
Supply Chain. He said Platinum Equity has bought up multiple
manufacturers over the years, both point of sales systems, and a
distributor. He said his fear as a distributor going forward is
that Platinum will block Bonanza Press from selling product to
his business. He said this has been his experience with Platinum
Equity in the past. He suggested access to paper products may
become contingent on the purchase of E-tab products.
2:17:14 PM
MR. FISCHER moved to slide 17.
[Original punctuation included.]
Why CSSB 146
Supply Chain
• Arrow
• Controls seven manufacturers
• Only sell to two distributors
square4 This year they bought the Whaler Casino
Supply which calls itself the Largest
Distributor in Alaska
square4 We fully anticipate that they will cut
off supply to Alaska Indoor Sports in
the future
• They don't currently sell to any
other distributors than AIS and
the Whaler which they own
square4 They bought both major point of sale
systems used for gaming in Alaska
• Allows them to see price points of
all other distributors and what
products they are selling
• Douglas Press
• Limited inventory of games to Alaska
• Seeing shipping times of months out
• International Gamco and American Games
• Limited supply to Alaska Focused on
southern Markets
• Bonanza Press
• Fully Supporting Alaska Distributors
• Manufacturers buying their own distributors is a
new trend within the last few years
2:17:57 PM
MR. FISCHER moved to slide 18 which included a cartoon
illustration of the fabled wolf blowing down a house of straw.
He said, in the last hearing Arrow questioned why Alaskans are
viewing them as the big bad wolf.
2:18:08 PM
MR. FISCHER moved to slide 19, which included an illustration of
a cartoon wolf with a trojan horse and asserted that Arrow is
the big bad wolf.
[Original punctuation included.]
We look at it a little differently. The big bad wolf
was attacking from the outside. Those we have talked
to are more concerned that Arrow is the big bad wolf
hidden inside the trojan horse, looking to take over
Alaska's nonprofit gaming.
CSSB 146 has requirements that aren't normally seen in
other industries but are similar to rules in place in
North Dakota and Minnesota that ensure a competitive
market for paper pull-tabs.
There is a reason why. We have seen manufacturers
abuse their power in Alaska to reduce competition and
artificially raise prices to the non-profits.
Often times the non-profits aren't price savvy because
it is "free money".
2:19:02 PM
MR. FISCHER moved to slide 20, which included a page of
handwritten notes.
[Original punctuation included.]
• Manufacturers have worked with certain Alaskan
distributors to restrict competitor Sales
• Two manufacturers worked with Distributors to
stop selling pull-tabs to Paul Fischer, the owner
of Alaska Wholesale Distributors
• Paul's prices were low
• They falsely believed Paul sold their
product to another distributor (which is
legal) and they did not want that
distributor to be competitive with the other
Anchorage distributors
• Paul sought a legal option-
• Based on the facts that you have described,
it appears very likely that one or more of
your suppliers of pull-tab games have
breached Alaska law by refusing to sell the
games to you anymore. At a minimum, they
would appear to have violated Alaska law
against monopolies and the restraint of
trade (AS 45.50.562). By refusing to sell to
you, they are reducing lawful competition
for the product, as well as restraining
intrastate trade and commerce. Further,
depending on the circumstances, they may
have also violated the same laws against
forming a combination or conspiracy to
effectuate the same purpose.
2:20:15 PM
MR. FISCHER moved to slide 22.
[Original punctuation included.]
What is in CSSB 146 Permittees
• Permit prize cap increased from $2 million
to $5 million to accommodate for higher E-
tab payouts
square4 No separation for paper or e-tabs, this
is left to the discretion of the
permittee
• Removes the $500,000 cap if an operator is
used
• Pooling of permits by operators and vendors
allows easier access for more permit holders
• Access to lower cost paper pull-tabs due to
more competition amongst distributors with
manufacturers having to sell to all
distributors and limiting exclusive games
• Protection of sales information by
prohibiting manufacturer and distributor use
of point-of-sale data
• Keeps self directed organization with
something "special" in allowing them to have
cabinets, but not vendors.
square4 Operators are also allowed to have
cabinets but not in establishments with
alcohol
• No limits on the number of e-tab devices
they can have in a store
• Ban on advertising is removed
• Places a 1percent of ideal net cap on local
municipality taxes of pull-tabs
• Requirement to use gaming proceeds within
one year are removed
square4 It is widely considered bad practice
for a non-profit to not have funds on
hand for more than one year of
operations
2:23:13 PM
MR. FISCHER moved to slide 23 and said there is one error in
this slide. He said that if permits are combined and they are
giving out 30 percent, it should say ten percent for Bingo or
other activities.
