Recording in progress.

Good morning everyone.

I am Matt Freuman, Ward Three Council Member and Chairperson of the Committee on Human Services.

Today is Monday, May 4th, and we are meeting in person in room one twenty-three of the John A.

Wilson building and virtually via Zoom.

The time is now nine oh seven AM.

Today we are conducting the budget oversight hearing on the Office of Lottery and Gaming or OLG.

OLG is the regulatory body over all licensed gaming in the District of Columbia, including lottery, charitable gaming, and sports wagering.

OLG functions in a manner different from many other district agencies as it is an enterprise fund, meaning OLG generates revenue that it uses both to run the agency and to transfer to the general fund.

Since its inception in nineteen eighty-two, the DC lottery has transferred more than two point four three billion dollars to the district's general fund.

The red light indicates your mic is on.

After our witness is done providing his testimony, I and if other council members come may ask a series of questions before moving to our virtual witnesses.

I'll now call our in-person witness.

I don't see Mr.

Sanchez.

So if Mr.

Sanchez arrives, we will give him the opportunity to testify in person should he choose to join us online.

Uh he's welcome to do that.

In the meantime, I don't is there anyone else here who uh who wanted to testify in person who wasn't listed.

Does not look like that is the case.

I will now call our virtual witnesses to speak in panels of four.

For each witness, I will call your name and a member of my staff will make you a panelist.

If you uh wish to appear on video, you must click the button in the toolbar at the bottom of your screen that looks like a video camera.

Please remain muted until it is your turn to testify.

When it is your turn to testify, please unmute yourself.

Once all our virtual witnesses on a panel for in each panel of four have testified, I and if other council members join may ask a round of questions, so please stay on the Zoom muted until you are recalled.

For any technical difficulties, you can send a message to the host, which is labeled Committee on Human Services, and they will follow up with you.

Additionally, if you are having trouble gaining access to the Zoom and you have pre-registered, you can reach my team at Human Services at DC Council.gov, and they will try to resolve your issue.

Now let's turn to our first panel of virtual witnesses.

Uh Jordan Briggs, Elise Cohn, Christopher Khalitri, Richard Baldwin.

All right.

Wonderful.

It looks like all are in place.

Jordan Briggs, when you are ready, we can start.

Thank you.

Good morning.

My name is Jordan Briggs.

I'm an attorney at IFRA Law, a boutique gaming law firm based here in DC.

IFRA Law has many accolades in the gaming space, including being instrumental in creating the legislative and regulatory framework for online gaming in Delaware, New Jersey, and Nevada.

I'm here to talk about the legality of implementing off-track betting sites and historical horse racing in DC.

I'll refer to these as OTBs and HHR in my testimony.

Under the paramutual laws of the state and agreements with racetracks, OTBs allow patrons to place paramutual wagers on live horse races without physically being present at the racetrack.

Bets are pulled together, the operators take a regulated commission, and winners share the remaining pools.

HHR machines offer a form of paramutual wagering that fits well into this framework.

On HHR machines, users may engage with paramutual wagering with pooled bets on the basis of previously run horse races, irrespective of the on-screen visual.

We believe that federal law does not prohibit DC from creating a framework to license OTBs and provide HHR in the district.

The Johnson Act prohibits the interset interstate transportation of gambling devices, and this definition includes DC and states.

However, the Johnson Act has an exemption for any machine designed and manufactured primarily for use at a racetrack in connection with paramutual vetting.

This exemption applies to OTBs and HHR because they both provide paramutual wagering under government licensing schemes with permission from the racetracks.

The Act also exempts devices explicitly enumerated as lawful by state statute.

Accordingly, under either exemption, the district's authorization of OTB sites and HHR machines would not run afoul of federal law, and the door remains open for the district to consider authorization and regulation of these machines.

Several states already allow HHR, including New Hampshire, Virginia, and Wyoming.

In these states, facilities that host HHR machines must be authorized or licensed by the State Racing Commission or equivalent body.

States with OTB and HHR have benefited greatly.

In Virginia, HHR had six million in statutory withholdings, benefiting general tax funds and other state directives.

Further OTVs are physical locations.

Placing physical HHR machines inside authorized OTBs can provide certain consumer protections as well as direct financial boost to the local community.

OTB facilities need security guards and operational control managers, staff for customer service, kitchen staff, weight staff, and more, i.e., on state employees who live in the area.

Thus, we believe there is a strong justification for the district to create a legal framework that would authorize a licensure system for OTB sites in the district, and the allotment of a certain number of HHR machines to each OTB.

Each state adopts its own regulatory framework for gaming, and we encourage the council to look to other states, states such as Virginia to look for examples on how to implement such a system, how to increase tax revenue and create jobs.

Good morning, Chairman Freeman and members of the committee.

My name is Elise Cohen, managing member of Long Shots LLC OTB and Sportsbook based in Frederick, Maryland, and I'm the only 100% woman-owned sports book in the country.

I appreciate the opportunity to testify today.

I'm here to urge the district to take a serious and timely look at authorizing off-track betting and historic horse racing as part of its broader economic and fiscal strategy.

The district is entering a period of real fiscal pressure.

The mayor's proposed 27 budget reflects a significant gap driven by slowing revenue growth and rising costs.

That reality requires the district to think differently, not just about cutting spending, but about about responsibly generating new reoccurring revenue.

HHR and OTB represent exactly that kind of opportunity.

Based on comparable jurisdictions and adjusted for the district's market, these programs could generate between 92 and 130 million in annual reoccurring revenue without increasing existing taxes.

At the same time, the policy landscape around gaming is evolving quickly.

Neighboring Maryland recently passed legislation to study historic horse racing, signaling that jurisdictions in our region are actively evaluating this model and positioning themselves to revenue for future revenue and investment.

Here in the district, the council is also considering eye gaming, a fully digital form of wagering.

That is a very different policy choice.

Eye gaming is entirely online, widely accessible, and raises a distinct set of responsible gaming concerns.

By contrast, OTB and HHR are in-person, facility-based, and tightly regulated.

It creates jobs, drives foot traffic, and operates in a controlled environment, not on a phone in every pocket.

If the district is prepared to consider expanding online wagering, it should also consider a more controlled in-person model that generates jobs and tangible economic activity.

We also want to be clear on an important point.

There is a defined legal pathway for authorizing HHR and OTB in the district.

By structuring HHR's paramutual wagering consistent with traditional horse racing and explicitly authorizing it in the statute, the council can create a clear and defensible framework that aligns with how these programs operate in other states.

The model we are proposing is intentionally measured and appropriate for the district.

We envision two to four high-quality destination-style venues, not casinos, but premium entertainment spaces, each combining HHR terminals, simultast wagering, and food and beverage.

These would complement existing commercial corridors and attract both residents and visitors.

At full scale, this approach could support hundreds of jobs, increased foot traffic, and new opportunities for district-based contractors and workforce development programs.

Finally, this proposal aligns directly with the district's broader economic strategy.

At a time when the district is making difficult budget decisions, this is a pragmatic option that deserves serious consideration.

For those reasons, we respectfully request the administration, the council to take the necessary steps to evaluate this proposal.

Thank you for your time.

I'm happy to answer any questions.

Thank you very much for your testimony.

Christopher Khalitri.

Here we go.

Good morning.

Thank you.

Sorry about the technical difficulty.

My name is Chris Khalid, and I serve as director of historical horse racing at Ainsworth Game Technology.

Ainsworth is a global manufacturer of gaming equipment, and we develop and supply historical horse racing systems in regulated jurisdictions across the United States.

I'm here today to provide a practical industry perspective on how historical horse racing, commonly referred to as HHR, actually works and how it can be implemented in a controlled, compliant, and transparent way.

At its core, HHR is not a new form of gambling.

It is a modernized version of paramutual wagering on horse racing.

We saw the derby yesterday.

Very similar.

Each wager is placed into a shared pool and payouts are determined by the distribution of wagers within that pool, not by a house advantaged or fixed odds model.

What makes HHR unique is that it uses anonymized previously run horse races.

Before placing a wager, the patron is shown a limited past performance data, similar to what you would see in a racing form, but the identity of the races, horses, and jockeys is not revealed until after the wager is placed.

This preserves the integrity of the pair mutual system while allowing for a modern accessible experience.

From an operational standpoint, these systems are highly regulated.

Every race outcome is drawn from a secure database of historical races.

The wagering pools are independently managed and auditable.

The systems are tested and certified to ensure compliance with state law and regulatory standards.

I want to be clear on one point that often comes up.

HHR terminals are not slot machines.

They do not use a random number generator to determine outcomes.

Each result is tied to an actual previously run race, and each wager participates in a paramutual pool.

In jurisdictions where HHR has been authorized, such as Kentucky and Virginia, these systems are developed or are deployed exclusively in licensed in-person facilities.

That structure provides regulators with clear oversight, allows for robust compliance monitoring, and ensures that activity is conducted in a controlled environment.

From an economic standpoint, HHR facilities are not wagering just wagering venues, they are physical destinations.

They support jobs and operations, food and beverage, security and facility management.

They drive foot traffic and create opportunities for complementary development.

Equally important, these systems can be scaled and tailored.

Policymakers can determine the number of locations, the number of terminals, and the regulatory conditions under which they operate.

That flexibility allows jurisdictions to design a model that aligns with their specific policy goals.

If the district chooses to move forward, the key to success will be clarity in the statutory framework and consistency and regulation.

With those in place, HHR can be implemented in a way that is transparent, well regulated, and aligned with the district's broader economic development objectives.

Thanks again for the opportunity to testify.

Happy to answer any questions.

Thank you for your testimony.

Mr.

Baldwin Good morning, Chairman, Freeman members of the committee.

My name is Rich Baldwin, managing partner of GGHM, a leading global gaming industry advisory.

I work in the gaming and racing sector focused on the development and operation of wagering facilities, including off-track betting and historical horse racing.

Thank you for the opportunity to testify today.

As a district looks for responsible ways to generate revenue in a constrained budget environment, I believe HHR paired with OTBs is a practical data-driven opportunity.

Our firm, GGHM has worked, excuse me, has looked closely at the district.

Based on national gaming market benchmarks and DC's population and income profile, we believe a right-sized HHM HHR market could support roughly 1,500 to 2,000 terminals and generate on the order of 300 to 350 million in annual gaming revenue.

That's not speculative.

That's based on how comparable markets perform when adjusted for population and income.

At a 25 to 35% effective tax rate, that level of activity would translate into approximately 80 to 115 million annually in direct tax revenue for the district.

That is meaningful recurring revenue that can help support core services.

We are currently studying more closely, but at present, we estimate the district currently generates approximately 200 million in annual gaming revenue across the nearby gaming facilities in Maryland, Virginia, and West Virginia, resulting in significant direct tax direct tax revenues for those states.

But just as important as the revenue is how it's generated.

This is real place-based economic activity.

HHR operates in physical locations, often paired with OTBs, which means capital investment, activation of underutilized space, and spillover into surrounding neighborhoods.

These are facilities that employ people, draw foot traffic and support local businesses.

That stands in contrast to the district's current gaming mix.

Today we estimate at least 90% of sports bidding revenue in DC is generated online with only 10% occurring in retail locations.

So the district is already heavily weighted towards a model that produces limited in-person economic activity.

At the same time, we understand the council has begun to consider potential expansion of online gaming.

So the question isn't whether the district will evaluate new gaming options, it's what kind of model the district ultimately wants to prioritize.

