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Lottery Commission looking into claims of unfair advantage: Are some retailers posing as non-profits?

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Gambling in the Mountain State changed in 2001 when the West Virginia Legislature passed the Limited Video Lottery Act.

It allowed for a limited number of video lottery machines "in adult environments" — sites that possess a Class A Alcohol Beverage Control Administration (ABCA) license and meet various other legal requirements. It essentially outlawed the pre-existing "gray" machines that some establishments were operating illegally and under the radar.

The total number of limited video lottery terminals is limited by the law to no more than 9,000 throughout the state. With that restriction, owning machines is both a profitable and a valuable opportunity.

Some 13 years later, the machines are still highly sought after commodities. And because retailers are limited to five machines per location and nonprofits can operate as many as 10, some retailers are now alleging the status of some establishments calling themselves nonprofits has become blurred.

Showing cause

Show cause hearings for several lottery licensees began after West Virginia Lottery officials became suspect of several of the nonprofits in question, following visits by investigators to several sites that offer video lottery machines. 

The hearings began Jan. 23 and continued Feb. 10. More are being scheduled.

Operators have been told through mailed letters to "show-cause why your retail license should not be sanctioned."

If limited video lottery, or LVL, nonprofits (often referred to as "fraternals") are found to be in violation of the regulations, they could face fines of as much as $10,000 for each infraction, have their LVL licenses revoked, and/or have their number of machines reduced from the 10-machine maximum to five machines — the same limit on retail locations.

Some of the non-profit organizations to testify so far include fraternal orders of police, veterans groups and Elks clubs.

"The lottery staff has done some preliminary investigation by sending out their investigators and putting together some information," said Lottery Commission Chairman Kenneth L. Greear. "Because of that investigation, we, as the commission, felt that it would be appropriate to bring some of the retailers in and ask them questions directly, as a result of some of the findings, to see if in fact there are conditions that the fraternals are operating under that aren't abiding by the rules as legislated as put forth by the lottery."

Greear said the Legislature put out guidelines under which the video lottery terminals need to operate.

"All the commissioners and the lottery have the responsibility to make sure the games are played fairly and appropriately," he said. "The thing that the lottery has at its advantage, in my opinion, is its integrity. 

"The integrity of the lottery functions and the commission comes in question if there are things going on that become suspect or questionable. So the commissioners are quite serious about it." 

Testimony Feb. 10 from Steve Walker, president of the West Virginia Fraternal Order of Police, shed light on the FOP's relationship with Bucks Inc.

Walker testified that Bucks Inc. "takes care of everything" at its Clarksburg lodge, essentially performing as the operator while benefiting from having 10 machines instead of five, with the idea that revenue is equally shared with the FOP.

"We were trying to get out of the fundraising business," Walker said. "It's easier to get into video lottery.

"We were offered a turnkey operation. (Bucks, Inc.) told us they'd take care of everything."

The lottery commission found even the lodge's ABCA license is signed by a Bucks Inc. employee.

"They set it up," Walker replied.

It was also revealed during the hearing that the FOP only netted about $20,000 (after expenses) of the FOP's share of revenue in 2013, which was $227,000.

The FOP's expenses include salaries, rent, utilities and other costs of operating the business.

"That's the way it was sold to you and that's the way you bought it?" asked West Virginia Lottery Director John Musgrave.

"Yes, sir, it's a turnkey operation," Walker replied.

The commission adjourned with taking action, citing further investigation.

Shut down

The limited video lottery machines licensed to the Marshall County Fraternal Order of Police remain dark, following its second hearing before the West Virginia Lottery Commission Feb. 10.

The machines were initially ordered to be turned off during a Jan. 24 meeting of the lottery commission, in which an official representing the Marshall County Fraternal Order of Police did not show up in person for the hearing. The official, Edward Vogler, participated by phone on that date.

It was the first time the commission had ever disabled machines because an operator did not show for a hearing, according to Musgrave.

Vogler appeared for the Feb. 10 hearing, and the case was heard by the commission again. Lottery commissioners asked Vogler for financial information he testified he could not provide, so commissioners immediately voted to give the Marshall County FOP 72 hours to provide the paperwork.

"After we took into consideration that one fraternal had received notification (to appear at the Jan. 24 hearing) and chose not to appear, after acknowledging receipt (of the notification), we determined with the number of retailers that we would be working with it was important to realize the significance that we place on this and they need to place an equal amount of significance on appearing before the commission to make sure that we have answers to questions that we have," Greear explained. "We're deadly serious about our approach."

The conditions under which the machines will be turned back on: receipt of the requested financial statements and verification by the lottery director. A third hearing will be scheduled.

The letter from the lottery about the Jan. 24 hearing addressed to Vogler was provided to The State Journal through Vogler's attorney, John F. Dascoli, who attended the meetings.

