KENTUCKY LOTTERY CORPORATION

(Amendment)

 

††††† 202 KAR 3:030. Retailers[Retailer administrative regulation].

 

††††† RELATES TO: KRS Chapter 154A, 275.015

††††† STATUTORY AUTHORITY: KRS 154A.050(1)(d), 154A.400(1)(b)

††††† NECESSITY, FUNCTION, AND CONFORMITY: KRS 154A.400(1) requires the Kentucky Lottery Corporation to develop and maintain a statewide network of lottery retailers that will serve the public convenience to promote the sale of lottery products[tickets], while insuring the integrity of the lottery. To govern the selection of lottery retailers, KRS 154A.400(1)(b) requires the Board of Directors of the Kentucky Lottery Corporation to develop a list of objective criteria upon which the selection of lottery retailers shall be based. This administrative regulation lists the objective criteria upon which the selection of lottery retailers shall be based.

 

††††† Section 1. Definitions. (1) "Applicant" means the individual or entity applying for a license to sell lottery products.

††††† (2) "Board" means the Board of Directors of the KLC as established by KRS 154A.030(1).

††††† (3)[(2)] "Cashing agent" means a retailer who has signed[executed] a "Retailer License Agreement Addendum for Authorized Cashing Agents" and who is authorized and required to cash lottery products[Tickets] of a value authorized by the KLC, up to and including $25,000, during KLCís business hours (8:00 a.m., ET to 5:00 p.m. ET)[$5,000].

††††† (4) "Draw-based product" means:

††††† (a) Any KLC ticket or product in which the player may determine if player has won or lost after the drawing in which the prize was won; or

††††† (b) Any other KLC ticket or product generated by the retailer terminal.

††††† (5) "Draw-based retailer" means a retailer that sells one (1) or more draw-based products.

††††† (6)[(3) "Electronic display" means a light-emitting diode display, television monitor, sign, or other electronic display provided by the KLC to its retailers for the display of winning numbers and other information regarding lottery games, and for the identification of a retailer as a retailer.

††††† (4) "Instant validation terminal" means a terminal with a functionally integrated barcode reader which has the ability to validate instant tickets and pull-tab tickets, but does not have the ability to sell on-line tickets.

††††† (5)] "Instant product" means any KLC ticket or product in which the player may determine instantly if he has won or lost[ticket" means a preprinted ticket containing play data under a coating or other covering, which when removed by the player reveals if the ticket is a winner].

††††† (7)[(6)] "KLC" means the Kentucky Lottery Corporation.

††††† (8)[(7)] "Licensing documents" means the:

††††† (a) Application for Retailer License;

††††† (b) Retailer License Agreement;

††††† (c) Retailer License Agreement Addendum for Authorized Cashing Agents; and

††††† (d) Retailer License Certificate["Retailer License Application", the "Retailer Relicensing Application", the "Retailer License Agreement", the "Retailer License Agreement Addendum for Authorized Cashing Agent", and the "Retailer License", all of which are incorporated by reference].

††††† (9) "Lottery equipment and supplies" means all lottery devices, and materials provided to retailers by the KLC or its vendors: terminals, monitors, ticket checkers, communication devices, advertising materials, play slips, play centers, vending machines, ticket stock, and ticket dispensers.

††††† (10) "Lottery product" means any KLC draw-based product, instant product, or a coupon issued by the KLC for a draw-based or instant product sold or distributed at a retail outlet or directly by the KLC.

††††† (11)[(8) "Lottery coupon" means a printed document issued by the KLC or its vendors, by which value is transmitted from the KLC to a player in anticipation of a sale of KLC products.

††††† (9) "Lottery equipment" means every instant validation terminal, on-line terminal, electronic display, vending machine, telecommunications device, wiring, instant or pull-tab ticket dispenser, play center, or equipment now or in the future provided by the KLC or its vendors.

††††† (10) "Lottery ticket" means an on-line, instant, or pull-tab ticket, and a ticket evidencing a chance to win in a future game sold by the KLC, whether now or hereafter offered by the KLC.

††††† (11) "On-line terminal" means a terminal operated by a retailer, the KLC, or a player, which has the capability of accepting a quick-pick, playslip, and manually-entered wager, and issuing an on-line ticket. A terminal may include a cash drawer or other KLC-supplied ancillary device or equipment.

††††† (12) "On-line ticket" means a ticket for a lottery game generated by and sold through an on-line terminal. Instant tickets and pull-tab tickets are not included.