If the district is going if the district is going to explore expanded online wagering, we recommend it should also consider a more controlled in-person model that creates jobs, activates space, and generates visible visible economic activity.

And importantly, this is not a zero-sum proposition.

In states like Virginia, HHR and Casino Gaming have grown side by side.

This is about growing the market and recapturing dollars that are already leaving the district, not simply shifting revenue from one operator to the other.

In closing, it's our understanding the district is facing real budget pressures and policy choices.

HHR is a proven scalable tool that can generate revenue, create jobs, and anchor economic, anchor economic activity in ways that purely online models cannot.

Thank you for your time.

Thank you very much for your testimony.

On this whole question of off-track betting and HHR.

This is for me new.

We're in the middle of the budget season.

I think we have been looking at IGaming for some time, but this is new.

I I um it's may not be new in the world, it's new in the conversation here in the District of Columbia.

Um grateful to all of you for coming forward.

I just don't want to raise hopes that this is something that's going to be dealt with in this budget process, I think.

Uh too many other things that are happening.

There were a lot of numbers that got thrown out, and one set of numbers was about Virginia and revenue.

It sounded like six million dollars in revenue.

And then Ms.

Cone talked about the potential of 92 to 133 million dollars in revenue.

And then Mr.

Baldwin talked about the potential of between 300 and 350 million dollars in revenue.

Pretty big range there.

So I help me understand in Virginia, Ms.

Briggs, I think you spoke to Virginia.

I think you said it was six million dollars in revenue.

What what is what does that represent?

Is that a limited number of locations?

Yeah, so that's six million is I believe that's uh 2024 data, and that's um statutory withholdings.

So that's specifically what went back to the state, not that doesn't include what goes back to the community uh and to the OTD sites.

So that is just statutory withholdings, uh, and that benefited the general tax fund.

It also went straight to a veterinary college that specializes in taking care of forces in Virginia and a few other state directives.

But is that for one location with a limited number of machines?

What would what what generated that six million in state withholdings?

Yeah, that was across the state for the HHR machines.

And how many machines are there in Virginia?

I would have to double check that.

Um for that year specifically.

I mean, can you see how that number, and then we'll get to Mr.

Baldwin and how he got to the 300 million?

It's they're pretty different.

So there's something about it that results in it being a much more limited number.

Ums Cone, you you offered the ninety-two million to 133 million a year.

How did you come up with that number?

So um Mr.

Baldwin's numbers and my numbers are we're working off the same database.

So the 92 to 130 million is actually tax revenue.

So that's reoccurring tax revenue that the district would benefit from each year.

That is based off of a fully mature market at about 1,500 machines across the district.

Roughly 1,500 machines across the district.

Okay.

So then maybe Ms.

Mr.

Baldwin helped me out.

I I interpreted the 300 to 350.

Is that overall revenue that you were referring to?

And so the tax revenue would be 25 percent of that or something like that.

How how do I understand those numbers?

Uh yes.

Uh can you hear me okay?

Sure can.

Okay.

Yes.

So yeah, based on our um independent analysis of the market and the DC market, just based upon it's all zip code based in terms of our analysis, just based on the population and income profile of all DC zip codes throughout the district.

We estimate a right-sized HHR market uh could support a range of 1,500 to 2,000 terminals, and the the annual gaming revenue, not tax number um that we project uh is is in the range of 300 to 350 million.

So assuming a 25 to 35 percent tax rate um on the lower end that translates into 80 million in direct excuse me, eighty million in direct tax revenue uh to the district, and at the higher end of the of the range um it would be 11 million uh in annual tax revenue.

Okay.

And so then I mean it takes me back in Ms.

Briggs, you can provide information on this.

If it was a 25% tax in Virginia, that would suggest 24 million in gaming revenue in Virginia, which would I would think suggest a much smaller number of the machines.

But you this is the beginning of a process of consideration of this, so I think let's have a back and forth about it.

It's interesting to me when you do the revenue projections, it appears all related to the HHR and not the off-track betting.

Is what's the revenue that you estimate out of off-track betting?

Or have you focused on that?

Yeah, uh hi, this is this is Rich Baldwin.

Um, if you can hear me.

So the analysis that we've done thus far was focused uh uh purely on the uh assuming that the OTB locations would would would be the locations that would house the HHR machines.

Um we have not uh uh uh yet of or been asked to to quantify what the potential OTB uh revenues and and and resulting taxes would be specifically, but that's certainly something we could uh potentially help and and follow up with.

Okay.

Um it is the value of the it sounds like the value of the OTB is about having brick and mortar locations that people come to, but the real money gets made on the HHR machines is uh uh is that fair?

That is fair, yes.

Okay.

Uh all right, thank you all very much for your testimony.

And as I said, I'm not this is new to me and I think new to others.

Uh uh and we will look at this.

I think that's what you are trying to encourage us to do is to take a look at this.

And so I think you can consider it a success to that point.

I don't want to uh make any promises.

Definitely don't want to make any promises.

Uh but you have put it on our radar screen in a way that was different than than a couple of months ago.

I think we have testimony for Ms.

Briggs and uh well, I don't need to call you out too much, but Ms.

Cohn, if you have a chance, if you can send in your written testimony and also uh for the previous hearing from DEMPED, maybe you have done that already, but um thank you very much for your testimony, and we will turn to our next panel.

Thank you.

Thank you.

Uh Steve May Stacey Wisnot Tori and Janice Richardson Sloan.

Okay.

And Steve May, when you are ready.

Thank you, Mr.

Chair and members of the distinguished committee.

Uh it's an honor and a pleasure today to address the committee to explain the role of the independent testing lab in the gaming industry and kind of describe how I could potentially help uh assist with this discussion of these gaming policy decisions.

So for the last four years, uh actually as a Saturday, uh four years, I've been at Gaming Laboratories International or GLI.

Uh we're an independent testing laboratory uh with right and uh consulting group when it comes to gaming regulations.

We're based in New Jersey, but we serve regulators worldwide, uh approximately 1,700 employees across six different continents.

Uh in the United States specifically, we serve uh state and travel regulators as well as uh uh legislators and and city councils and other members like yourself.

We actually do a lot of work with the DC lottery as as of now already.

Uh GLIP primarily issues certification reports on virtually every kind of gaming device.

Uh we kind of ensure regulators that that gaming device meets or exceeds the regulations or technical standards of whatever that jurisdiction would be.

But the work also provides us uh to bring on a number of experts onto our uh government regulatory affairs team, which is what I'm on, and our work allows me to be here today to kind of help with this group and to clarify any of the public policy decisions you're uh making when it comes to the technology, such as uh describing how various gaming systems and devices work and to really offer that independent and unbiased explanation as needed, and that's solely why I'm here today.

Uh GLI prepares uh our we are prepared to provide any kind of technical support related to HHR or iGaming or OTBs or anything that you need uh and kind of describe differences in gaming systems.

Uh we don't provide any legal opinions on anything.

Uh we don't really do that's not really our area.

Uh, but we really just uh are there to explain the technology behind it, not to make any set any decisions to whether it should be allowed or shouldn't be allowed.

Uh I'm not being paid for this work.

GLI is not being paid for this work.

Uh we really just do this to help uh regulators and and legislators and council members like yourself uh make these policies or help make those policy decisions.

Uh we also have a very long and productive history with the regulators uh in DC and the surrounding states and and don't ever want to jeopardize that.

So if there are any technical questions that arise uh today about the technology or functionality behind HHR, uh feel free to uh reach out to me or ask on this call today.

But that's all I'm really here for.

So I appreciate the opportunity.

Thank you.

Uh thank you very much for your testimony.

Um Stacey Wismond.

Uh Tori Key.

Hi everyone.

Uh Tori He here from Key Play Advisors.

Uh, thank you for the opportunity to speak briefly here and uh appreciate everyone's time and effort with trying to uh you know bring more innovation to the uh the district in regards to gaming.

So um my primary focus has been on the gaming industry uh for a number of years now and primarily been focused on uh sports betting.

Um and I was actually involved with um DC in regard to the small uh retail locations, getting involved with the sports betting space.

So I really want to highlight uh in general because I hear uh from everybody today speaking about HHR expansion potentially into the city, and I know we're gonna be speaking about iGaming and so on moving forward, and a lot of the world is just moving to digital, of course.

But I want to keep in mind as we're talking about this physical aspect uh that we're not uh forgetting about the small businesses and CBEs that rely on um tight margins a lot of times in the city uh due to them operating particularly in F and B food and beverage and other industries where uh they're they're really grasping it for us to really figure out how to add ancillary revenue uh to their bottom line.

Um so ultimately uh I want us to keep in mind, and you know, of course, we'll submit a written testimony how small businesses can be a part of these different uh innovative uh aspects that are becoming that are going to be coming to the city, whether it's having satellite locations where you can look at uh different states like a Arizona uh that actually has satellite locations for OTBs that kind of operate as agents, if you will, um, of the uh the main license holder, or looking at um, you know, a state like Virginia, where you have a Rosies that almost operates like a mini casino, but is still not a uh you know, kind of a master um licensed casino uh operator.

So um I really want to just highlight uh with this brief amount of time that uh I think there are a lot of number of ways that small businesses can be involved and also it could be a part of the CPE requirement that's gonna be put upon these license holders.

So uh maybe they have a certain amount of their spin dedicated to have uh to having licensed locations um that are gonna operate as satellites under them where there's maybe a few HHR machines or uh different um you know uh aspects that are going to be able to generate um you know some revenue for these small businesses across the board.

So um I just want to make sure we're highlighting uh this because I believe um after dealing with sports vetting in the district and seeing how everything progressed with the initial intent of getting small businesses involved.

Um it's easy to kind of forget about um the small guys um that are um typically gonna get get lost in in the shuffle here.

So um I'll give them my time back, but um thank you for the time.

Thank you very much for your testimony.

Uh Janice Richardson Sloan.

Good morning, Chairman Friman, members of the committee on human services.

My name is Janice Richardson Sloan, and I'm the legal counsel and compliance officer for Art Gaming and Technologies.

Now Art Gaming is a licensed games of skill operator in Georgia, and we recently received our distributors' license in the district.

Thank you for the opportunity to testify today.

First, we recommend the district race its 599 max payout per play.

Now of the 13 states with regulated cash payout markets, the district's cap is by far the lowest.

Illinois caps max payouts at 1199, Wyoming at 3,000, and Nebraska imposes no payout cap at all.

Notably, legislation passed by the Virginia General Assembly during the session that recently ended would have set their maximum payout per play at 4,000.

Now Illinois offers the best example of how increasing the maximum payout level can benefit a regulated market.

Illinois first authorized video gaming terminals in 2009 with a 500 maximum payout per play, and then raise that cap to 1199 in June 2019.

After the payout increase, net terminal income increased nearly 13%, and average monthly state tax collections more than 24%, increasing from 37.7 million to 46.8 million.

And that growth has consistently increased.

Annual VGT tax revenue in Illinois has grown each year since the change, more than doubling between fiscal year 2018 and fiscal year 2025.

And there's every reason to expect that the district would see comparable growth if it modernized its own cap.

We request the district raise its max payout to 1999, bringing the district closer to peer regulated jurisdictions while keeping payouts below the 2000 threshold that triggers additional federal tax reporting obligations.

Secondly, we suggest the district expand authorization for games of skill terminals to include off-premise alcohol retailers.

Establishments with Class A and Class B licenses.