In part, the letter reads: "Pursuant to Lottery Commission Policy Statement 11-03, and consistent with W.Va. code 29-22B-701 (8), certain management agreements require third party management companies and their responsible officers to be licensed.

"Based on the information provided, it appears the agreement between the Marshall County FOP Lodge and a third party is such an agreement as you are essentially permitting a third party to provide staffing, management and personnel related services at this location. Without prior disclosure and approval, these actions violate the law and a Lottery Commission order."

Other fraternals and nonprofits that are licensed to operate video lottery machines throughout the state are in the process of being investigated as well.

"We began with Action Gaming (in Jan.), and Bucks Inc. was asked to come in Feb. 10," Greear explained. "There very well may be other operators or retailers because we want to be fair. We want to investigate every area of concern. There will mostly like be other retailers that we bring in, that work with other operators to assure that we have a good cross-section of activities among the fraternals." 

Greear said there is no timeline for investigations yet. 

"We don't want this to linger forever," he said. "However, we want to make sure that we have all of the information that we need before we conclude the review and start doing an evaluation of our findings. 

"It's not our intent to bring every retailer or every fraternal before the panel." 

A level playing field

An equal opportunity to compete — that's what retailers want, according to Shanon Schuetzner, general manager of Weirton Investments who spoke at the Feb. 10 lottery commission hearing. 

"I represent a lot of retailers that are upset," he said. "It takes advantage of the fraternals, and the spirit of the fraternal order. We also feel it's an unfair advantage. It's not competitive any longer. It's not fair that the fraternals are being taken care of by these companies. 

"I understand that this is a cutthroat business," Schuetzner added. "All we're looking for is a level playing field. If the commissioners could provide that level playing field, we would appreciate it. 

"I'm not saying all fraternals are operating this way. There are a lot of good fraternals. But we believe that some are ran by companies that want to change from five machines to 10 machines and take an advantage over a regular retailer." 

Greear said the spirit behind allowing additional machines for nonprofits was to create a revenue source for organizations that give back to the community.

"A fraternal, by virtue of the purpose of it being a fraternal, for the benefit of the community, a nonprofit, the legislation was written to allow them to have more machines to be able to generate more revenue to help the community activities and things of that nature," he said. "Obviously, the more machines that you have available, the more opportunity to generate more revenue is greater than one with five machines.

"In light of that, they have somewhat an advantage over others. The question is, are they operating as a fraternal? Or are they just operating simply to have 10 machines in the location, to generate a higher level of revenue?" 

Using the money for good

Dave Shriver, president of Action Gaming, has attended the hearings and spoke to The State Journal after the Jan. 24 meeting.

"I don't know what's going on with these hearings," he said. "The fraternals are good people. They're doing nothing but donating to the communities they're in and all of their causes. It's fantastic. Finally, there's no Jesse James out there.

"All these people want to do is good with the money," he added. "That's what we do. We're there to help them. That's it. There's no secrets, no secret contracts."

Shriver explained that the law allows his company to take 60 percent of profits, but it only takes 50 percent. 

"The FOPs in New Martinsville, including the one that got turned off, they had a Christmas party in that county," Shriver continued. "Those kids didn't have anything. I mean nothing. They were lined out the door, Santa was there, cookies and milk … there were donations to Shop with a Cop … all the kids came in and got their picture taken, they got food, they all got presents, it was unbelievable."

Shriver defended Action Gaming's relationships.

"We'll do anything to help these guys," he said. "They do nothing but good with this money. If we have to help them here and there, we help them until they get on their feet. And then they're off and running on their own.

"It's a beautiful thing. And then this (hearing) happens. What happened is we heard these guys were being tortured by these phone solicitors. The (vets) almost had to have (the phone solicitors) arrested to get what they had coming to them. They shouldn't have to go through life like that."

Shriver said his company works with American Legions, VFW organizations, clubs, FOPs and other veterans groups, but his company isn't allowed to be a retailer and an operator — it's solely an operator. 

"This seems to be what (lottery officials) looking for: that Action Gaming is benefiting from these fraternals, by somewhat more than 50 percent," said Shriver. "They must think that Action Gaming is getting something extra from this. And we're not. We donate, and we're members of all this stuff; we go to all of this stuff. I live in New Martinsville and it's the greatest thing to happen there." 

Action Gaming operates 450 machines in about 100 locations, according to Shriver.

"Hopefully the lottery will see that everything is 100 percent legit and that these people are doing nothing but volunteering their time, trying to help people," he said. "That's it."

Yet, the lottery commission is charged with following the law, Greear said.

"There's no question as to the purpose of what the (fraternals) do for the community — there's no question about that at all," said Greear. "What we are working with is what has been legislated. And is there an unfair advantage and is there anything to the possibility that something has been bent or tweaked to the benefit that wasn't intended to be as the legislation was put out? 

"We need to see if everything is in accordance to regulations, then it's fine. If it's not, then we need to work to make the necessary adjustments to make sure that it is."