[Original punctuation included.]
What is in CSSB 146 - Operators
• Elimination of some paperwork that isn't being
done currently or can be automated by the State.
• Operators' contracts require 30percent of
adjusted gross income from pull-tabs and
10percent for bingo go to permittees. All
reporting not needed for these two numbers is
eliminated (payroll, utilities, etc.).
• Operators can pool permits together and split the
30percent among them.
• Currently they must track each game to a
single non-profit.
• E-tabs are only available to operators that have
been in business for three years until 2030.
• This is intended to control the rollout of
E-tabs.
• An operator must have an employee dedicated to
their pull-tabs and e-tabs.
• Can't have a laundry mat with e-tabs and the
laundry worker is working the gaming or vice
versa.
• Allowed to have cabinets and handheld devices.
• If an operator leases bar space, they may not
have e-tab cabinets in the facility, only mobile
devices.
• Allow permittees to use their full permit limits
of $5 million with operators.
2:24:18 PM
MR. FISCHER moved to slide 24.
[Original punctuation included.]
Money flows in one direction! There should be no
"Kickbacks".
Permittee or Operator
• Pays Distributor a percentage of profits to use
electronic systems
• Pays a per ticket cost for paper tickets
• Responsible for day-to-day operations of pull-tabs
[Arrow pointing down.]
Distributor
• Contracts with Manufacturer to distribute their
Electronic Devices
• Buys paper tickets by the case
• Maintains Electronic devices
[Arrow pointing down.]
Manufacturer
• Designs, tests, and licenses electronic systems
• Manufacture paper pull-tabs
2:25:28 PM
MR. FISCHER moved to slide 25.
[Original punctuation included.]
What is in CSSB 146 - Manufacturers
• The Department may not issue a distributors license to
a manufacturer
• May not pay for modifications to a building to install
a gaming system or pay for utilities
• May not provide gifts, gratuity, premium, or other
things of value to an entity or organization
square4 A good product should speak for itself and
not require kickbacks or incentives
• A manufacturer must sell paper pull-tabs to all
distributors in the state that have been in business
for at least three years
square4 Must be at the same price points and
quantity requirements
• Exclusive paper pull-tab games are limited to a one-
year time frame, then are available to all
distributors
• A manufacturer must submit a copy of contracts with
distributors within 7 days of signing to the
Department
square4 This ensures no side deals or kickbacks
• A manufacturer may not obtain, use, share, or sell
point-of-sales data from paper tickets or bingo
2:27:05 PM
MR. FISCHER moved to slide 26.
[Original punctuation included.]
Why address kickbacks?
• Currently in North Dakota distributors are being
offered $10,000 per device that they place in a
bar that signs a long-term exclusive agreement by
a Manufacturer
• Bars know about the $10,000 and expect that
to be passed on to them
• Permittees may never benefit from this and
may be hurt if machines come with a higher
price per ticket than competitors
• A manufacturer or distributor could refuse to
sell paper games to a permittee, operator, or
vendor that does not use their devices
• Especially troublesome when one
distributor/manufacture controls what we
estimate to be over 50percent of the paper
market
• A manufacturer could do building renovations with
the promise of a long-term contract and their
devices may have a higher cost that is
detrimental to the permittees
• A paper manufacturer could stop selling to a
distributor that does not sell their electronic
devices
• A multitude of other methods that can be devised
if manufacturer and distributor kickbacks are not
prevented
2:27:17 PM
MR. FISCHER moved to slide 27.
[Original punctuation included.]