Other regulated jurisdictions already allow cash payout terminals in a broader range of retail environments, and these establishments are already required to uphold age restriction policies since they hold liquor licenses.

And as of early this year, the district has 237 class A and 183 Class B licensees for a total of 420 potential additional host locations.

Now we estimate that should both suggested changes be approved, approximately 141 million dollars would be generated annually.

And this calculation is based on a market of approximately 4,000 machines.

We urge you to consider these two common sense steps, which we believe will ultimately benefit the district.

Thank you for the opportunity to testify, and I'm happy to answer any questions.

So Ms.

Richardson Sloan, what are these machines?

What help me understand what what's at the heart of this?

Right.

So games of skill machines, which have already been approved by the district, allow, I mean, they're allowed for five terminals per location already within the district.

They're obviously regulated by the OLG.

We're not requesting any new machines that aren't the machines that have already been approved.

Now the difference between VGTs and games and games of skill is basically it's they're similar play, but games of VGTs are considered to be um chance, games of chance versus the games of skill which have been approved here.

However, the play is still similar, even though there is no um there is no element of chance, obviously, in the games of skill approved within DC at the moment.

But what what does that look like?

What is the game of skill?

I I've not done it before, but give me an example of of a game played on the machine.

All right, so um there's several different games.

There uh right now, one of the ones that we're um we're with uh we have um a contract with uh manufacturer called Vanilla.

They're on in the process of getting approved right now.

We have another one with Omega, and they've already been approved within the district.

It's basically similar to a game of um a game of chance in the sense that you do have you make your bet.

Um several um slots will come into pay to play, right?

Um you make your decisions and your denominations.

There is an element of skill, so you you do choose whatever it is that you're you're planning to do on the game, and then um there's a result that comes from it.

Are you there?

Yeah, no, I'm here.

I'm still I'm sorry.

Uh yeah, I'm still maybe I need to go and look at some to understand it better, but uh I still don't quite understand.

Um these these machines have already been approved within the district, and you can see them in um obviously bars and taverns.

Um right now the market is very small, and I'm assuming it is because the some of the games that have been approved, the skill that's required might be a little bit too tough for um the players.

I know that that happened with uh one that was called Dragon something several years back.

Um but different games have been approved by GLI within the district that play, like I said, similar to um video gaming terminals.

Okay.

I'll have to but with an element of skill, obviously.

Okay, I hear you.

So I need to need to look at it.

I mean, they're all I could provide you, I can provide you again, being an attorney.

Um I think the the question is more um perhaps on the gameplay per se.

Uh better for somebody from our technical group to provide that information, and I definitely can forward that information to you in that for your benefit, of course.

Okay, uh appreciate that.

You you ref referenced Virginia and you said that they had legislation in this most recent session that would have changed the cap to 4,000.

What happened with that legislation?

Well, as we know, the the legislation got vetoed.

Now the reason uh stated for the veto was specifically that there wasn't a centralized um exclusively uh institution or commission, gaming commission that would have um obviously regulated the specific types of games, and that was a reason why that it had vetoed, it got vetoed, or at least that was a reason that the governor stated.

Okay.

All right.

Um thank you very much for your testimony.

Um Mr.

Key, when you were talking about the role of small retail and in a couple of different rounds on these kinds of issues, I have been sensitive to trying to make sure that we don't have a setback for our small retailers around the lottery contract, for example.

Um when you're talking about this, is this satellite are you focused on the HHR?

Is that what this is about?

The different small retailers would have access to HHR machines.

Yeah, good question.

Um I guess to expand on that, it could apply to HHR as well as I know we're we're gonna be speaking about i gaming, but um that's gonna be focused digitally, but I I think there's um you know a way that you could still partner with these locations um as an iGaming uh entity uh to figure out ways to make sure that they're a part of this now.

It doesn't mean that they need to actually have some type of software on site, uh but making sure that these retail locations can be agents or partners, uh whether that's for marketing purposes or or so on.

But um, you know, but if it's gonna be physical machines for HHR or uh games of skill, as uh Janice just mentioned, uh yeah, I think uh any way to expand upon these to get these retail locations more involved and once again we want to make sure everything is safe and secure, but uh making sure that that barrier is not too high for uh you know an FB location or or somewhere that's a retail location to to clear to make sure that they can still have some forms of ancillary revenue as gaming continues to expand in the district.

Okay.

Um you referenced Rose's in Virginia, and I'm trying to understand this Virginia landscape and is Rose's is the idea that Rose's is what is Rosie's and how big of a portion of the Virginia HHR world is Rosie's.

Yeah, I mean so Rosie's from my understanding isn't the actual master license holder.

They're kind of operating as uh almost like this major entertainment hub that is you know looked at as like a satellite location.

Um I believe for um I believe uh Kentucky Downs, if I'm not mistaken, now have to uh follow up on that uh on that specifically, but oh Steve's raising his hand maybe has the answer there.

Okay.

Well, I was about to turn to Steve anyway.

So I'll let Steve start.

Thank you very much for your testimony, Mr.

Keith.

Uh I'll let Steve start with um uh answering that question, and then we can turn to some other things.

Yes, there are two different racetracks in uh Virginia.

There's Colonial Downs, and then there's another harness track named Shenandoah Downs.

Shenandoah doesn't have any HHR operations.

Uh Colonial Downs is actually owned by Churchill Downs Incorporated, and they are allowed to offer HHR at these various satellite facilities, and it's the maximum number of terminals is dependent on the uh population of the town that they're going into.

But they've got some very large facilities now.

There's a very large one in the Richmond area, and now there's a newer one that's opening up in Dumfries.

They're maximize their their maximum number of HHR terminals in the state is is 5,000 by statute, and that's also tied to the uh number of the number of race dates that they're running at Colonial Downs.

So I think I I can't remember that number.

I think it's maybe 50 terminals per race day or 100 terminals per race day that they're allowed to offer at their various facilities.

But they have some of these Rosie's facilities that are fairly small.

They only have 150 or so machines, and then uh I think Dumfries is going to be quite a bit larger.

I don't know the final number on that, but they're right now at about 3,000 machines or 3 or 4,000 in the state, so they still got some room for growth there.

But it's really just a serious network of different places that they have around the state of these satellite facilities.

Okay.

Hopefully that helps.

I mean, you and it's actually you are exactly as advertised.

You said you want it to be a resource, and so there you were.

That's the same thing.

Providing a resource appreciate that in trying to come to understand this.

Maybe you can help me on a different thing because one of the things that we'll hear this afternoon, and I've I think I've heard a little already, is estimates of the numbers of people in the District of Columbia who are already engaging in these different kinds of games or and sectors.

And I wonder where those numbers come from.

And do you know what I'm referring to?

Yeah, and I'm really not the expert on something like that.

I'm more of a technical expert on that.

But I mean, there are a number of different gaming options out there, both uh legal and illegal, and sometimes I call them gray areas.

Uh but I mean there's you know, there's there's still even though there's legal options for sports wagering, there's still plenty of illegal operators that are out there taking money, they have offer no protections for the players in those situations.

So uh we always support uh a legal and and regulated gaming industry, but to you know, to actually make those economic numbers and and that's just not something that that GLI is involved in.

So we can we often are asked to kind of collect numbers from various states, but you know, it it can be all over the board on that, so not really my area.

So sorry about that.

No, so if if you don't have the answer, then you don't have the answer that uh it's a little bit of a heads up to other people who may be testifying going down the line that I mean one of the arguments around these things is you ought to regulate it because it's happening, and if it not regulating it doesn't mean that it won't happen, and understanding what that dynamic is and whether when you regulate it, you increase the amount of it significantly or capture something that's already happening.

That is a question that is on lots of people's minds.

Um again, really appreciate your willingness to try to be helpful on these issues.

I don't want to do too much pushing on a bruise, but um you know we did have an episode around the DC3, DC four, DC5 games.

Um I don't know if you're familiar with that, and I do hope um things happen, and but I do hope that we can all work together to address that in a way that's fair to all of the players.

Do you know do you know what I'm referring to?

I believe so on that.

Yes, we we work with uh some of the integrity monitors out there, and and we one of the things that we do is um internal control audits for operators to you know to make sure that they have their internal controls in place and uh we do some recommendations on those to improve those, uh, but that's always testing against the unknown standard out there.

So having, you know, just saying it's regulated as one thing, but having true internal control standards that you expect the operators to meet or exceed.

That's that's more important, quite frankly, at the end of the day, uh.

So that those regulations actually have some kind of teeth in them, and so that is one of the things that we've done.

And we do I'm almost certain we do some of the integrity work in the DC area right now.

I know we do for virtually every other regulated sports uh gaming uh jurisdiction.

We do uh cybersecurity follow-ups, we do uh the the uh they have to have a recertification on a periodic basis, and we do those for a number of different jurisdictions.

So we try to play a role in that as much as we can, but at the end of the day, it really comes down to having those internal controls in place and and actually implementing them.

Yeah, I hear you on that, but there's also a certification process, and I think you guys do the certification process and the certification process needs to be reliable as well.

Um I hope we can work these things through.

I'll be here to the resource, so thanks.

All right.

All right.

Thank you very much to this panel.

I think that I'm I don't know if um Mr.

Sanchez is here or online or if there is anyone else online who was hoping to testify.

Hearing none, I think we will now turn to our government witness.

So uh so we will now be joined by uh Randy Burnside, executive director of the Office of Lottery and Gaming and his team.

I invite each person who will testify on behalf of OLG today to join us at the table in front of me.

It is the practice of this committee to place our government witnesses under oath.

Uh so if you would please uh raise your right hand.

Do you swear or affirm under penalty of law that the testimony you are about to provide to the Committee on Human Services is the truth, the whole truth, and nothing but the truth.

Thank you very much.

You may begin your testimony.

Good morning, Chairman Freeman, committee members and staff of the Committee on Human Services.

I am Thomas R.

Burnside, the Executive Director of the Office of Lottery and Gaming.

Thank you for this opportunity to testify today regarding OLG's proposed fiscal year 2027 budget.

Joining me today are my colleagues, Eugene Vlasenko, our Chief Operating Officer, Ridgley Bennett, our Chief Counsel, Peter Alvarado, our Director of Regulation and Oversight, and Alex Akpajori, our agency fiscal officer.

The mission of OLG is to responsibly maximize revenue generation for the District of Columbia through the sale of innovative lottery and sports wagering products while providing gaming regulation and oversight that upholds the highest standards of integrity and public trust.

So strategic revenue planning coupled with disciplined expenditure management enables OLG to provide consistent annual transfers to the district's general fund, thereby supporting critical public services, including education, parks and recreation, public safety, housing, and services for seniors and children.

OLG's fiscal year 2027 proposed budget includes an operating budget of 222 million, two hundred and one thousand four hundred and fifty-two dollars and ninety-six full-time equivalents.

This reflects a decrease of 49,998,245 or 18.4% from fiscal year 2026 approved budget of 272 million one hundred and ninety-nine thousand six hundred and ninety-seven dollars.

This variance is primarily a reflection of the continued impact of the Sports Wagering Amendment Act of 2024, which modified the district sports wagering operation.

These adjustments are based on underlying projections, operational needs, and programmatic priorities.

They represent a further budget calibration rather than a fundamental shift, ensuring that our expectations remain realistic.

The DC lottery continues to demonstrate resilience and adaptability in a rapidly changing marketplace.

We expect to see growth in several key product categories, led by strong performance in eye lottery, monitor games, and fast play games.

