Strict Regulations Impact Kansas Gaming Revenue

In Kansas, the only state that owns its casinos, strict regulations and game-change approval delays are costing the state and casinos much-needed revenue, according to a recent audit. But Kansas Racing and Gaming Commissioners said state law requires they approve changes to slots and table games, even banners and web sites.

The Kansas Legislative Division of Post Audit has been reviewing the Kansas Racing and Gaming Commission’s approvals of changes to slot machines, table games and internal controls. The news is not good: according to the auditors, 70 percent of requests to approve changes were not handled within the stated goal of three days; in fact one-third of the requests took more than 10 days. The auditors said the delays cost the state games and replace them with money-makers. “Kansas’ gaming standards currently require more review and are more stringent than several other states,” the auditors wrote.

Kansas is the only state in the nation where casinos are owned and regulated by the state—meaning the commission must approve every minute change, like moving a slot machine or removing a poker table.

Auditors noted, “Kansas’ interpretation forces casinos to keep unpopular or underutilized slot machine games on the floor.” In one instance, a casino wanted to install nine new slot machines but the commission took more than a week to grant approval. “If this slot machine project request had been approved in a timely manner, the potential amount of total revenue that could have been generated in these seven days is estimated to be $2,000 to $8,000, resulting in $500 to $2,000 for the state,” the auditors wrote.

The auditors said about 1,000 slot machine requests took longer than three days to approve, dating back to April 2014. The delays probably cost casinos up to $1 million and cost the state $50,000-$200,000 in revenue. In addition, they wrote, “We found one case where Racing and Gaming officials denied the original request but did not notify casino managers about the denial for nearly a month.”

The delays are not always the commission’s fault, the auditors pointed out. In some cases they found casino managers submit incorrect data with their requests, leading to longer waits for permission.

The process is worse for table games. Each game must be approved by the Kansas Lottery, which then submits the rules to the Kansas attorney general’s office, which, if approved, forwards them to the Kansas Racing and Gaming Commission. As a result, the auditors said, from 2013 to March 2015, 23 percent of table game requests were not approved within the standard three months.

Additionally, all casino advertising and promotional materials also must be approved by the Kansas Racing and Gaming Commission. Casinos need permission to hang banners or edit web sites.

Commission Interim Executive Director Don Brownlee responded to the audit, mainly noting commissioners were following state law. “Kansas law requires regulations to be established at the industry standard or more, indicating our legislature wanted more stringent regulations for protection of the patrons in Kansas casinos.” He also stated the delays in changing games do not result in lost revenue. “The lost revenue of the new request is somewhat offset by the fact there is still a game in use in the spot the new game will go. The new game may provide more revenue, but the old game is still providing some revenue while the change request is in process.”

Brownlee also told auditors the commission has streamlined its game-approval process, but ignored the auditors’ other suggestions. He said not regulating ads or maintaining slot machine payout requirements would be breaking state law.