What is in CSSB 146 - Vendors
• Able to pool permit holders and split proceeds
for e-tabs
• Allows them to run far more permits
• Allows for electronic transfer of funds
• Distributors can establish a system that
automatically distributes proceeds from the
vendors bank account to the non-profits each
month
• Limits vendor to tablets only unlimited
quantity
• Tablets will work better for many bars as
bartenders won't have to spend large amounts of
time counting paper tickets
• Less errors by dealers, no miscounts
• Access to more bars as tablets are considered a
little classier (no paper mess)
• This version shows vendors share being reduced to
20percent for e-tabs. After further talks with
vendors, we recommend an amendment putting it
back at 30percent to help them increase salary to
compensate for the lower tips that come with e-
tabs
2:28:01 PM
MR. FISCHER moved to slide 28.
[Original punctuation included.]
What is in CSSB 146 Electronic Pull-tabs
• No difference in permit prize cap between paper
and e-tabs or combination of the two - $5 million
• No punishment for not using e-tabs, those
that want to use their entire cap on paper
and continue as they are can with the higher
limit.
• Caps payouts at 90percent
• Allows an auto-close feature. For example, when
all prizes over $50 in a $1 game are paid out,
the game is removed, and a new game is loaded in.
Players know there are always major prizes left
in games they are playing
• Payout kiosks are restricted to employee access
only. No self serve pull-tab popups
• Cabinets restricted to self directed facilities,
operators in non-alcohol locations, and fraternal
organizations
• Handheld devices allowed in all locations
• No limits on the number of devices in a location
2:28:39 PM
MR. FISCHER moved to slide 29, titled "Where does all the money
go? Self Directed non-profit". The slide has a graphic
representation of the distribution of revenue for 80 percent
payout.
• Paper Pull-tabs, Ideal Net Split with Tickets at 5.5 cents,
80 percent payout:
• Non-profit: 69.5 percent
• Distributor: 27.5 percent
• State Tax: 3.0 percent
• Electronic Pull-tabs, Ideal Net Split with Revenue Share at
33 percent, 80 percent payout:
• Non-profit: 64.00 percent
• Distributor: 33.00 percent
• State Tax: 3.0 percent
2:29:18 PM
MR. FISCHER moved to slide 30, titled "Where does all the money
go? Self Directed non-profit". The slide has a graphic
representation of the distribution of revenue for 90 percent
payout.
• Paper Pull-tabs, Ideal Net Split with Tickets at 5.5 cents,
90 percent payout:
• Non-profit: 44.97 percent
• Distributor: 55.00 percent
• State Tax: 3.0 percent
• Electronic Pull-tabs, Ideal Net Split with Revenue Share at
33 percent, 90 percent payout:
• Non-profit: 64.00 percent
• Distributor: 33.00 percent
• State Tax: 3.0 percent
2:29:32 PM
MR. FISCHER moved to slide 31, titled "Where does all the money
go? Non-profit using an Operator." The slide has a graphic
representation of the distribution of revenue for 80 percent
payout.
• Paper Pull-tabs, Ideal Net Split with Tickets at 5.5 cents,
80 percent payout:
• Non-profit: 27.0 percent
• Distributor: 27.5 percent
• Operator:42.5 percent
• State Tax: 3.0 percent
• Electronic Pull-tabs, Ideal Net Split with Profit Share at
31 percent, 80 percent payout:
• Non-profit: 27.00 percent
• Distributor: 31.00 percent
• Operator: 39.00 percent
• State Tax: 3.0 percent
2:29:35 PM
MR. FISCHER moved to slide 32, titled "Where does all the money
go? Non-profit using an Operator." The slide has a graphic
representation of the distribution of revenue for 90 percent
payout.
• Paper Pull-tabs, Ideal Net Split with Tickets at 5.5 cents,
90 percent payout:
• Non-profit: 27.0 percent
• Distributor: 55.0 percent
• Operator: 15.00 percent
• State Tax: 3.0 percent
• Electronic Pull-tabs, Ideal Net Split with Profit Share at
31 percent, 80 percent payout:
• Non-profit: 27.00 percent
• Distributor: 31.00 percent
• Operator: 39.00 percent
• State Tax: 3.0 percent
2:29:41 PM
MR. FISCHER moved to slide 33, titled "Where does all the money
go? Non-profit using a Vendor." The slide has a graphic
representation of the distribution of revenue for 80 percent
payout.