These offerings aligned with shifting consumer preferences toward digital engagement and instant win experiences and are helping to expand our reach to new audiences while modernizing the lottery's portfolio.

We also expect the mobile sports wagering market to continue to mature and deliver additional tax revenues.

Our traditional products also continue to provide steady, reliable contributions.

Scratch off ticket sales remain one of our most consistent revenue generators.

Likewise, the national jackpot games, such as Powerball continue to perform well, particularly during periods of elevated jackbots that draw widespread public interest and boost overall sales.

Despite these areas of growth, we face several important challenges.

The competitive landscape for entertainment and gaming is evolving rapidly, and OLG must continue to adapt to meet player expectations.

Broader economic pressures, such as inflation in consumer goods and shifts in discretionary spending also influence purchasing behavior across the product lines.

Additionally, our legacy number games continue to decline, driven largely by an aging player base, long-term changes in consumer preferences, and a reduction in daily foot traffic that we are seeing at retail.

In fiscal year 2027, we remain focused on advancing responsible growth, strengthening our product mix, and modernizing our operations to ensure the lottery continues to deliver strong sustainable revenue to the District of Columbia.

I also want to address on April 21st, OLG identified a configuration issue affecting our DC 3, DC 4, and DC5 games.

After conducting an immediate internal review, we requested a full assessment by our third party vendor Smart Play International and the third party independent testing lab, Gaming Labs International, that certified the machines for service.

Their analysis confirmed that from March 31 to April 21 of this year, a coding error prevented duplicate numbers such as 111, 7765 or 89843 from being generated in our midday and evening drawings.

It is important to know that our 1130 p.m.

night draw was not affected.

We acted swiftly once the issue was detected.

The underlying error has been identified and corrected, and we are confident in the integrity of our draw system moving forward.

We are committed to transparency, accountability, and ensuring that our players are made whole.

To that end, OLG is providing coupons, free plays, and additional chances to win for the players who were impacted.

This reflects our commitment to fairness for our players and to maintaining the public trust.

We appreciate the patience of our players and stakeholders and remain focused on upholding the highest standards of operational integrity.

Thank you for your time and consideration.

I'm happy to provide additional information as needed, and I welcome any questions that you have at this time.

Thank you very much for your testimony.

I was going to start by inviting you to talk about that very issue just to get it out of the way.

You have spoken to it.

But I wonder if you can speak briefly to what kinds of things you are trying to do to make your players whole for this issue.

Maybe there are things that you already have done, things that may be in the works, but if you were felt comfortable speaking to that briefly, I would appreciate it.

Absolutely.

Thank you for the opportunity.

Once we identified the issue, we took action.

Both vendors have cooperated with us very well.

We identified the problem.

A tech was on site within 24 hours to make sure that our R and G devices were operating properly.

Just to be safe, we used our backup system for a number of days until GLI could recertify everything, and then we had an outside third-party auditor also watch as we did tests.

So I feel good about our draw systems at this point.

Now, as far as taking care of our players, we had the several challenges in doing that.

First, players may not have their tickets anymore during the period of time.

So we wanted to find a way to get those people the opportunity to be made whole.

We were able to identify who our iLottery players were, so that made it easy.

We credited those accounts back the impacted play amounts that they used.

So that is available now.

We also needed to figure out a mechanism to quickly produce coupons or refunds to our players.

What was the most effective way we could do that?

Uh unfortunately we don't have a mechanism to issue checks to people that that don't have a winning ticket.

So our solution was a coupon system that would allow a free play that functions properly.

Uh so we are in the process of printing physical coupons that can be redeemed on our system at retail.

So those players that were impacted at retail can go back to retail and they have an opportunity to play.

Uh people who don't have a ticket, we've also created an avenue for them uh to be made whole as well.

We have waived the deposit requirements on our i lottery, and anyone who creates an account that goes in, uh, puts in their information, they received 10 free dollars of play on DC 3, 4 and 5.

That was the quickest, most feasible way uh we felt like we could address uh the mass of people that may have been impacted.

So that's available.

We're also going to conduct a second chance drawing later this summer for those affected that is loaded with 150,000 and prizes for those players.

So we feel like that we've fixed the issue on the front end and we've provided a pathway for all of our players at retail and online to be made whole.

So we feel good about what we have so far.

But we're very apologetic about what happened.

We've also strengthened our internal controls.

This is now something that has been put into our standard operating procedures to look for when our draw staff conducts drawings over the period of a certain number of days.

Uh so we we've checked all of the boxes from the regulator standpoint, and uh we're trying to do our best uh to take care of honestly the best numbers players in the country.

We have one of the highest per capita play of number games in the nation.

So our players are very, very important to us, and uh we're gonna do everything we can to make it make it right.

Really appreciate that.

Yes.

But it sounds like in trying to get specifically to all of the different players, but the and where you can't generally to make benefits available to folks who might be in the pool of players.

So it it may it may be that there are some people who were harmed who don't get a benefit because they just don't get hit in one of these different ways or participate in one of these redemptions, but you're cry trying to create as many paths as possible, and it may well be that there are people who were not adversely impacted who will benefit because they'll do the eye lottery thing.

You can't get in my sense is you can't get this perfectly, but you're trying to, if anything, overcompensate in the way in which you're reaching people.

Is that a fair characterization?

That is a fair character characterization, sir.

Uh, we're trying to make people whole.

Yes, there will be people who could benefit who had no adverse effects whatsoever, but there's no other avenue that our team could come up with uh that could make people whole who may have discarded a ticket.

So that that that is the path that we chose.

We we would rather err on the side of more abundance than than on not doing enough.

Okay, and you said that a tech was on the scene, I forgot how many hours it wasn't very long.

When you say that, is that a tech from one of the certifying companies?

Yes, sir.

Uh so when this problem arose and we were contacted from an outside entity that we may have an issue, we immediately investigated.

Uh our draw staff uh immediately reviewed draw logs, and within just a few hours I was able to call smart play directly.

And to their praise, they quickly acted and checked, and they were able to realize that there was a configuration error that occurred on March 31st uh when they stood up our R and G devices.

Uh they admitted to it immediately, and they dispatched a tech the next day uh to check on the coding error.

Uh we had security present, we had an independent auditor present for that visit.

Uh they took care of the issue, and in less than 24 hours uh it was fixed.

So in this is smart play, and then there's also GLI that is in the mix here.

Uh and you heard my my back and forth with the fellow from GLI.

And that those seem to fail.

And so a lot of uh uh I do hope that everyone who has been touched by this can be part of the long-term solution and take responsibility for uh for the roles that they've played in it.

I agree with that.

Uh we do everything we can uh to put systems in place to avoid problems like this from happening.

But sometimes even the best uh make mistakes.

And and it's my understanding that the the root of this problem uh was human error uh and uh it's unfortunate.

But there are checks and balances that failed also in in the certification process as well.

And everyone has taken responsibility for it, and we're strengthening those.

Uh I believe in public transparency and integrity in everything we do.

And the and this is embarrassing.

So I wanted to make sure that that we moved quickly, openly, and did everything we could to put systems in place so that it doesn't happen again.

No, really appreciate that.

And there is human error, but we pay for checks and balances, and they have to work too.

And if they don't work, then uh there has to be some ownership of that fact.

But it all puts me in the mind, and I won't I could go on for a while about this, but very early in my legal career uh I had a case about the a failed launch of a satellite.

And you might remember the space shuttle uh salvaged a satellite that was in geostationary orbit.

That was the case that I worked on.

And it was a simple coding error.

And you could understand I will digress too much because it's fun for me.

Uh it was a launch of a satellite for Intel Sat in a Titan III rocket.

And it the Titan III, it was a big satellite, and the Titan III rocket had a big payload that usually had two satellites in it.

And the software engineers said it's the first satellite out of the box, so we're gonna code it as the first satellite out of the box.

And the hardware people said it sits at the bottom of the payload, and so we're gonna code it as the second, we're gonna wire it as the second satellite out of the box.

And it got to geostationary orbit and didn't separate from the rocket.

And folks looked at it, and just like in your case, it took them 10 minutes to realize what caused the hundred million dollar problem.

Uh but so what they ended up doing was they separated the satellite from the booster motor that would take it up to it to a geostationary orbit.

It was in a low Earth orbit.

And then the space shuttle came and grabbed it, put a new motor on it, and sent it up to a geostationary orbit.

Um to say there's human error, but there's supposed to be protections.

And when there's not protections, that's a problem too.

So all right.

Probably shouldn't have used all the public's time on my reminiscing.

Uh let's turn to a different topic, which is the well, actually, before we do, in this context, you you referred to eye lottery a bunch of times and how it was easier to solve for the eye lottery players.

What percentage of the lottery play is eye lottery as opposed to ticket lottery?

What and what is the trend in that space look like our eye lottery i is actively growing.

Um when you look at our our current numbers month over month, uh we see users uh that play uh actively in their accounts, roughly uh I would say in the neighborhood of uh five to six thousand that that are active that the that have depositors.

Uh our total eye lottery, people who have created accounts is over 80,000.

Uh but actual active play is much smaller than that.

I guess what I'm trying to get at is i lottery five percent of the lottery, one percent of the lottery, five percent of the lottery.

Okay, that would be roughly hold on, I have that.

There with me.

We got plenty of time.

So our iLottery Play roughly represents 13 percent.

Of the lottery of lotteries overall.

And what is revenue?

And you may not have it right at the moment, but is that 10, five years ago would it would it have been lower, higher, the same?

Um it's roughly it it's slightly growing.

Uh it it actually was stagnant last year.

It stayed remained relatively level.

Uh but we're seeing growth now here in fiscal year 26.

Okay.

And then I guess last on this topic of um will the parties at fault, including those that should have properly certified be the ones paying for the promotions and the steps taken by OLG or some portion of that.

Uh we we are are you going back to the issue?

Okay.

Um we're we're still in the process uh of remediating that and we don't have a price tag yet on what the cost will be.

We we have an estimation in our minds of where it could end up.

But yes, my goal would be to to talk to the vendors involved and make sure that uh they're held responsible and that they make us whole at the end of the day.

Yeah.

I mean my expectation is that that would be the case.

And I would think that that would be the expectation of the like I said.

Yes, sir.

We pay for this service.

Okay.

Um back to the lottery more uh generally um there had been an RFP, there had been a process to bring on a new operator.

Um the uh in the end uh the contract was supposed to come to the council for approval, I think the idea was we might see it in June.

Um it was actually a process that was all of these things have controversy, but it was a process that also had controversy.

Uh but we came to understand recently that the RFP was canceled because there was no contract that ultimately came out of it.

What can you tell us about where OLG is in the process of issuing a new RFP and to what extent can you tell us give us insight into what happened?

Okay.

Um the contract for our central gaming system, our ticket printing, and our iLottery system uh went through the RFP process.

And in the end, there was only one remaining uh viable bidder.

And that it did not result in a contract.

Uh that bidder opted not to sign the contract at the time.

Uh so that resulted in a consolid uh cancellation of the RFP.

Uh we are in the process now of making uh adjustments and changes to our RFP uh to reissue it.

Our goal is to have that back to the Office of Contracts and in process as early as the end of this week.

Uh we think we've identified areas that may have caused vendors concern.

Uh some of the requirements that are in it.

Uh please understand that that RFP had been in process for a great deal of time.

Uh I'm only in my first year here in my position, so I had no hands on the RFP when it was first created and delivered.

Um I do know that that my team uh exhaustively went over that contract and put a lot of things uh into it that they felt would make it best for the District of Columbia.

