WSR 16-12-107

PROPOSED RULES

[Filed June 1, 2016, 10:03 a.m.]

Preproposal statement of inquiry was filed as WSR 16-06-130.

Title of Rule and Other Identifying Information: Amending WAC 230-13-067 Group 12—Electronic puzzle and pattern solving game standards.

Hearing Location(s): Red Lion, 18220 International Boulevard, Seattle, WA 98188, (206) 246-5535, on July 14 or 15, 2016, at 11:30 a.m. or 1:00 p.m. NOTE: Meeting dates and times are tentative. Visit our web site at www.wsgc.wa.gov and select public meeting about ten days before the meeting to confirm meeting date/location/start time.

Date of Intended Adoption: July 14 or 15, 2016.

Submit Written Comments to: Susan Newer, P.O. Box 42400, Olympia, WA 98504-2400, e-mail Susan.Newer@wsgc.wa.gov, fax (360) 486-3625, by July 1, 2016.

Assistance for Persons with Disabilities: Contact Michelle Rancour by July 1, 2016, TTY (360) 486-3637 or (360) 486-3453.

Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: In July 2015, the commissioners authorized group 12 amusement games to be played by persons twenty-one and over. This proposed rule change would require group 12 amusement games to prominently display on a sticker or on the screen a message to let players know the amusement game is not a slot machine, no cash prizes are allowed, and points to be awarded can be previewed without the insertion of money or anything of value.

Statutory Authority for Adoption: RCW 9.46.070 and 9.46.0201.

Statute Being Implemented: Not applicable.

Name of Proponent: Washington state gambling commission, governmental.

Name of Agency Personnel Responsible for Drafting: Tina Griffin, Assistant Director, Lacey, (360) 486-3546; Implementation: David Trujillo, Director, Lacey, (360) 486-3512; and Enforcement: Josh Stueckle, Acting Agent-in-Charge, Lacey, (509) 325-7909.

Proposed Changes to Rules: WAC 230-13-067 Group 12—Electronic puzzle and pattern solving game standards.

This rule change would require group 12 amusement games to prominently display on a sticker or on the screen, "This is not a slot machine. No cash prizes are allowed. You can preview the points to be awarded if the puzzle is correctly solved before each play of the game without the insertion of money or anything of value."

Involvement of Small Businesses: We filed the CR-101 on March 2, 2016, under WSR 16-06-130.

On [In] July 2015, the commissioners approved a new type of amusement game, group 12 amusement games with the passage of a new rule, WAC 230-13-067.

In October 2015, operators began putting group 12 amusement games into play and a number of questions arose regarding the operation, licensure, recordkeeping, and regulatory controls for this [these] new type[s] of amusement games. In an effort to address the questions and get information out to stakeholders timely, we started posting information on our web site under "Breaking News" on group 12 amusement games.

On November 9, 2015, we sent an e-mail to the Class B and above amusement game licensees that we had e-mail addresses for informing them that we had drafted rules for discussion on a number of different issues concerning group 12 amusement games. (These rules did not include this rule change.)

On November 12, 2015, we asked stakeholders that attended the study session, which is open to the general public, to submit any comments or rule change language, not limited to the rules staff drafted, to address the issues surrounding group 12 amusement games to commission staff by November 30, 2015.

On December 24, 2015, we sent notice to all commercial and amusement game licensees of the updated rule proposals based [on] the feedback we received during the comment period. We also posted the draft rules on our web site.

At their February 11, 2016, meeting, the commissioners asked staff to explore regulating the appearance so that the game does not look like a slot machine. On February 12, 2016, staff posted a summary of the commissioners' request for a rule change in the special "Breaking News" section of our web site for group 12 amusement game information. We also posted that we would hold a stakeholder meeting to discuss all group 12 amusement game rules currently being discussed, which included the commissioner's request for rule change to WAC 230-13-067.

On February 26, 2016, staff posted in the "Breaking News" section of the web site for group 12 amusement games a summary of the February 22, 2016, stakeholder meeting in which this proposed rule was discussed.