• Paper Pull-tabs, Ideal Net Split with Tickets at 5.5 cents,
80 percent payout:
• Non-profit: 44.00 percent
• Distributor: 33.00 percent
• Vendor: 30.00 percent
• State Tax: 3.0 percent
• Electronic Pull-tabs, Ideal Net Split with Profit Share at
33 percent, 80 percent payout:
• Non-profit: 27.00 percent
• Distributor: 31.00 percent
• Vendor: 20.00 percent
• State Tax: 3.0 percent
2:29:54 PM
MR. FISCHER moved to slide 34, titled "Where does all the money
go? Non-profit using an Operator." The slide has a graphic
representation of the distribution of revenue for 90 percent
payout.
• Paper Pull-tabs, Ideal Net Split with Tickets at 5.5 cents,
90 percent payout:
• Non-profit: 12.0 percent
• Distributor: 55.00 percent
• Vendor: 30.00 percent
• State Tax: 3.0 percent
• Electronic Pull-tabs, Ideal Net Split with Profit Share at
33 percent, 90 percent payout:
• Non-profit: 44.00 percent
• Distributor: 33.00 percent
• Vendor: 20.00 percent
• State Tax: 3.0 percent
2:30:00 PM
MR. FISCHER moved to slide 35.
[Original punctuation included.]
Next Steps
• With the adoption of CSSB 146 into committee we
have a better foundation to look at
• This is still not ready to pass
• It has not been reviewed by enough in the
industry
• We don't want to do the same thing Arrow has
and try to push something that has not been
thoroughly vetted
• Alaska Wholesale will organize regional meetings
throughout the summer to see what concerns are
and to help educate what changes would mean
• We will use this CSSB as the starting point
of the conversations
• We hope to bring back to the legislature in 2025
a bill that has broad support from the charitable
gaming industry
2:31:55 PM
CHAIR BJORKMAN asked whether the distributions represented in
the presentation reflected the current situation or what it
would be under SB 146.
2:32:13 PM
MR. FISCHER explained that the distributions represented for
paper pull tabs reflect the status quo. He said the price for
tickets varies, but he chose 5.5 cents per ticket to represent
what some sellers charge. He said the distributions for E-tabs
are theoretical and is assuming purchases are made through his
company where it is known that the distribution for operators
will be 31 percent for 80 percent payouts and 33 percent for 90
percent payouts.
2:32:57 PM
SENATOR DUNBAR drew parallels between this situation and the
Anchorage taxi-cab situation, which was a very segmented
industry. He said it was complicated and difficult to know who
the players were. He recalled high levels of dissent and
expressed hope that was not the case for the pull tab industry.
He asked for clarity about Alaska Wholesale, LLC's role in the
industry, in particular with regard to E-tabs.
2:33:51 PM
MR. FISCHER explained that the manufacturers make the machines,
develop the software, and ship the machines to his company. He
ships the electronics out and provides technical support 24
hours per day. He said, by comparison, paper is easy; but his
customers can't last much longer solely on paper. He said the
manufacturers provide the machines and are the ones with money
on the line; Alaska Wholesale, LLC provides the labor.
2:34:42 PM
SENATOR DUNBAR sought to mitigate his comment about dissent in
the Anchorage taxi community. He noted the term "operator" and
asked for clarity about that role. He noted that, though the
machines are housed in a retail location, it sounds like Alaska
Wholesale, LLC is placing the machines and servicing them and
that sounds like "operating".
2:35:11 PM
MR. FISCHER acknowledged that perception. He said the dynamic is
very different in a bar, for example. He said the bar owner has
more control [with E-tabs]. He said, for paper pull tabs, a
representative of a non-profit organization would deliver a box
of paper tickets to the bar and would receive payment at that
time. With E-tabs, the bar owners have more incentive to
purchase the machines because they have the opportunity to pre-
select the non-profit beneficiaries. He said Alaska Wholesale,
LLC is basically a pass-through entity. He emphasized the need
to host pull tab operations in Alaska.
2:37:03 PM
SENATOR GRAY-JACKSON noted there has been a lot of work done to
develop SB 146. She expressed appreciation for Mr. Fischer's
work to date and his offer to continue. She expressed her hope
for greater consensus on a bill that could move forward.
2:37:38 PM
MR. FISCHER said he could not promise that all stakeholders
would agree, but he opined that a lot of disagreement was based
in misconceptions. He expressed optimism that seeking to broaden
perspectives and sharing accurate information will be helpful.
2:38:18 PM
At ease.
