By Michelle W. Cohen, Member, Ifrah PLLC
Companies seeking gaming licenses and registrations (whether as an operator or a service provider, such as an affiliate) should pay special attention to states’ increasing diversity requirements. In considering license applications, gaming regulators are emphasizing organizations’ commitments to diversity. The areas of focus include minority and women’s participation in company ownership, hiring, and use of diverse outside vendors.
Several states, including Maryland and Virginia, include diversity ownership in the regulators’ analyses of sports betting licensing applications. Other states, such as Pennsylvania, require that licensed companies (including affiliates) maintain and implement diversity plans. While the requirements vary state by state, we provide a few examples below to illustrate industry trends. The focus on “diversity, equity and inclusion” (“DEI”) will no doubt continue as additional states implement sports betting.
Maryland has enacted the most sweeping law concerning diversity considerations for sports betting licensees. The state’s sports betting law (HB 940) emphasizes the participation of minorities and women. As background, when Maryland legalized medical cannabis, the state did not award minorities and women any of the initial licenses. In granting sports betting licenses, legislators sought to ensure that minorities and women are afforded significant opportunities to obtain sports betting licenses. In particular, the law “expresses the intent of the General Assembly that the sports wagering program is to be implemented in a manner that, to the extent permitted by law, maximizes the ability of minorities, women, and minority and women-owned businesses to participate in the sports wagering industry, including through the ownership of licensed sports wagering entities under the bill.” The Sports Wagering Application Review Commission (“SWARC”) is directed “to the extent permitted by federal and state law” to “actively seek to achieve racial, ethnic, and gender diversity when awarding licenses.” (https://legiscan.com/MD/text/HB940/id/2402214/Maryland-2021-HB940-Chaptered.pdf).
In addition to 17 licenses available to specified entities (which include casinos, professional sports stadiums, horse racing tracks, off-track betting facilities and bingo halls with at least 200 electronic instant bingo machines), the state may award up to 60 mobile sports betting licenses. Most observers believe the “money is in the mobile.” Consequently, the SWARC will likely scrutinize ownership of mobile applicants even more than land-based applicants.
Under Maryland’s law, sports wagering applicants seeking investors must make “serious and good-faith efforts to solicit and interview a reasonable number of minority and women investors and must submit related documentation as part of the application.” (https://mgaleg.maryland.gov/2021RS/fnotes/bil_0000/hb0940.pdf). Once awarded a license, applicants must sign a memorandum of understanding with the SWARC that requires the licensee to make serious, good-faith efforts to interview minority and women investors in any future capital rounds.
A sports wagering application must include an affidavit attesting to the number of minority and women owners, the ownership interest of any minority and women owners, the number of minority and women employees, and the number of current contracts the applicant has with minority and women owned subcontractors. These are ongoing obligations., with sports wagering licensees reporting this information yearly.
Maryland extends its diversity goals to goods and services in the sports wagering industry. The law requires the Governor’s Office of Small, Minority, and Women Business Affairs (in consultation with the Office of the Attorney General) and sports wagering licensees – to establish a clear plan for setting “reasonable and appropriate minority business enterprise participation goals and procedures for the procurement of goods and services relating to sports wagering, including procurement of construction, equipment, and ongoing services.” It would appear this requirement would be more applicable in the context of land-based sports betting licensees, though mobile providers obtaining services (such as geolocation and integrity services) may have participation goals imposed upon them as well.
Maryland’s law also establishes a Small, Minority-Owned, and Women-Owned Business Sports Wagering Assistance Fund. The support for the fund comes from 5 percent of the fees collected from the larger (Class A-1 and A-2) Sports Wagering facility licensees (the professional sports venues and casinos). The Fund is to provide grants or loans to small, minority-owned, and women-owned businesses entering the sports betting industry.
In the current applicant pool, two off-track betting facilities may be the initial benefactors of Maryland’s diversity requirements. Both businesses seek to launch sports wagering in early 2022. Riverboat-on-the-Potomac is a minority-owned business (partnering with PointsBet) and Long Shot’s is a woman-owned business.
Virginia and Pennsylvania
The Virginia Lottery (the Commonwealth’s sports betting regulator) considers several factors in awarding the state’s limited sports betting licenses. These factors include past experience, financial viability, success with sports betting in other jurisdictions, and “whether the applicant has demonstrated that the applicant has made serious, good faith efforts to solicit and interview a reasonable number of investors that are minority individuals.” (11 VAC 5-70-50). Virginia’s definition of “minority” includes African Americans, Asian Americans, Hispanic Americans, and Native Americans. Virginia does not include women in this consideration (unlike Maryland), and does not impose the extensive requirements for minority and women participation (and possible preferences) specified by Maryland law. However, with limited licenses, those otherwise qualified applicants that can demonstrate minority owners and efforts made to solicit those owners should receive due consideration.
Pennsylvania’s law requires applicants for gaming licenses and other authorizations (including gaming service providers such as marketing affiliates) to submit written diversity plans with their applications (including renewal applications). Organizations must also submit an annual diversity compliance report assessing their performance for the previous year. Diversity plans must include information regarding recruiting efforts, training, development and retention, how the plan is distributed, vendors and procurement, and complaint procedures. The Pennsylvania Gaming Control Board takes these requirements seriously and will require applicants and licensees to resubmit their plans if they do not meet the Board’s requirements. Thus, companies should be prepared to address these topics and to implement their stated goals.
Future Diversity Initiatives
As additional states implement sports betting, they will no doubt look to how diversity initiatives have succeeded in Maryland and other jurisdictions. It remains to be seen whether other jurisdictions will follow Maryland’s lead with a focus on minority and women ownership in the license selection process. Some states may instead model Virginia’s minority ownership “factor” in licensing consideration. Other states could adopt Pennsylvania’s diversity plan requirements as a guide to foster diversity in employment and procurement in sports gaming. Irrespective of how the states pursue diversity, sports betting operators and service providers should be ready to address issues such as minority and women ownership, recruiting and retention, and procurement. Whether in initial license awards, renewals, or ongoing compliance assessments, the focus on diversity in the sports betting industry is here to stay. Regulators in many states will monitor who “talks the talk” and who “walks the walk” when it comes to diversity, equity and inclusion.