At least one week prior to the March 11, 2016, commission meeting, we posted this rules package, which included this specific rule, on our web site.

On March 25, 2016, we posted information on this rule as filed by the commissioners at their March 11, 2016, commission meeting in the special section of our web site for group 12 amusement games. We also posted that we would be holding a stakeholder meeting to discuss all group 12 amusement game rules pending on April 9, 2016.

On April 9, 2016, we held a stakeholder meeting to discuss all group 12 amusement game rules, which included all rules in this package, including this specific rule.

At least one week prior to the April 14, 2016, commission meeting, we posted this rules package, including this specific rule, on our web site.

At the April 14, 2016, commission meeting, a commissioner asked staff to make additional changes to the rule to make it clearer. On April 15, 2016, we posted in the "Breaking News" section of our web site for group 12 amusement games a summary of the rules discussed and action taken by the commissioners at the April commission meeting.

At least one week prior to the May 12, 2016, commission meeting, we posted this rules package, along with the commissioner's requested language change from the April 2016 commission meeting, on our web site.

At the May 12, 2016, study session, stakeholders were asked what costs they would incur if the rule proposal went into effect. Stakeholders provided feedback as indicated below.

In summary, the rule proposal to change WAC 230-13-067 was discussed at study sessions on the following dates: March 11, April 14, and May 12, 2016. It will also be discussed at the study session on July 14/15, 2016. The rule proposal was discussed and public comment taken at the commission meetings on March 11, April 14, and May 12, 2016. It will also be discussed and public comment will be taken at the July 14/15, 2016, commission meeting. Lastly, it was discussed at two stakeholder meeting[s] held on February 22 and April 9, 2016.

This process provided small businesses opportunities in the development of the new rule.

1. Description of the Reporting, Recordkeeping and Other Compliance Requirements of the Proposed Rule: In July 2015, the commissioners authorized group 12 amusement games to be played by persons twenty-one and over. Since this time, numerous questions and concerns have been raised.

At their February 2016 meeting, the commissioners asked staff to explore regulating the appearance of group 12 amusement games, so that the game does not look like a slot machine. Staff prepared a rule change with two options for consideration at the March meeting. The commissioners filed the rule option that requires group 12 amusement game operators to prominently display a sticker or an onscreen warning stating: "This is not a slot machine. No cash prizes are allowed. You can preview the points to be awarded if the puzzle is correctly solved available before each play of the game without the insertion of money or anything of value."

2. Kinds of Professional Services That a Small Business is Likely to Need in Order to Comply: Small business licensees do not need to use any professional services to comply with this rule change. Licensees can chose [choose] how they will comply with this rule if it goes into effect. They can either put a sticker on each group 12 amusement game or work with the manufacturer of the group 12 amusement game to have the game display the warning message on the game screen before a game is played.

If operators choose to put a sticker on each group 12 amusement game they own, they will need to create and print the sticker. Licensees should be able to use store bought labels and print the warning with a home/work computer and printer.

Alternatively, a licensee would only be able to work with its group 12 amusement game manufacturer to place the warning on the manufacturer's group 12 amusement game software. No additional professional services would be needed for this option.

3. The Actual Costs to Small Businesses of Compliance, Including Costs of Equipment, Supplies, Labor and Increased Administrative Costs: There would be some costs to small business licensees to comply with this rule change. As of May 3, 2016, when we asked amusement game owners to tell us how many group 12 amusement games they had in the state, there were about two hundred eighty group 12 amusement games placed at about one hundred thirty-five licensed locations in Washington. The most a single owner had was one hundred twenty-eight group 12 amusement games in about fifty-five locations. The second highest number of group 12 amusement games by a single owner is about fifty in ten locations.

Small business licensees informed us at the May 2016 study session that their costs would include printing, labor and gas to print and put the stickers on each [of] their group 12 amusement games. Licensees have not provided an actual monetary cost associated with this rule change.

We contacted one group 12 amusement game manufacturer who estimated it would be a one-time cost of about $1,000 for a software change to display the warning message.