2:41:56 PM
CHAIR BJORKMAN reconvened the meeting.
2:42:00 PM
SENATOR MERRICK joined the meeting.
2:42:22 PM
JOSHUA LEWIS, Charitable Gaming Operator, Anchorage, Alaska,
said he was representing concerned charitable gaming operators
and non-profits with charitable gaming permits from Fairbanks,
Wasilla, Palmer, Anchorage, Kenai, Soldotna, Homer and Kodiak.
He said the non-profit corporations in Alaska strengthen
communities by providing the educational, health and social
services which our communities need, and the state government
cannot fully provide. He said he had been involved in charitable
gaming for two decades as a self-directed permittee, a multi-
beneficiary permittee and a charitable gaming operator.
MR. LEWIS said the introduction of E-tabs will have a
significant and profoundly negative impact on the industry. The
Alaska charitable gaming industry is currently the poster child
of charitable gaming nationally. Provisions for Alaska's non-
profits to earn charitable gaming revenue exists in several
distinct ways and no other state has these alternatives provided
to their non-profits. He said the introduction of E-tab machines
is effectively the introduction of slot machines into the Alaska
market. E-tab manufacturers take between 30 and 50 percent of
the charities' profits when new machines are introduced, and
this money goes out of the state. He said E-tab machines provide
a five to fifteen percent profit to the charity compared to the
20 to 23 percent profit provided currently by paper pull tabs. A
five-dollar purchase of pull tabs now provides one dollar to the
non-profit permittee. A four-fold increase in volume or play
would be required to realize the equivalent return from E-tabs.
He said nearly all participants in Alaska charitable gaming will
have a significant decrease in profits if E-tab machines are
introduced and the only participants that will see an increase
in revenue are the E-tab manufacturers.
MR. LEWIS concluded that SB 146 as currently written is not a
good option for the State of Alaska.
2:45:53 PM
CHAIR BJORKMAN asked whether Mr. Lewis had reviewed the
committee substitute for SB 146 available.
2:46:01 PM
MR. LEWIS said he had and that there are still basic problems
with the bill. He expressed concern about the dollar amount
going outside of Alaska, particularly to the manufacturers of E-
tabs. He noted that manufacturers sometimes receive up to 50
percent of the revenues and said that was unworkable. He also
said for pull tabs to work in a self-directed permittee
situation, or for an operator, a twenty percent return would be
required and the reality with E-tabs is that it simply doesn't
work, because the players lose interest if they aren't getting
95 percent. In that case only five percent then goes to the
permittee. He explained that it would take four times as many
players or the current players will have to spend four times as
much to break even or match the current non-profit income
stream.
2:48:40 PM
STEVEN BORCHERDING, Operations Manager, Whaler Casino Supply,
Anchorage, Alaska began a presentation on SB 146.
2:49:39 PM
MR. BORCHERDING moved to slide 2.
[Original punctuation included.]
STEVE BORCHERDING
• 35 + years in Alaska Charity gaming
• Whaler Casino Supply (distributor) 13.5
years
• Gold Cache Bingo MBP (Director of Gaming) 20
years
• Whaler Bar (Vendor) 6 years
• AMVETS Department of Alaska (2nd Vice commander)
• Alaska Veterans Museum (Board member/Treasurer)
• Anchor Town Sports Association (President)
• AMVETS Post #2 (Board Chair)
• Appointed by Governor to negotiated rulemaking
committee (2002)
• Appointed by Speaker to charity gaming task force
(2005)
2:49:58 PM
MR. BORCHERDING moved to slide 3, which included a table
comparing the costs of paper pull tabs and E-tabs under an 85
percent payout.
Paper:
Ticket purchase: one dollar
Prizes to players: $0.85
Ideal Net (Adjusted gross income): $0.15
Taxes to State: $0.0045
Ideal Net/AGI minus taxes: $0.1455
Cost of Goods: $0.0350
Adjusted gross net: $0.1105
E-tabs:
Ticket purchase: one dollar
Prizes to players: $0.85
Ideal Net (Adjusted gross income): $0.15
Taxes to State: $0.0045
Ideal Net/AGI minus taxes: $0.1455
Cost of Goods: $0.0437
Adjusted gross net: $0.1019
MR. BORCHERDING provided an overview of the slide, and made the
following points:
• Paper pull tab ticket prices vary and are increasing.