††††† (13)] "Owner" means:

††††† (a) An individual or[A] sole proprietor[of a retailer or an applicant for a "Retailer License" which is a sole proprietorship];

††††† (b) A [limited or general] partner [or joint venturer in a retailer or an applicant for a "Retailer License" which is a partnership or joint venture, including a registered limited partnership];

††††† (c) A member of[, manager as defined in KRS 275.015, or officer of a retailer or an applicant for a "Retailer License" which is] a limited liability company;

††††† (d) An officer;[,]

††††† (e) A director;[,] or

††††† (f) A shareholder of[in a retailer, or an applicant for a "Retailer License" which is] a corporation [or similar entity], except that, in the case of owners of equity securities[a person shall be deemed an owner] of a publicly-traded corporation,[retailer or an applicant for a "Retailer License" by reason of the personís stock ownership in the retailer or applicant for a "Retailer License"] only the names and addresses of those known to the corporation to own beneficially[if the person owns at least] five (5) percent [of the equity interest in the retailer] or more of such securities.

††††† (12) "Retailer" is defined by KRS 154A.010(7) and includes the following:[applicant for a "Retailer License"; or

(e) A trustee or beneficiary of a trust, an owner of an interest in an unincorporated association, or a person who otherwise holds a legal or beneficial interest in a retailer or applicant for a retailer license.

††††† (f) "Owner" shall be interpreted as broadly as necessary to protect the security and integrity of the KLC and to ensure the integrity, reputation, and creditworthiness of its retailers and applicants for retailer licenses.

††††† (14) "Person" means:]

††††† (a) An individual or sole proprietorship;

††††† (b) A limited or general partnership, including a registered limited partnership;

††††† (c)[A joint venture;

††††† (d)] A limited liability company;

††††† (d)[(e) An association;

††††† (f)] A corporation;

††††† (e)[(g)] A trust;

††††† (f)[(h) An unincorporated organization; or

††††† (i)] Other entity, business, or enterprise; or

††††† (g) The owner of a retailer.

††††† (13) "Retailer handbook" means the handbook made available to retailers by the KLC, which describes KLC's billing, ticket validation and ordering procedures, payments to retailers, lottery products, and the operation and maintenance of lottery equipment and supplies.

††††† (14)[(15) "Pull-tab ticket" means a ticket from which the player lifts off a surface tab to reveal if the ticket is a winner.

††††† (16) "Retailer" is defined at KRS 15A.010(7).

††††† (17)] "Retailer License" means the ability to sell lottery products to the public and is identified through the issuance of a Retailer License Certificate[issued by the KLC and displayed by each retailer at its retail location].

††††† (15)[(18)]"Retailer License Agreement" means the agreement executed by the retailer and the KLC, setting forth the terms and conditions under which the ["]Retailer License["] is issued.[(19) "Retailer Manual" means the Retailer Manual distributed to retailers by the KLC, as may be amended, setting forth, among other things, detailed descriptions of the KLCís billing, ticket validation and ordering procedures, retailer commissions and bonuses, lottery games, the operation of lottery equipment, and a copy of the administrative regulations.

††††† (20) "Vending machine" means a mechanical or electronic device which accepts cash, coin, or other method of payment and dispenses one (1) or more forms of lottery tickets, other than on-line tickets.]

 

††††† Section 2. Conditions of Licensing. As a condition to be licensed to sell lottery products[tickets] and to act as a retailer, each applicant[person] shall be deemed to have agreed to the following[general] conditions:

††††† (1) Compliance with law. To fully comply with applicable laws, rules and regulations of the United States, including but not limited to the Americans with Disabilities Act (ADA), the Commonwealth of Kentucky and its political subdivisions, including KRS Chapter 154A and[the administrative regulations in] 202 KAR Chapter 3, and with all policies, procedures, rules, directives, and instructions of the KLC, including applicable[the] licensing documents and the Retailer Handbook[Manual], all as may be amended.

††††† (2)[Release and indemnification. To release, indemnify, hold harmless and forever defend the KLC, its officers, directors, employees and agents, and the Commonwealth of Kentucky, its elected officials, employees and agents, from and against all loss, claims, damages, expenses, costs (including court costs and costs and fees of attorneys of the indemnified partyís choice) arising out of, resulting from or in any way connected to a retailerís sale of lottery tickets and related activities and all actions or omissions of the retailer, its owners, employees or agents, whether or not related to the sale of lottery tickets. In addition, without limiting the generality of the foregoing, to release those persons from any claims (including claims for lost revenue) that may arise out of an interruption, suspension, failure of or defects in the operation of the KLCís games, lottery equipment, or any other service or product supplied by the KLC, regardless of the reasons.