But for whatever reason, it did not result in an award happening.

So we are not going back to the drawing board.

I we are making uh some changes based on on what we've learned uh the economy, how things are right now in the industry, uh technology that has changed over the course of the last one or two years.

Uh we'll make those those additions and changes to the RFP, and hopefully uh we will be able to uh have more people bid on the next contract and hopefully get that process.

But in the meantime, we are in a position where we are going to have to work toward a renewal of the current contract with the current vendor for another year, and that could likely lead into another year because of any conversion process when the RFP is awarded could take uh a significant amount of time.

Fortunately, we still have three one-year renewals remaining on the current contract.

Okay.

So I want to try to make sure that I understand the dynamics.

And I I may put a few words in your mouth and then you can tell me if I've been accurate or not.

And it sounds like we developed an RFP some time ago, maybe in a different economic environment, but or and in a world of changing technologies.

And that RFP ended up having just one qualifying bidder.

And then in any once you pick that qualified bidder, I suppose that there are limitations on how much you can vary off of what was in the RFP.

And that bidder who qualified ultimately determined that they weren't willing to sign the contract based on the terms that had been set in the RFP some number of years ago.

Is that capture it?

I can't speak on behalf of the bidder.

I do not know.

I I just know that the RFP had a great number of requirements that may have deterred uh someone from that.

So there are there's information that goes back and forth through that process with the Office of Contracts.

And uh there's a moment where the vendors have a chance to ask questions.

And based on the questions that the vendors asked, I I think uh it's fair to say that we can recognize what the pain points were uh for prospective vendors and you know uh this is an opportunity uh to improve our RFP.

Okay.

And there's questions, I guess part of what I'm getting at, and the reason that I'm getting at this is an RFP will see an RFP at some point, and this has been an area around which there has been a lot of controversy over time, and so we're gonna want to dial in to that RFP.

And on the one hand, we're gonna want to see an RFP that is responsive to the needs of the operator, and on another hand, we're gonna want to see an RFP that fully protects and advances the district's interest.

And it sounds like what you were saying is in the last one, a lot of people put in a lot of work to protect the district's interest, and some of that might have made it more difficult for the operator to ultimately sign on.

We want to get the balance right, but we want to get the balance right.

Like we don't we want we don't want an RFP that is too friendly to the operator to the detriment of the district.

So I want to have eyes on this as we move forward.

But you look you turned on your microphone, so I'll give you a chance to do that.

I I agree with your assessment 100 percent.

Okay.

Um so then you say we have three one-year options.

What did you say when you think we might see the R the proposed RFP?

Uh the new one for the whole system or for the renewal with our current operator.

Well, why don't you answer but I was talking about the new one.

Yes.

Our current contract expires on July 15th.

So that that process uh needs to happen soon.

And we've been in contact with the current gaming system bender, and they understand, and they're in the process of uh putting the paperwork forward that they need to in order to get the renewal uh to council.

Uh in addition to that, um my goal is to have a revised RFP ready to send to the Office of Contracts to restart the process by the end of this week.

The end of this week.

This week.

Okay.

Do we get visibility into that RFP here on the council?

I do not believe so, not until it goes through all the processes.

But Ridgley, can you council is not involved in that process.

It's drafted by the agency and our Office of Contracts, and it's issued and becomes a public document once it's issued.

So we will not have an opportunity to have an impact on that RFP document.

Traditionally not.

Clearly we're subject to the laws that you pass, and you know, any RFP has to conform to those laws, but the details about what goes into an RFP is usually done at the agency level.

So it goes to the you're now working on a renewal with the existing operator.

That renewal will come to the council and the council will move have to approve or not.

Correct.

And so what would happen if that renewal came to the council and we didn't approve?

Then lottery would have a major problem.

Okay.

And then a similar thing is you have an RFP for the big new major RFP, and you could go through that process and result in a contract that came to the council, and if the council didn't approve, we'd be in a heap of trouble again, right?

It would put us in a difficult position.

Yes, sir.

So I I would like to say, you know, because these contracts and these RFPs are very standard among different jurisdictions.

I can assure you that the district isn't doing something that's so unique that it would be different than what you would see from Virginia or from Maryland who is having their own issues with their RFP.

Um but they're they're very standardized.

I hear you.

I just want to stay together.

Because I I don't I want I I want to have uh some uh level of transparency between the council.

We're it's gonna eventually come to us.

And these things are always controversial.

Correct.

There's a lot of money on the table, and there are folks who so they're always controversial.

I've been in the lottery industry for 32 years in different jurisdictions, they're always controversial wherever you are.

So you want us to be braced for what it is that you are doing and why it is that you're doing it.

It may be that there's not a lot of that that there's not a lot of variation amongst them, but I think it's important that we find a way to stay to keep us informed so that we minimize the chance.

You can't you can't eliminate the chance of controversy, but we but to the extent that there's transparency along the way, we can minimize it.

I think that's a very transparent process.

It's all subject to the Procurement Practices Reform Act.

It's you know, all the documents when we issue them are made public.

Uh so it's a very public process, the whole procurement process.

Well, yeah, I hear you, except for the RFP itself is created internally by the administration.

Correct.

And I'm really not trying to create a problem here.

I'm trying to avoid a problem.

But stood.

Part of what I'm hearing is that embedded in the last RFP might have been challenges that resulted in not closing it, and there was there's other different controversies.

So the creation of the RFP.

Too many cooks doesn't work.

So I get that.

But transparency can help.

I agree a hundred percent.

And one of the reasons why we try to stick to the standard RFP terms that other jurisdictions use is be is is to avoid some of the conflict because everybody is using the same types of terms.

I will tell you many years ago I was reviewing a proposal when I was in Texas, and we had to go back to the vendor and say, are you proposing the same things in Texas that you proposed to Virginia because Virginia was listed throughout the RFP?

Their proposal.

Yeah.

Okay.

Well, more to follow.

I mean in the last RFP, there was a protest.

Um is that a thing you anticipate again in this setting?

Protests are common in the lottery industry.

We try to account for those.

As I mentioned, Maryland is going through its own process with the same vendors and protest and lawsuits.

Um in this case, it it was after one vendor became disqualified and they protested the disqualification.

But anybody can file a protest, rarely do the vendors win.

I hear you.

All goes back to what I was saying is this is these things don't happen quietly.

So let's try to stay together and make sure that the committee understands as fully as possible what's what's happening, what drove decisions so that we are in the best position possible to advance a process that's possible.

Fully understood.

So now recognizing that the contracting process is filled with different kinds of headaches and that they are inevitable in this world or common in this world.

Once the contract is awarded, what's the process look like then?

Uh the the conversion process, you have the the if the vendor changes, uh there there has to be cooperation between uh the current contracted vendor and the incoming contractor uh to work on system integrations that might need to happen in the short term while the new system is built out.

Uh what further complicates our situation is uh in our RFP process, uh we have combined the I lottery with our traditional lottery at the same time.

Uh so if integrations need to happen, uh there's timing that's involved.

Equipment is updated throughout the district, the back end system is updated, so there's hardware and software changes that happen.

Um you have an ICS vendor that is separate that that checks all the systems to make sure that they work.

Uh so this takes months and months to do.

Uh to the chair's uh point earlier, I I think one of the things that may have been a deterrent was the requirement on the timing uh in in the process that was asked.

Uh so that that's something that uh I'm I'm reviewing now uh uh how how quickly to market that can happen when you're dealing with the different entities that are involved.

Uh so it could be a 12-month or a 13 or 14 month process uh with depending on what we ask for.

And when you put those mandatory requirements on the contractors, you know they they expect to meet it uh and try to get there.

And and if your your timing your requirement is too short, that that could definitely be a deterrent uh to a company wanting to bid because they feel like they can't meet the timing.

Uh so that there's a lot that goes into this, whether it's the amount of the terminals, uh, the vending machines that are involved, the cashless devices that are used.

Uh it's something that affects every player and their experience as well.

Uh we have a lot of older equipment right now uh because we've had the same vendor for a number of periods.

We're in a renewal period uh on an older contract.

Gaming technology changes rapidly.

And if you don't build in updates in your contracts, you can get dated uh machines and software that cause a problem.

DC is a small lottery.

This is another uh uh challenge that that I've noticed coming from the outside in.

Uh we are not a large lottery in a large state with a huge population.

Uh maybe some of the things that we've put out there in our RFP in the past are things that you would expect to see in a larger jurisdiction where revenues are quite different.

Uh so th those are things to consider.

Uh I think it's important that as to your point earlier, which I agree with 100%.

Uh you want to protect first priority is is your your district.

Uh make sure that it does what it's supposed to do, generates the revenue we want for our our government uh to go to our people, but at the same time, these businesses need to be able to make money too, or they're not going to be interested in doing business with us.

Uh so there is a fine line that that you tow to find that right point.

I think we're zeroed in on it, and I think uh the the new RFP once it is released uh will meet everything that we need it to hopefully uh get all three of the major gaming system vendors to bid on it.

That that would be uh my goal.

That way we get the best price possible at the end of the day.

Okay.

So the uh you said you suggested it could take 14 months uh to do the transition.

That is just that is just based on my experience with conversions.

There there are conversions going on right now across the country, several other jurisdictions, uh and and there's been delays in at least one of them that I know of that that have been significant.

So I'm taking that to account.

I also understand that the three major gaming vendors that do this kind of work have conversions happening in other jurisdictions at the same time.

We're not in a bubble where we're the only one that matters.

So I'm thinking about their schedules too, and they have finite engineering resources.

No, I hear you.

And I'm not trying to pin you down to a number.

I'm just trying to think about a big picture, which is three one-year renewals, 36 months, 14 months of transition down to 22 months RFP that could go out sometime soon.

It's not that it's not tight yet, but it could get tight.

I have a great sense of urgency, Mr.

Chair.

I do.

I mean how long to the ext- so say an RFP went out in May.

What's the typical response time for an RFP like that?

Can you elaborate?

I don't want to get too much into the details about an RFP process because it's still being developed, including things like timing, but I will tell you the process is we know when we have to have a conversion done by and we start working backwards from there.

We work with the Office of Contracts to put together the schedule for the RFP because you want to give vendors sufficient time to submit proposals.

And in the district, you also want to give vendors sufficient time to put together their CVE plans, which are different than what they do in other jurisdictions.

So we don't want to get into the details about what the timing will be because it has not been developed yet, but we most certainly work from the date that we know we have to have the new system up and operating to make sure that the documents are all done.

The procurement process is done in accordance with that.

So I hear you.

And I won't try to pin you down any more than that.

I will say that just thinking about the complexity of responses to this kind of a RFP, thinking about the complexity of the time to analyze the responses to the this kind of RFP, and then what is required to pin down and reflect it in a contract that then would come to the council, and thinking that we three years of renewals, 14 months-ish for conversion, I appreciate your sense of urgency.

On the renewal, when do we when would you expect us to see something about uh the renewal of the con of the existing contra the exercise of the one-year option for renewal of the existing contract?

Is that something that would come to the council?

So that is something that does go to the council, like all contracts, it's over uh a million dollars, so it will go to the council.

Um our Office of Contracts is working with the vendor to pull together all the documentation needed for the contract package, and as soon as that is ready and it's being worked on diligently, it will be presented to the council.

And when does the existing contract expire?

July 15th.

The 14th expires because it started on the 15th.

Okay.

Well, that just gave me heartburn.