• There is entertainment value to the pull tab industry.
• There is additional entertainment value when "pick boards"
or "coin boards" are introduced and because they are more
involved, the cost to play is higher.
• The difference in the adjusted gross net between paper pull
tabs and E-tabs is less than one penny.
• E-tabs are not meant to replace paper pull tabs.
• Charities can choose between the payout options (80
percent, which he said is the "magic number",85 percent or
90 percent)
• Charities can choose between paper pull tabs and E-tabs.
2:55:34 PM
MR. BORCHERDING advocated for the opportunity for separate
endorsements. He referred to his experience running a Bingo Hall
when he had separate endorsements for Bingo, pull tabs and
raffles. He said each of those games had different margins,
etc., and he said having different margins or distribution
wouldn't make one game "evil". Instead, he suggested the view
that E-tabs are another opportunity for charities to make money
and provide an opportunity for more people to play. He said
there are fraternal clubs in the lower 48 that have more people
joining [and playing] and E-tabs are just another form of
gaming.
2:57:00 PM
MR. BORCHERDING contested the assertion that money was going out
of state and said all the E-tab machines were made out of state;
Arrow is just one of the manufacturers. He said paper pull tabs
were 90 percent of Arrow's business. He said Arrow was open to
long-term contracts that protect the charities. He noted he was
not there to defend Arrow, but it was well-known that The
Whaler, whom he works for, was owned by Arrow.
2:58:26 PM
CHAIR BJORKMAN said he would appreciate Mr. Borcherding's
comments on the committee substitute and suggestions to improve
the pull tab statutes.
2:59:00 PM
MR. BORCHERDING said he would like to help with that.
2:59:05 PM
CHAIR BJORKMAN noted the significant upward pressure on the
price of paper pull tab tickets. He asked what the higher price
of the paper tickets would mean for the non-profits.
2:59:32 PM
MR. BORCHERDING said one option would be to run higher profit
games. He said as ticket prices increase; participation falls
off. He noted that at least with E-tabs, there is no rising
paper cost to account for. He said with the increases, a game
that used to cost $100 now would cost $150 for the same game, so
the non-profits are receiving $50 less [than before]. He noted
the cost of everything has increased and will continue to
increase, but a one dollar pull tab ticket will always be one
dollar.
3:00:38 PM
CHAIR BJORKMAN restated that the non-profits are faced with less
profit with paper because of the cost of paper and the overall
ticket cost will need to be increased to continue to provide
proceeds for the non-profits through the sale of pull tabs.
3:00:59 PM
Mr. Borcherding said it is [due to] the law of diminishing
returns and at a certain point the break-even point just doesn't
match anymore. He noted that a lot of the testimony is from
operators and others who take a percentage and that self-
directed charities retain all the money. He said "operator" is a
legal term in Alaska and does not mean just anyone who sells
pull tabs and is different than a full-blown charity. He said an
operator receives a percentage for running [ticket sales] for
permittees who cannot run it themselves. He noted that as the
price of paper tickets increases, the operators are being
squeezed out.
3:01:52 PM
DAVE LAMBERT, Licensed Charitable Gaming Operator, Fairbanks,
Alaska, introduced himself and said he had been in the
charitable gaming industry in Alaska for over 30 years and a
licensed charitable gaming operator for 25 years. His testimony
was to protect the over 100 non-profit organizations that
contract with him to operate charitable gaming on their behalf.
He said the non-profit organizations are not set up to run
charitable gaming and Alaska has one of the best systems in the
world to give non-profits the opportunity to raise funds. He
explained that when he got into the industry a dollar pull tab
cost one dollar; that was 30 years ago and a dollar pull tab
still costs one dollar. With an operator, the [non-profit]
permittee is guaranteed 30 percent and price increases do not
affect them.
3:02:46 PM
MR. LAMBERT said SB 146 as written would not benefit the non-
profits. He said the bill was written by an outside manufacturer
to benefit them and that it creates a situation for Labor and
Commerce because it would help the manufacturer form a monopoly.
He acknowledged that the manufacturer reduced the percentage of
proceeds they would collect over the course of presenting the
bill in the House.