Alternatively, creating warning label stickers on a work computer and printer should cost less than $5.00 per sticker. This cost should mostly be a one-time cost unless a sticker needed to be replaced. A box of one thousand 2" x 4" labels, including tax, costs about $48. Additional costs would include: Printer ink and gas and labor to place the labels onto devices they own.

There would also be a labor cost to track which group 12 amusement games had stickers and which did not. However, we don't know the labor costs per hour of each game owner and the gas it would take to travel to all approximately one hundred thirty-five locations in Washington for the approximately twenty game owners. Some of the games are colocated on the business premises while other games are in locations that are renting the games from the group 12 amusement game owner.

Currently, group 12 amusement game owners go to each location in which a game is in operation at least once a month to check on the game and withdraw the cash from the game. Therefore, game owners should be able to minimize the cost of compliance by placing the warning label onto the machine during one of their regularly scheduled visits to service the games.

Game owners would likely incur the same labor, gas and administrative tracking costs to install the upgraded software on each group 12 amusement game they owned in Washington, which as of May 3, 2016, there were approximately two hundred eighty games in about one hundred thirty-five licensed locations. As stated above, we don't know the labor costs per hour, number of hours and the travel expenses each of the approximate [approximately] twenty game owners would incur to bring each group 12 amusement game into compliance with this rule.

4. Whether Compliance with the Rule, Based on Feedback Received from Licensees, Will Cause Businesses to Lose Sales or Revenue: This rule should not cause a small business to lose sales or revenue. Stakeholders have not indicated at the two stakeholder meetings and three study sessions that compliance with this rule will result in loss of sales or revenue.

5. a Determination of Whether the Proposed Rule Will Have a Disproportionate Impact on Small Businesses: This rule should not have a disproportionate impact on small business licensees. We have not received any feedback from small business licensees indicating this proposed rule change will cause them a hardship or disproportionately impact them compared to larger businesses.

All licensees that put a group 12 amusement game into play will have to comply with this rule regardless of the size of their business. The costs for compliance with each licensee to put stickers on their group 12 amusement games will depend on the number of games they own, the proximately [proximity] of the games to their business, and their labor costs.

We currently have three out-of-state manufacturers of group 12 amusement games. These manufacturers are not currently licensed and they are privately owned businesses. Therefore, we do not know if they qualify as a small business. If any are qualified to be considered a small business, we do not expect this rule to have disproportionate impact on them.

Additionally, it is difficult to determine if our small business licensees will be disproportionately impacted without their input. This is a new activity with the first group 12 amusement game approved at the end of September 2015. We do not yet have any financial information on the operation of the group 12 amusement games by their owners. We are, therefore, unable to know the total impact at this time unless licensees provide us information showing how this rule change would disproportionately impact them.

a. Reducing, Modifying, or Eliminating Substantive Regulatory Requirements;

This is a proposed rule for consumer protection to ensure players know group 12 amusement games do not operate as a gambling activity even though it can look similar to a slot machine. The commissioners initially looked into prohibiting group 12 amusement games from looking like slot machines. This would have placed a much higher burden on licensees and the proposed rule reduced the burden on licensees to only require them to place a warning sticker or have a warning label on the game screen before play of the game.

Additionally, this rule offers flexibility by allowing licensees to choose how they wish to comply with this rule. This also reduces the possible impacts on the licensee and allows the licensee to choose the cheapest, easiest way to provide consumer protection while complying with the rule.

b. Simplifying, Reducing, or Eliminating Recordkeeping and Reporting Requirements;

This rule change does not require any additional recordkeeping or reporting requirements.

c. Reducing the Frequency of Inspections;

This rule will not require additional inspections. Verification of the sticker on the games can be done during routine inspections to verify licensure, identification stamp, and other operational requirements.

d. Delaying Compliance Timetables;

Delaying compliance is impractical because it is in the public interest to provide this consumer protection. Additionally, the rule provides low-cost and flexible options for compliance negating any need to delay compliance with this rule should it become final.

e. Reducing or Modifying Fine Schedules for Noncompliance; or

There is no fine schedule related to this rule. Any finding of noncompliance with this rule would likely be handled like all other amusement game violations, which is a progressive enforcement model that includes verbal warnings, written warnings, fines, suspension, and revocation. Our goal is to seek voluntary compliance with our licensees through education and training.

f. Any Other Mitigation Techniques Including Those Suggested by Small Businesses or Small Business Advocates.