It's being worked on as as rapidly as it possible.

Because we go on recess on July 15th.

We understand.

And so then this is a contract that would come to us for passive of the passive review contract.

We we have the dates counted backwards.

So we are well aware of the dates, yes.

All right.

And we will be watching those dates also.

Um I don't think you can submit it after July 15th when we are on recess.

So we have to do that.

No, that we're we will get it in well before then.

We're we're talking much sooner than that than later.

We are working on it as fast as we can, and we have we have the dates counted out.

We know exactly when it comes to the Trevor Burrus.

Okay, let's stay together on all of this so we can get let's have this happen as smooth as smoothly as it is ever happened anywhere.

That would be very nice.

I would like that very much.

Okay.

Um The Mayor's fiscal year 2027 proposed budget cuts OLG's operating budget by 18.4 percent.

You spoke a little bit about this in your testimony equaling 50 million in spending authority.

Can you explain where OLG will feel this decrease in the operating budget authority?

Is it mostly surrounding the operation of the games, or will there be operational impact on the agency itself?

We've had a broad range of cuts that have occurred.

And mainly, again, the vast majority of this stems from the restructuring that occurred from the Sports Wagering Amendment Act of 2024, which created the commercial aspect and took uh the internal operation of sports wagering away from OLG.

So a lot of it is structural.

Um we we've had impacts uh that are across the board as far as uh personnel assignment, uh some of the operations that we do internally and and in our in our funding.

Uh the biggest challenge uh that has come from this scale down is the fact that revenue no longer flows through the lottery fund.

Uh so we have no way of gaining uh revenue to pay for positions that are associated with certain forms of gaming in this fact, the commercial game, other than their license fees.

And what we had uh at last year, we expected to get about $2.5 million in uh license fees.

Uh we're now down to $500,000 in license fees this year.

So where does that other $2 million come from?

Uh you know, we we've had to take from our traditional lottery.

The other aspect uh that is impacting us is the district has added uh games of skill in recent years.

Uh the games of skill operators uh that that are in the district and the retailers are are small in number at this point, and those machines are only taxed at 10 percent, and they're generating only 128,000 in tax revenue per year.

And we're not receiving much from that in terms of licensing.

So as new operators come in in that gaming area, we we will also need to look at how we we can address potential revenue from that toward having positions necessary to to see growth that may occur in the games of skill area.

But overall, um those are the the biggest challenges that face us with the restructuring with with the drawdown.

But as an enterprise fund, I think it's important for everyone to understand that money doesn't automatically happen.

We may be allowed to spend $222 million on the books, but if we don't generate $222 million in revenue, then that money is not there.

We we can only live on on what we generate.

So here you mean I think, and correct me if my mis if my understanding is wrong, but that a big chunk of that 18.4 percent reduction is just something being moved from one place to the other.

The the thing where it has traction, negative traction for you, is that by moving a bunch of money to a different place, that money had generated funding that supported agency operations to the tune of around $2 million.

And that's gone too.

Yeah, and it's closer to $1.5.

So that's the real sting for that.

Um then you have this other phenomenon of the games of skill that must be an administrative burden but not generating much for the agency, creating another pressure on the agency.

And also we have commercial bingo law now on the books, even though we do not have anyone offering commercial bingo yet, it's still a possibility.

And then what would be necessary for the startup in function of that?

Uh we were given two full-time FTEs, which we have not filled for that because there's no need to without having a commercial bingo operation.

But in the future, if that does occur, there will be added cost to the regulation and oversight uh to make sure that we do those things right.

Okay.

Um the February revenue estimate projected the lotteries transfer for FY26 would be just over $30 million.

Um that's a that's back in February, and now here we are three months later, I don't know, March, April, two months later.

Uh do you feel that projection is still reasonable?

Are we on a pace to do that?

I think in other years.

I feel like we are on pace to meet our obligations.

And in FY25, the September revenue estimate projected to transfer 28 million, which you ultimately exceeded transferring 32.5 million.

So that that's for that would have been for FY25 and that 30, if I'm understanding it correctly, that 28 million dollar estimate comes at the end of the fiscal year, and then yet there's a correction of $4.5 million, an upward correction of $4.5 million through the reconciliation process running up to the ACFAR, I suppose.

Is there something structural that that you are conservative and that the prospect of upward adjustments even as late as that is a likelihood?

Why did that happen?

And can I hope for it next year?

I would hope so.

Alex, would you like to answer this one?

Sure.

Alex Aporgi, Agency Fiscal Officer.

So again, we were not involved in the forecasting of that $28 million in FY2025.

Um but I would imagine that that conservative forecasting was it was again part of the realization of the Sports Wagement Amendment Act of 2024.

So when we forecasted it just over 30 million for 2026, and same close roughly the same thing for 2027, we did look at how we're trending expense-wise and revenue-wise.

And that's a number we're much more comfortable with.

But we can't speak to exceeding our 2026 or 27 um 2027 goals by that same difference because right now the numbers are just not showing it.

I see.

So part of it is a conservatives in FY25 that was built in because there's a new entrant significant change in the marketplace and you're naturally be.

But then FY26, you're you're internalizing what the experience is.

FY27, you're internalizing.

In the proposed FY27 budget, the revenue estimates show a decline of a quarter million dollars a year annually.

Why?

Why would that why would you expect a decline in revenue over time?

Well, in building all the forecasts for the um financial plan of the transfer for the lottery, we factored in several things, right?

We look at macroeconomic conditions.

Um just looked at kind of how the revenue the transfer was going.

So we started at 39 at one point, we're at 32 last year, we're slated for 30 30 for this year.

So it would make sense that you know that trend kind of continues over the course of the um out years.

It wouldn't make sense for us to be kind of on a downward trend and all of a sudden have an upward trend with no empirical evidence as that would support that.

So it's not it's not a specific thing.

Um, although I suppose if I gaming were to come into place, would that then result would that potentially, yes.

So that the forecast you're looking at, that was um submitted before this I gaming came out.

So with this one coming out, now we kind of have to go back and look and see what it might be in the future.

What impact that might have?

Correct.

Okay.

Um during OLG's performance oversight hearing, we heard a concern about a $2 million funding gap.

You might have just described it as $1.5, although you might with with the uh games of skill piece, maybe that pushes it up a little bit higher.

But uh on the order of a $2 million funding gap within the agency, impacting your ability to ensure rigorous oversight.

And I think uh I I think you probably be pretty forceful that you think you're doing rigorous oversight, but with with stretch resources.

Um if there's a gap, to what extent is that about a shortage of staff to oversee sports wagering?

What what what will missing because of that $2 million funding gap?

Uh right now we have a number of employees that are wearing multiple hats in our security and oversight division.

Uh we have investigators that that will work uh traditional lottery, uh, but we also have investigators that will pay visits to game of skill locations.

Uh they will also help with audits and activities involving uh the uh in-person sports wagering operations, and uh then we also have people that audit uh across the board.

Um when when I'm looking at the laws and how they have been implemented in the district.

Um, I always look at to see if there's a funding mechanism for responsible gaming and problem gambling.

I look to see if you know there's a mechanism for the regulatory oversight to occur.

Not all of our laws do.

And that's that's something that concerns me.

Uh some of them do, some of them don't.

Um I would like to hopefully see in the future that whenever we look at gambling related bills of any kind that it contain a funding mechanism for proper oversight and regulation.

Right now, for instance, how we track our sports wagering folks that are on the exclusion list is a very manual process database.

How we track our licensing is rather antiquated.

I would love to have updated software and technology in place.

However, we're so focused on making sure we meet our uh transfer amount.

Uh I'm concerned about taking money from the traditional lottery to pay for some of these things.

Um I'm just I'm I'm coming from a jurisdiction where all the different gaming lines contribute to that operational cost, and and that's just not how our current setup is.

So that gives me some concern.

I I don't want us to be in a position where my sports wagering uh investigators or my games of skill investigators don't have the ability to go out and do something that they need to do.

Uh and right now that's not the case.

We have made it work with what we have.

Uh, but if that funding were there, I would feel much better about our revenue estimate on our transfer cost.

Please remember, last year our transfer was 32 and a half million.

But the District of Columbia received over 51 million in gaming revenue, which was the highest amount of revenue our district has received from gaming since 2017.

That's significant.

And that was because of the amendment.

So the amendment worked.

It did create more revenue to the district, but I think an unforeseen consequence was oh wait, we missed this little piece.

They need to be funded as a regulator uh on an annual basis, not just once every five years.

So we have seen uh the the reduction of the Class B operators.

So that revenue that was coming in from uh licenses from those types of operators has dwindled as well.

So I hear you.

Um there's a a decent amount to unpack in all of that.

And one of the things is I actually don't want you to this is me.

I wouldn't want you to I'm not saying you have.

I think you're worried about the possibility of needing to.

But I wouldn't want you to compromise your ability to regulate in order to ensure that you hit a mark for transfer.

Because just put that out there to the extent they I appreciate that.

Uh and then my team put together this is a graph of the transfers, and it starts over in 2009 and then comes uh over here at around 70, and then you get to 2025 and it's closer to 30.

And so it's a big you you pointed to 2017 before 2017 for a period of higher, but then what I'm hearing you say is when I look at this graph in 2024, it was 40 million.

Maybe 10 of that came from sports wagering.

I don't know.

Uh then sports wagering comes out of this graph.

Correct.

But doesn't but is the missing piece here.

That is a missing piece.

That brings it to 50, still significantly below the 70 from when it launched.

And also, I don't know if you saw me playing with my phone.

I was trying to think about well, what is 70 million dollars in today's in 2009 and today's dollars, and I think it's it's about 50 percent higher, so it's like 105 million.

And so where we are now, it's we're at half the level of transfers, real value of transfers to the district from where we were when lottery was first launched.

It is what it is.

I'm not trying to maximize.

Go ahead.

If I may, there have been a myriad of things that have occurred that have impacted that.

Uh I I think looking at that graph, which is a very good representation of what's happened.

Uh the pandemic was a major factor.

Uh I don't think Washington, D.C.'s foot traffic has returned to the normal that it was.

The number of lottery retailers has shrunk significantly.

Uh we are now down to 333 retailers in the district.

Um we've also had outside competition occur.

Uh you've had casinos that have been built in that time frame.

Uh one on our doorstep right across the river uh that takes uh it makes an impact uh on revenue here in the city.

Uh I I hear from our retailers constantly, a lot of them are tobacco shops.

Uh they were hurt by the flavored cigarette legislation that occurred.

Um there's a number of things that have reduced the foot traffic uh and that has definitely taken a toll, no doubt.

Uh but uh competition, the amount of people in the city, the federal job layoffs recently in the last year, uh that has impacted us in a negative fashion.

Um when I've gone out and I've talked to our retailers and what their struggles are, um a lot of it revolves around reduced foot traffic in the town.

Uh remote work has also occurred during that period, and that has had a substantial impact.

The launch of other types of entertainment and gaming, not just the regulated ones that you see in Virginia and Maryland, but fantasy sports, other things that have occurred during that time.

That has all impacted the the people's wallets and where they choose to spend their money.

So, yes.

Uh when I talk about cannibalization occurring, uh that is a great chart to show uh how how some of that can take impact.

But sports wagering cannibalizes your lottery to a degree.

Games of skill cannibalizes your lottery to a degree.

Casinos in surrounding states cannibalize it.

So there are impacts.

And and those are things that we need to be aware of as a government moving forward too.

So we have talked about this before in a certain sense.