MR. LAMBERT explained that a bar owner does not have a choice of
machine manufacturers and that the price for the tickets is not
of concern to bar owners because they can charge whatever they
want to, and they receive a fixed profit.
3:04:01 PM
MR. LAMBERT reported that the manufacturer had said they would
work with the distributors and the people of Alaska and that
they would not come in to be a distributor or an operator.
However, he said the manufacturer obtained a distributor license
shortly thereafter and then bought The Whaler. He noted this
specific manufacturer owned most of the paper pull tab
manufacturers and now they have their foot in the door to
monopolize, there is no incentive for them to sell to other
vendors.
MR. LAMBERT said SB 146 needs to go. He urged support for the
committee substitute to the bill, but said it needed significant
changes. He suggested the non-profits and other stakeholders
spend the summer developing a proposal that will work for Alaska
non-profits.
MR. LAMBERT addressed the provision to increase the limits of
pull tab sales through SB 146. He said the limits were created
in the 1980's and were outdated. He said the payout for E-tabs
was currently higher and in order to make money, it would be
necessary to sell more. He also expressed concern that raising
the limit to $5 million would squeeze out a lot of non-profits.
He said when the prize limit was increased in the past,
established non-profit organizations who were near to maxing out
did not [due to the increased limits] and others who expected
their turns to benefit were no longer in line to receive the
proceeds.
3:07:11 PM
MR. LAMBERT recommended adopting CSSB 146 with the expectation
that many changes and amendments would be made to it over the
summer by the stakeholders. He said most of the non-profits
don't know anything is going on.
3:07:55 PM
CHAIR BJORKMAN closed invited testimony on SB 146.
3:08:15 PM
CHAIR BJORKMAN opened public testimony on SB 146.
3:08:40 PM
CHARLES BORING, representing self, Anchorage, Alaska testified
in support of SB 146. He said he was a retired veteran and an
American Legion member for 35 years. He appreciated the invited
testimony and emphasized the importance of charitable gaming to
support Alaska non-profits. He spoke in favor of increased
limits. He also said electronic gaming was or should be better
controlled. He said he fully supported the passage of SB 146
which would allow legal and monitored electronic gaming. He
noted that "the devil is in the details,' but that he believed
more money would be raised [for non-profits] because of SB 146.
3:10:03 PM
CHRISTA FOLI, Department Commander, American Veterans Club,
Anchorage, Alaska, testified in support of SB 146 and said she
also was a veteran and a member of the American Legion, the
Veterans of Foreign Wars (VFW), and the Eagles club. She said
the clubs with which she was affiliated all supported SB 146 and
believed it would allow them to do more for their veterans in
the future. She opined that [pull tabs and E-tabs were no
different than the lottery and Bingo games that are available
electronically.
MS. FOLI advocated for electronic games in particular, and said
paper pull tabs would still be in demand. She highlighted the
entertainment value of the games and said it offered an
opportunity for people who would not be able to travel to Las
Vegas the opportunity to play.
MS. FOLI reported that other clubs were able to raise more funds
for the charities they support with electronic games and she
noted that as other media are becoming more common in electronic
formats, gaming electronically will continue to grow as well.
3:12:32 PM
JERRY LEWIS, Operator, Northern Lights Bingo, Anchorage, Alaska,
testified in opposition to SB 146. He said he was intimately
involved in the expansion of gaming in other states and was
aware of the occurrence of unintended consequences. He said he
had never seen charitable gaming run as well as in Alaska and he
cautioned against changing it and possibly messing it up. He
opined that operators would suffer the most under SB 146 and
that operators are the majority of charitable gaming
stakeholders. He asserted the E-tabs are a slot machine and they
play like a slot machine and he noted that pull tabs are
described as a paper slot machine. He said every other state
that has adopted E-tabs has been trying to rein in their
unforeseen issues. He said neither SB 146 nor the committee
substitute regulate what the manufacturers can charge for the
games, though that has been spoken about. He noted operators
currently pay about 20 percent for a game and that can range to
35 and 50 percent for E-tabs. He also said SB 146 does not
regulate the number of games that a permittee or and MVP can
have; it regulates how many an operator can have, but it doesn't
regulate the other entities. Given the addictive nature of slot
machines and alcohol, he recommended that they be severely
limited. He said SB 146 and the committee substitute proposed to
raise the prize limits for permittees and while he said that
should be addressed, it was a slippery slope. He said for his
operation raising the cap from $500,000 to $5 million would mean
fewer charities would be "played." He said he would have to do
ten times as much in sales to run the same number of permittees.