Only one small business licensee has requested or suggested any mitigation techniques for the implementation of this rule change. One licensee suggested we create and supply the stickers to the operators. We have determined that it is more efficient and cost effective for licensees to have the flexibility to print their own warning stickers and replace them or create a message on the electronic game itself. This provides them the greatest flexibility with the least amount of reliance on the agency for compliance with this rule. Additionally, licensees would still incur the labor and travel costs for installation of the sticker onto each group 12 amusement game regardless of who prints the stickers.

7. A Description of How the Gambling Commission Will Involve Small Businesses in the Development of the Rule: In December 2015, we sent notices of rule making to all amusement game licensees regarding rules for group 12 amusement games.

At their February 11, 2016, commission meeting during a discussion of other group 12 amusement game rules, the commissioners asked staff to explore regulating the appearance so that the group 12 game does not look like a slot machine. On February 12, 2016, staff posted a summary of the commissioners' request for a rule change in the special "Breaking News" section of our web site for group 12 amusement game information. We also posted that we would hold a stakeholder meeting to discuss all group 12 amusement game rules currently being discussed, which included the commissioner's request for rule change to WAC 230-13-067.

On February 26, 2016, staff posted in the "Breaking News" section of the web site for group 12 amusement games a summary of the February 22, 2016, stakeholder meeting in which this proposed rule was discussed.

At least one week prior to the March 11, 2016, commission meeting, we posted this rules package, which included this specific rule, on our web site.

On March 25, 2016, we posted information on this rule as filed by the commissioners at their March 11, 2016, commission meeting in the "Breaking News" section of our web site for group 12 amusement games. We also posted that we would be holding a stakeholder meeting to discuss all group 12 amusement game rules pending on April 9, 2016.

On April 15, 2016, we posted in the "Breaking News" section of our web site for group 12 amusement games a summary of the rules discussed and action taken by the commissioners at the April commission meeting.

The rules proposal to change WAC 230-13-067 was discussed at study sessions on the following dates: March 11, April 14, and May 12, 2016. It will also be discussed at the study session on July 14/15, 2016. In addition, the rule proposal was discussed and public comment taken at the commission meetings on March 11, April 14, and May 12, 2016. It will also be discussed and public comment will be taken at the July 14/15, 2016, commission meeting.

At the April 11, 2016, commission meeting, a commissioner asked staff to make additional changes to the rule to make it clearer. The language changes were posted on the agency web site with the May 2016 commission meeting agenda at least one week before the meeting. At the May 12, 2016, study session, stakeholders were asked what costs they would incur if the rule proposal went into effect. Stakeholders provided feedback, as indicated above.

8. A List of Industries That Will Be Required to Comply with the Rule: 7132. (Leave this number here.)

9. An Estimate of the Number of Jobs That Will Be Created or Lost as the Result of Compliance with the Proposed Rule: There is no evidence that any jobs will be created or lost as a result of this rule change. Small business licensees have not indicated any jobs would be created or lost as a result of compliance with this proposed rule change from the three study sessions and two stakeholder meetings we have discussed [in] this rule change.

A copy of the statement may be obtained by contacting Susan Newer, Rules Coordinator, P.O. Box 42400, Olympia, WA 98504, phone (360) 486-3466, fax (360) 486-3625, e-mail susan.newer@wsgc.wa.gov.

A cost-benefit analysis is not required under RCW 34.05.328. The Washington state gambling commission is not an agency that is statutorily required to prepare a cost-benefit analysis under RCW 34.05.328.

May 31, 2016

Susan Newer

Rules Coordinator