And there is competition inside of the regulated pie where there are different things, different more options out there for people.

So lottery would decline as other you people use their entertainment or gambling dollars in a different space, and there's the unregulated pie that is out there that's competing with the regulated pie.

I'm not trying to increase overall the pie.

Um I I don't I don't want to be in the business of encouraging people to gamble.

On the other hand, where it's happening, regulating it strikes me as important.

And different folks have talked about uh and this maybe this is going to be more appropriate in the afternoon, but different folks have talked about district residents are spending X number of dollars outside of the district on gambling or gaming kinds of entertainment and or in unregulated markets on that.

And we should regulate it and capture those dollars.

Do you have estimates of how many district dollars are being spent in other ways, either in an unregulated market or outside of the district?

Um I only know of studies that have been done by outside groups like the American Gaming Association, uh where they estimate you know the illegal gaming industry to be well over a billion dollars, things like that.

Um but I do know this.

I use the Metro and I traveled around town a lot.

I know that when you go to National Harbor, you see a lot of district license plates in the parking lot at that casino.

I know that that when you visit other facilities, you see district license plates there.

I I don't want to get into how many hundreds of millions it may be, tens of millions, uh Mr.

Chair, because I I can't give you a good number.

I don't think anyone has an accurate number.

They're just estimates based on what is known.

Um I just do know that the area that we're in, there's a great deal of competition.

We have two giant lotteries on both sides of us in Virginia and Maryland, uh, that are very large and robust and they generate a great deal of revenue for their states.

Uh I know that we're small.

Uh we we sit within the confines of uh our little diamond, and uh we have areas of the city that are the federal enclave where we have no gambling activity occurring at all.

But I do know this that people do spend their money and they do uh play games and and they enjoy it.

And I think it's important that you have a strong regulated market, and I feel good that we do that here in DC.

We regulate all of our legal gaming, but I I know that my team has identified more than 20 entities that are not licensed, that operate in a gray area online, uh in online sweepstakes, casinos, whatever you want to call them, uh, that people play.

I have these ads sent to my phone on a daily basis, and if I'm getting them living in the Navy Yard, I'm sure everyone else is too.

And uh it's aggravating, actually, because those that are regulated gaming entities, they pay taxes here, uh they create jobs here, they uh contribute to the public good in and how we tax them and control them and license them.

No public good comes from the untaxed unregulated.

Okay.

And you feel like you're able to do what you need to do, but you're concerned about the pressures and demands on the agency.

Um, do you are you do you want to hire additional staff?

Or I mean one of the things that we've noted is I think on your Schedule A, there are ten vacancies in the agency.

There's also the possibility of reprogramming those positions to accommodate the need for additional oversight of the operators.

How are you thinking about?

Have you considered reprogramming the vacant positions for this role?

Are you thinking about do you have a wish list of trying to hire more folks?

If you had a wish list to try to hire more folks, why wouldn't you reprogram those positions?

So talk to me about what your your feeling about the need for staff and the existence of the ten vacant positions.

Okay.

Right now we have those ten vacant positions that you're talking about.

Uh we've already heard this morning from public testimony, historical horse racing, which is a new concept to my ears, because we we've not had any discussions with those folks.

But I do know what goes around that and and possibilities.

We just passed commercial bingo legislation that authorized us to have two new positions that I have held on to out of caution.

I'm not going to hire someone when they don't have a job to do.

Um when a commercial bingo operator does come to the district and sets up, then we may need to do that.

But I'm confident that that we have what we need right now to get by.

Um the potential for that, what could go into that?

That allows us to retool some of the people we already have on staff.

Uh but there may be additional needs that come with that.

So yes, I have thought about repurposing, but I also know things are changing rapidly.

And in the matter of a year or two, depending on how council and the executive feel and where they want to go, I need to be ready to potentially repurpose some of those positions.

Uh so yes, that that is one reason why some of them are still still open.

But there are others that that I feel like we we can close out here soon if we don't need them.

Okay.

So interesting.

So you're you feel like you're good.

You're worried about the future demands on the other.

I'm worried about future demands.

You have an insurance policy in the form of some of these vacant positions.

You don't want to let go of that insurance policy at this point.

If the demands that you fear don't uh don't come forward, then maybe you could see letting go some of that insurance policy.

But for now, in this dynamic environment, you want to have the comfort of the Trevor Burrus, I would like to have some flexibility.

Yes, sir.

And that if you take a position away, it's not that you just take it away for one year, you take it away and it's gone and hits the car forever again.

Okay.

But then But please realize when those go unfilled, that that money that would have been for that goes into the transfer back to the district.

If we make it, if we generate revenue that would even fund it.

That is my whole crux of my last my first year here is we have to make sure everything pays for itself.

So interesting.

So the idea is you could fill the positions and lower the transfer.

So your decision.

Well, I don't I don't want you never to do that.

I mean, I want you if you feel like I need this in order to do proper oversight.

I want to do that.

We have to.

I feel good about where we are oversight right now.

Okay.

I have no problems with where we are with our team as far as regulation right now.

I would I'm just sounding the alarm that I want to make sure it stays that way.

And proper funding needs to be thought about when we craft these bills in the future if it affects gaming.

And I I mean I you uh uh you're very scrupulous about the way in which you approach this work, so very appreciative of it.

I really don't want the transfer to be sacrosanct, and I don't think that you are treating it as sacrosanct.

I mean it is the idea is uh max responsibly maximum.

And so both of those words.

And actually the responsibly is the one that I would put the most weight on as opposed to the maximize.

I want the revenue, but I definitely want it done responsibly.

And responsibly partly goes to not encouraging behaviors that are going to be destructive or doing things that protect against destructive behaviors, but it does also very uh effectively providing oversight to these operations.

So I don't want you to scrimp on that.

No.

Absolutely not.

We we are aligned in that thinking, uh Mr.

Chair.

Uh I'm a public servant.

But at the end of the day, our lottery exists to make revenue for the people of the district, and that's something I hold dear to my heart.

So the transfer does matter because that's what council can use to make a difference in our city.

Uh so every one of my employees knows this from day one with me.

Uh how do we do this the right way and maximize that revenue so that public good comes from it?

Absolutely.

Okay.

Um do you feel the need for additional oversight of or do you feel like the need for additional oversight or the need for oversight in the sports wagering space is increasing?

It's actually staying the same.

Uh I wouldn't say that it's increasing.

Peter, would you disagree with that?

Or Peter Alvarado, Director of Regulation Oversight.

Um I don't see it right now necessarily increasing un increasing unless we get additional operators.

Um the sports wagering side, I think it's it's sort of evened out.

Um but it does it does keep us quite busy.

So is the suggestion there?

Sports wagering got introduced, it ramped up, and is it plateauing or is it continuing to grow the sports wagering space?

In in terms of from a regulatory standpoint?

No, in terms of the revenue from it, the amount of Oh, the revenue from it.

Uh no, it the revenue seems to it it's still continuing to go up.

Yeah.

But but uh from a regulatory perspective, you have a fixed number of operators, you have people who are watching them, so that's not changing from a regulatory perspective.

Correct.

From from uh a regulatory standpoint, right now, uh it's been pretty stable as in terms of the number of operators that we have had for the last uh year, and so it's it's evened out, and then it it's not only the operators, but it's the chain of suppliers that that that come behind them and the occupational licensees.

That all seems to have now over the last year have flattened out.

If we get a change, and you know there are inquiries about other operators coming in sometimes, um if that changes, then you know that will go on.

And is there any kind of sense of how much of the activity in the sports wagering space is by district residents as opposed to tourists and visitors to the district?

This is one of the things that people talked about when we when uh when it was in front of us a year or so back, was that there are folks who do this when they're you know that they live in Chicago and they do sports wagering, but they happen to be in the district, they'd like to do sports wagering, they couldn't because it wasn't available here in the district, and now it is it becomes available again.

Do we have any kind of sense of how much of the usage is district resident based and how much of it is visitor-based?

Um We do.

Um if you give me a moment, I can get you that.

Okay.

And so then back to back to the vacancies and the the way in which you are managing it.

If something happened where we had a new entrant into the sports wagering world and you felt like you had a need for more oversight capacity there, then that might be a time when you could draw on one of these vacancies, reprogram it and use it in this way?

Yes, sir.

Uh I'm more thinking along the lines of commercial bingo.

Uh there has been an entity reach out that's interested in a potential uh facility here in the city.

Uh if that were to occur, that that would require manpower that would go out to that facility.

Uh I'm also concerned about games of skill growing.

Uh right now uh we have uh uh a new uh distributor entering the marketplace.

Uh the potential to see growth there uh is significant.

Um it's my understanding there's roughly more than 30 bars, taverns, and restaurants that have games of skill in them right now in the city.

Uh there could be a significant increase in that number uh happening soon, and I need to make sure I have the proper amount of auditors and investigators to visit these locations to make sure uh that everything is going properly there.

Uh right now, uh when you look at the landscape of of the city and the gaming options that are available, that is one area that that could grow significantly.

I know that there's in the neighborhood of 2,500 to 3,000 restaurants and bars in the city, they're limited right now to uh just where they have alcoholic beverage pouring permits.

Um and uh there's still plenty of room to growth for that to happen.

Uh so as those machines propagate, uh we may need to add staff.

And right now we don't have proper revenue coming from that because it's so small uh to to fund positions, but in the future that would be something we would need there.

But in terms of to the extent that I'm thinking about your ten vacancies and maybe there are other places in your budget that are like this as kind of an accordion that gives you the ability to bring folks on to address these things.

Are there that's a resource, the 10 vacancies?

And uh are there other resources that you can turn to inside of the agency in order to Alex, do we have anything like that?

I think that's pretty much the only way that's the fact to be honest.

Um our budget as it is, it is fairly skinny.

Like we're down to a central contracts only.

Um so we don't have too much wiggle room to potentially repurpose for any unforeseen need.

But as an enterprise, we do have the risks and concerns that come with potential for pandemics, recessions, anything that may hit us.

Okay.

So I'm thinking about those 10 vacancies as your as your in your cushion.

Okay I'm gonna move to another topic.

If I could interject just for a moment just to answer your previous question.

Please do.

Based on data that we requested from the sports wagering operators last August we asked them for their player data and we took a look took a look at residency and all that.

So of that 45% of their players of the operators here were district residents.

So it's about 45 percent we're gonna ask them next couple of weeks for an updated an updated list to see if that's grown but as of August of last year it was 45 percent so the majority are not district residents.

A lot of uh a lot of Virginia and Maryland Okay.

That was about the most effective advertisement for uh anyways thank you.

Okay.

Speaking of advertisements and we've had back and forth on this is a thing uh that I have a decent amount of ambivalence about in and I said it before that where there's an unregulated market or a thing is happening then let's regulate it but and uh but do I want to expand the pie of people gambling I'm reluctant to be in that place for the sake of getting funding for the district there's lots of ways to get funding for the district and you don't want to you you want to be targeting the right people to uh that's a bigger uh philosophical thing but uh advertising um the mayor's proposed FY27 budget authorizes OLG to spend up to nine million on advertising can you provide uh a breakdown of the products or type of uh of advertising your budget goes towards and and what I was trying to set up before is I'm queasy about advertising I I I'm not trying to encourage more people in $9 million in order to encourage people to engage as opposed to having it out there as an option.

So how's it work?

