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Lottery machines require costly upgrades

CHARLESTON, W.Va. - West Virginia video lottery retailers want state government to pay for a $30 million upgrade to their machine software, should the software retailer not agree to cover the cost for them.

Video lottery manufacturer International Game Technology recently informed the West Virginia Lottery that it planned to discontinue one of two computer communications protocols that operate on its video lottery machines.

The outdated protocol, called ISIS, is still used on more than 90 percent of the 6,872 IGT video lottery terminals located in bars, gambling parlors and other private clubs around the state.

The company said those machines will either have to upgrade to newer software or be replaced with brand new machines, which cost $15,000 to $20,000 each.  

While upgrading current machines will require only a software change, retailers say it will come at a hefty price.

Several of them appeared before the state Lottery Commission Thursday to air concerns.

George Carenbauer, lobbyist for the West Virginia Amusement and Limited Video Lottery Association, said total costs of the upgrade could reach $25 million to $30 million.

For perspective, video lottery retailers log about $30 million worth of transactions each month.

Carenbauer said video lottery retailers had no idea the change would be coming when they put up nearly $70 million to bid on their 10-year operating licenses two years ago.

He said many permit holders are still working to pay off the costs of their expensive permit bids and don't have the money to pay for an upgrade that could cost upwards of $3,000 per machine.

"This is an enormous, unexpected and arbitrary new expense," Carenbauer said.

"We cannot go through this and survive," said Herk Sparachane, who won permits to operate 377 machines in the state during the recent license bidding process.

"When every one of those bids were made, we honestly thought the machines would be good for 10 years," he said.

Carenbauer asked the commission to consider one of three options:  

  • Require IGT to pay for all upgrade costs.
  • Allow the Lottery to pay for the upgrades using proceeds from the recent bid process.
  • Or ask the Legislature to consider some sort of financial subsidy, similar to the $100 million fund set up two years ago to help racetracks upgrade their slot machines.
  • Musgrave, however, indicated to retailers that the state likely will not step up and cover their upgrade costs. He said after the meeting that the issue is more of a business matter between operators and the software company.

    "This is an issue that basically is a contract between the company that these individuals deal with, and the state's not party to that," he said. "But we will try in every way we can to bring a resolution to this that's favorable."

    The video lottery operators have several years to prepare for the upgrade.

    While IGT is required to give only two years' advance notice of any system changes, the company has agreed to extend the deadline for the upgrade to Dec. 30, 2017.

    Musgrave said that gives retailers about five years to prepare.

    The software issue wasn't the only video lottery matter that the Lottery Commission debated Thursday.

    A group of residents from the Cheat Lake area of Morgantown presented petitions signed by about 400 city residents protesting a proposed new video gaming business at 2 Bell Lane, in the middle of an affluent Morgantown neighborhood.   

    Cheat Lake resident Patrick Gregg said the community has made its feelings clear and asked the Lottery Commission to reject a gaming permit for the area. Gregg said the area already has five video gaming establishments in a 2-mile radius and doesn't need another one.

    The video gaming club's liquor license is currently pending an appeal to circuit court. Commissioners agreed they would not take any action until that case was resolved.

    They indicated if the permit process were to move forward, they would hold a public hearing in Morgantown so residents and business representatives could fully present their sides.

    In another matter, Lottery commissioners disagreed over the proposed fine for a retailer that admitted to violating statutes governing the operation of video lottery machines.

    Musgrave said a retailer whom he did not name admitted that a repairman bypassed faulty door switches on 10 of the company's machines.

    The switches are designed to notify Lottery headquarters when the cash doors are opened or tampered with. Musgrave said the repairman apparently did not have replacement parts to fix some malfunctioning switches. He then bypassed the switches to make the machines operable.

    The business and a commission subcommittee agreed to a $2,500 fine - $250 for each bypassed machine.

    However, when that recommendation was brought before the full committee, Musgrave and Commission Chairman Ken Greear said the violation deserved a more severe punishment.

    Musgrave said the repairman's act may seem minor but it violated state laws regarding the way video machines are to operate.

    "It doesn't affect the play of the game in any manner; what it does affect is the integrity," he said. "We think that once you do that, whether it's in the major part or the minor part, it's a very serious situation."

    Greear said the commission's job is to preserve the integrity of the games and not to tolerate a violation even though it may seem minor.

    "To me it's like robbing a small bank versus a big bank - it's still robbing a bank," Greear said.

    Greear said he would like to consider a stiffer fine. However, because the business owners were not there for that portion of the meeting, commissioners agreed to table the matter and allow the owners to present their case to the full commission at its February meeting.

    Contact writer Jared Hunt at jared.hunt@dailymail.com or 304-348-5148.

     


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