MR. LEWIS said SB 146 and the CS addressed excluded spinning
reels to avoid mimicking a slot machine. He noted that slot
machines had not included spinning reels in over 20 years and
that should be cut out of the bill. In closing, he agreed that
someday, electronics would come to Alaska, and he would be
willing to work toward a workable draft.
3:15:15 PM
DON MITCHELL, representing self, Anchorage, Alaska, said he had
no view as to whether the committee should pass or not pass SB
146. However, he sought to inform the committee that provisions
or allowances of the Indian Gaming Regulatory Act of 1988 may
bear on the application of SB 146 in Alaska to places that
qualify as "Indian lands". He asserted that there were neither
lands nor tribes in Alaska that qualify for the provisions of
the 1988 Indian Gaming Regulatory Act, but he mentioned Klukwan,
Metlakatla and Eklutna as villages that have pursued designation
as Indian lands under the 1988 Act. He suggested that the
committee consult with the Department of Law to avoid an Indian
tribe operating free of any restrictions.
3:18:36 PM
SANDY POWERS, Operator, Big Valley Bingo, Wasilla, Alaska,
testified with concerns on SB 146. She said she operates about
25 permits at her establishment and expressed concerns about
social ill. She noted that states with electronic pull tabs are
ranked in the top 20 for gambling addiction. She said Alaska is
currently ranked number 47. She said she was concerned for the
addiction risk for Alaskans if slot machine style E-tabs were
introduced. She advocated for more oversight, in agreement with
previous testimony.
3:20:10 PM
TIM NAVARE, representing self, Kenai, Alaska testified with
concerns on SB 146. He said he was not currently personally
involved with gaming, but that he has an interest because of his
association with the Eagles Club in Alaska. He said he was in
favor of continued work on SB 146 and the committee substitute
with robust participation by stakeholders, especially the non-
profits. He acknowledged that electronic pull tabs were likely
to take over in the future and emphasized the need to contain
costs without harming non-profits. He also noted the
entertainment aspect of playing pull tabs, but that while
players hope to make money, they all lose in the end. He urged
that the cost of playing not be increased. He said if [all pull
tab gaming] went to electronic, the players would have to play
more to give the same amount to the non-profits and he compared
that to a tax increase on the Alaskans playing pull tabs.
3:22:30 PM
HARLOW ROBINSON, Executive Director, Alaska Sports Hall of Fame,
Anchorage, Alaska, testified in opposition to SB 146. sought to
provide the perspective of a non-profit that benefits from
charitable gaming for over a decade. He appreciated testimony on
both sides of the issue and emphasized that Alaska does
charitable gaming right. He noted the awareness of the dangers
of legalized gaming and said he was genuinely concerned about
the expansion of gambling with electronic pull tab systems. He
said his impression of Bingo halls is that they are safe places
with no alcohol and they often serve as important community
gathering places. He opined that E-tabs were more addictive. He
said Alaska has all kinds of societal ills right now and he
hoped not to add to that or compound it in any way. He expressed
skepticism about the proposed benefit to non-profits and
concerns about operators as well as money leaving the state. He
advocated for not fixing something that isn't broken and said
that, while electronic gaming may be inevitable in the future,
it need not be adopted quickly for pull tabs.
3:25:30 PM
CARRIE CROOK, Bartender, American Legion Post 29, Anchorage,
Alaska, testified in support of SB 146. She said she is a member
and bartender and that the post uses the money to support the
community there, including schools, veterans, families. She said
introducing E-tabs would generate more for the post and others
who would benefit include the bartenders, the pull-tab dealers,
charities across the state. She emphasized that generating
additional income would give charities the freedom to do more
and say yes more when they have people in need of help.
3:27:26 PM
CHAIR BJORKMAN closed public testimony on SB 146.
3:27:45 PM
CHAIR BJORKMAN removed his objection.
3:27:51 PM
CHAIR BJORKMAN found no further objection and CSSB 146, was
adopted as the working document.
3:28:25 PM
CHAIR BJORKMAN held SB 146 in committee.