How do you think about your advertising well first I respect your your beliefs on that very much we actually spend closer to seven million uh that's what we spent last year on advertising and and our advertising uh involves a myriad of things i it could be local promotions uh we have a sponsorship for instance with the GoGo Museum um it could be in team sponsorships we we have contracts with uh the Washington Nationals Monumental Sports uh DC United uh and the Washington Commanders uh where we sometimes do tickets for instance we even have a contract where we do an instant ticket that is themed with uh the NFL team uh the commanders uh that is very popular uh so that's included in that um almost all of that money is CBE spend um our agency of record is Teoti Creative based here in Washington uh a lot of it is signage uh jackpot alerts uh radio spins um website uh deals evergreen marketing campaigns uh a television commercial we we shot one this year that that is a multipurpose commercial uh where we can add in at the end uh instant tickets or or draw game promotions we might be doing for a period of time we really don't do a lot of broadcast commercials anymore we we focus mainly on streaming and and alternative areas um but but there's some spend with uh metro where we did some bus wraps uh i i it's pretty all-encompassing uh our marketing but but whenever we do market uh whether it's signage uh billboard type online uh promotions that we do you know we always have a responsible gaming uh message with it uh and and that tag on everything and that's something that we also require of all of our licensees uh in the different gaming lines too uh but it but it's wide ranging and the advertising contract is it competitively bid yes sir and when is the current contract expire uh it's actually in the process of being uh I think the contract's out now uh for uh bid process so

And that's something that we also require of all of our licensees in the different gaming lines too.

But it but it's wide ranging.

And the advertising contract, is it competitively bid?

Yes, sir.

And when is the current contract expire?

Uh it's actually in the process of being uh I think the contract's out now uh for uh bid process.

So is for marketing.

Is there an RFP out on the and what percentage of your advertising budget goes to responsible gaming?

Promotion of responsible gaming.

We we do a lot of gifts in kind and trade out over some of our RG messaging.

Uh we we we spend roughly 29,000 a year with the National Council on Problem Gambling to run our RG hotline uh for the district.

We have one full-time employee uh that is dedicated to RG, and we do RG training of all of our staff.

Uh but uh out of the marketing budget, every item that we do has a responsible gaming message like the 1800 number posted on it, uh our tickets and so forth do as well.

Uh but I can't really pull that out and say percentage-wise of what it is in a fair way.

Okay.

And you said it's authorization to spend nine million, but you spend more like seven million.

Yes, sir.

And that seven million uh I'm gonna garbled the pronunciation uh Teody?

Teote, Creative Services.

Yes.

How much of that seven million?

Almost all of it.

Almost all of the goal.

Yes.

And the RFP that's on the street, does it have a dollar amount associated with it?

The RFP, you have an RFP floor.

Oh, it's it's actually much higher.

Um the the contract allows for, I believe $14 million, uh, but we never spend anywhere near that.

We we've managed the year over year, it's been closer to $9 million in actual spend.

And then when I arrived last year, we narrowed it down to seven million.

I see.

And you mentioned the um the bus wraps.

Yes, sir.

And uh I mean just this weekend my wife and I were out and a bus came by and was it a commander's ticket?

It wasn't a it wasn't a command t.

It was a very happy woman with confetti falling, I think.

Uh uh.

And my wife also wondered aloud, like, hmm.

Yes, 14.

Uh anyways.

Um so when did OLG begin advertising during sporting events in the district?

Uh that's been a number of years predating me.

Um probably from the beginning, I would imagine.

It predates me, it ebbs and flows.

I think at one point in time we didn't do much with the commanders when their name wasn't appropriate.

Uh-huh.

Uh but it's it's ebbed and flowed for the 20 years that I've been.

And what does it mean?

What is it that you're doing when you're doing that?

Well, when when you're talking about our professional sports teams, you get a lot of visitors to the city that attend those games.

Uh you also have people that go to those games that obviously have disposable income.

Tickets are expensive to go to uh some of these sporting events.

So uh you're marketing to people who obviously have entertainment dollars and uh the ability to potentially uh play your games as an option.

But is it like something that shows on the screen?

Is it what is it?

What does it mean?

Um sometimes uh we sometimes have uh in-venue promotions like a lucky fan of the game, where you may have like a giveaway bag of uh lottery promotional items or or team promotional items that are sponsored by the lottery.

Uh so they might randomly pick a fan out of the crowd, and then that's like a video board moment.

But a lot of times it's signage uh that'll say DC lottery or or go online to play at DCI lottery.com, or you may see a sign that that promotes one of our products like Powerball or Mega Millions.

And so it's it's it's as much here are people who use their disposable income for entertainment, and you get in front of them at these sporting ownership.

Top of mind awareness, yes.

For people who are 18 and older.

You know, that that's our our target.

And the advertising budget over time.

How long has it how long before your arrival was it around 9 million?

I know the last two years prior to my arrival seemed to be around 9 million.

Alex, do you have more insight prior to that?

No, I did an analysis going all the way back to let me see.

I went back a couple of fiscal years.

So it's kind of been around maybe 10-ish, then 9.79, then down to seven.

Our general counsel just made me realize something too.

When they had Gambit DC and launched sports wagering, it increased at that point.

So that would make sense.

Because they were promoting the sports wagering app and the platforms and all of that that went into it.

So you could see a blip in the amount of things.

There's probably that.

So probably, you know, over a more extended period of time staying in the nine million area.

Yes.

What about uh do you receive any funding from the national lotteries?

Live Powerball to do advertising for them here in the district.

No, no.

Um that that's not how the muscle agreements work.

Um there is promotional accounts uh that the national group has with Powerball, and they will do sponsorships uh and things at times, but that's not related to our budget.

Okay.

Um back on the sporting events briefly.

Do you have you tried to do any kind of studies to see whether or not there are increases in use of the lottery in the wake of these major sporting events?

What what how how do you test the efficacy of your advertising?

We do look at uh ROI uh on our events.

Um I can get those to you.

Uh we have reviewed all of that with our contracts in recent years.

And uh it's a little bit cheating this chart because it's the bottom is 35, and so it looks it it looks even the scale looks a little worse than it is.

But when it does, if we're spending $9 million a year in promotion in advertising, the best it could have achieved is staunching the bleeding.

Right.

I mean it does it, it has an increased use of the products.

It's may have slowed the decline.

You you reached for your microphone, so I'll give you the chance to do that.

Potentially it has stopped even more severe decline from occurring.

Um like I said, there has been a proliferation of gaming options in the last decade.

Uh you you see it across jurisdictions.

You see declines occurring in traditional lottery play across the country, uh in instant tickets, for instance, uh, with the addition of iGaming, iLotteries, uh games of skill, video lottery terminals, historical horse racing, you name it.

Uh prediction markets, sweepstakes, uh, casual fun play games that are social that have nothing to do with anything other than you go play a game and you have in-app purchases for improving your chances of winning uh that uh you know uh Mr.

Chair, I have a 19-year-old son and a 13-year-old daughter, and it's unbelievable what they have at their fingertips today.

And and their mother and I do our best to monitor everything and raise them the right way to navigate.

But there's just a lot of options out there now, whether it's regulated or unregulated, it's a complicated world, it's changing faster.

And to your point on that chart, uh you can see the impact all of this has had uh on the DC lottery in time.

Yeah, and I guess you would say it's the chart does not reflect a decline in the amount of gaming and gambling that is happening.

The chart reflects the share of it that is captured.

All right.

And I don't want to get too hung up.

I mean, we have talked about advertising.

I've we have talked about my reticence around advertising.

I think that to the extent that there is an argument that it has an impact, it's a staunch the bleeding impact, not a uh dramatic increase in demand for the products.

We're getting there.

Okay.

I go pretty long.

You take your time.

I take my time, and I have a great team that has prepared me.

So we can't do that.

No problem at all.

I'm happy to answer any questions, stay here as long as you need us to, sir.

All right.

Well, we all want to have lunch.

But so let's uh during the performance oversight, you mentioned there are staff dedicated to creation and promulgation of uh rules for commercial bingo and post-hearing responses.

You noted that uh that you have plans to have the rules filed in the District of Columbia Register by April 2026.

Where are we on the rules for commercial bingo?

Certainly.

We are working with uh Peter's group um regulatory on the rules.

Uh they've provided them to legal, now we're putting them in the proper format and giving them a legal review.

So that should be very soon.

They should be very soon.

Very soon, yes.

You also indicated that even as you're doing that, you have had outreach from a potential commercial bingo operator.

Um does that stand?

So we need the rules in place first so that we they can submit a formal application to uh conduct commercial bingo in the district.

And but the idea would be they're looking for one location that they could do this?

Uh Mr.

Alvarado, do you think the uh one uh potential applicant that we talked to, uh I think they what they told us is they were looking at locations in the district where they could have where they could have a commercial bingo take place.

They said it was very challenging because they tend to look for large size venues, warehouse type large.

Um but that nonetheless they were they were still searching for places in the in the district.

That's last that was a couple of months ago when they when they told me that how large?

What what is that warehouse like large?

Warehouse large.

Uh we we visited one uh uh commercial bingo location in Maryland and it it it was it was lar it was a large warehouse.

Like how many thousand square feet?

I would venture to say that that was probably my guess would be about twenty-five thousand square feet.

Okay.

Um my understanding is that there's some pop-up bingo events that have been held in the district at various locations, maybe including the Howard Theater.

Um how do these pop-up locations differ from the commercial bingo described in the legislation?

Um I mean we have the charitable bingo that that takes place that we do authorize, and that takes place in the district.

There has been um we've been alerted to some other potential uh pop-up bingos that were occurring at the Howard Theater.

Um we we contacted the organizers uh of of the event, and when we when we talked to them about how it functioned, it it turned out it really wasn't bingo.

They just called it that.

Um but it it was uh uh a really a game show that they put on.

Um and so it it had very little to do with with bingo.

Um whether you win or loss was based on your talent up on stage and not necessarily your bingo card.

But they call but they called it bingo.

So it's very different from commercial bingo.

Yeah.

And did you then conclude, oh, we don't have oversight over this because it's not bingo, or do you feel like you have oversight over that?

No, it it's really just a a game show um and i it had nothing to do with uh with gambling or um it was it was talent-based.

And so we it's not something we regulate.

So you looked at it and you thought this is not it isn't somebody getting around the rules and doing commercial bingo when they shouldn't be doing commercial bingo.

They're calling it bingo, but it's something different, and so it's not our it's not our department and you've moved on.

Correct.

Okay.

So uh and let's save all the conversation about the eye gaming issues to them.

But is there anything that I have not asked about that you think is important that you want to raise before we close this hearing on the general budget process out?

Uh no, sir.

I think we've hit all of the topics.

Um, I just want to say I greatly appreciate you and your staff.

Uh, and all of counsel, uh, for everything.

And uh I I know that we we've got some RFPs coming up here in the near future, and those items that you mentioned are very important to me as well.

And I promise to have all the communication that's necessary between your office and mine, uh, as we go through these processes to be there.

And uh we're just doing the best every day that we can for the people of our our great city and and I know you are too, so I appreciate that.

All right, well, thank you very much.

Let's do let's do stay close because there is you got you do have a lot on your plate and it's time sensitive.

So let's stay together.

Um for those watching if you plan on submitting written testimony for the record, please do so by uploading it to the council's online hearing management system before the record closes at five PM on May eleventh, twenty twenty six.

This room, uh for a hearing on bill twenty six oh six five six Internet Gaming and Consumer Protection Act of twenty twenty six.

The time is now eleven thirty-seven A.

And this hearing is adjourned.