††††† (3)] Sale and cashing of lottery products[tickets].

††††† (a) To offer for sale in a manner convenient and accessible to the public, and to actively promote the sale of, in a manner consistent with the directives of the KLC (including the display of KLC point-of-sale materials, signs [and other signs] or other displays,) all lottery products[tickets] the retailer is authorized to sell, and to abide by all promotional guidelines promulgated by the KLC;[throughout the retailerís business hours (to the extent that the retailerís business hours coincide with the KLCís hours of operation with respect to the sale of on-line tickets) and at a minimum during normal business hours.]

††††† (b) To only use ticket stock issued to the specific retail outlet, unless otherwise authorized by the KLC;

††††† (c) To cash valid winning lottery products sold or issued by retailer or by another retailer up to the limit set for the retailer by Sections 3(3) and 7 of this administrative regulation, or in an amount as otherwise authorized by the KLC in a manner consistent with the directives of the KLC[cash all valid lottery tickets of the type and dollar value the retailer is authorized to cash, in a manner consistent with the directives of the KLC, and to accept all valid lottery coupons issued by the KLC and give the bearer lottery tickets or merchandise in accordance with the terms of the lottery coupons,] throughout the retailerís business hours, by making a cash payment, or by issuing a check or money order;

††††† (d) To neither charge nor ask for a fee, tip, tax, or anything of value for cashing a lottery product or for cashing a check or money order issued by retailerís retail outlet for payment of a prize;

††††† (e) Upon request by a lottery player and when the lottery product is validated, to provide a lottery player with a copy of the validation slip for the lottery product presented; and

††††† (f) To accept all valid coupons issued by the KLC and give the bearer of the coupons lottery products or merchandise in accordance with the terms of the lottery coupons[(to the extent that the retailerís business hours coincide with the KLCís hours of operation with respect to the cashing of on-line tickets) and at a minimum during normal business hours. A retailer shall not charge a fee for cashing a lottery ticket and shall not refuse to cash a valid lottery ticket sold by another retailer].

††††† (3)[(4)] Training of retailer personnel. To require its employees[sales and accounting personnel] to attend all training sessions and review training materials offered by the KLC or its vendors, as needed, to effectively perform its responsibilities as a KLC retailer[and to review training materials and terminal-provided tutorials provided by the KLC or its vendors, so that personnel are able to sell lottery tickets, operate and maintain on-line terminals, instant validation terminals, vending machines and electronic devices, and appropriately account for sales of lottery tickets].

††††† (4)[(5)] Accounting records. To maintain for the prior and[at least one (1) year] current fiscal year (July 1 through June 30) current, [and] accurate, and detailed accounting records of every operation and transaction relating to the sale, cashing, or maintenance of lottery products in conformance with the[of lottery tickets. The records shall conform to the rules, instructions, and] directives of the KLC, and as otherwise required by law. The records shall be made available to KLC representatives or agents[of the KLC], the Commonwealth of Kentuckyís Auditor of Public Accounts, and[,] to[the extent required by law,] any other person as otherwise required by law. [,upon request for inspection and audit. Notwithstanding the foregoing requirement of the retailer to maintain records, the records of the KLC shall be determinative with respect to a retailerís accounts and other financial dealings with the KLC, absent a showing of manifest error.

††††† (6) Change in information. To promptly notify the KLC of a change in information previously given to the KLC, within the time frames established in a licensing document.

††††† (7) Storage of unsold tickets. To store unsold lottery tickets and on-line ticket stock in a safe and secure place to minimize the risk of loss, theft, damage or destruction. The KLC may inspect, and require alteration or relocation of, the storage place.

††††† (8) End dates. To adhere to the KLCís directives and policies on end dates and return dates for lottery tickets and games.

††††† (9) Loss, destruction or theft of tickets. To promptly report to the Security Division of the KLC and to the appropriate local law enforcement agency a loss, destruction, or theft of lottery tickets, and to cooperate, and cause its employees to cooperate, fully with the investigations of the KLCís Security Division and law enforcement officials. The retailer shall be liable to the KLC for payment in full for all Lottery Tickets allegedly lost, destroyed or stolen after activation of the relevant pack of tickets.]

 

††††† Section 3. Licensing[Process]. (1) In general.

††††† (a) An applicant[and an owner of an applicant] for a["]Retailer License["] shall complete, sign, and submit:

††††† 1. An application for Retailer License, including an acknowledgement that the KLC may conduct the criminal, financial, and other background investigations required by Section 5 of this administrative regulation at any time during any term of the Retailer License Agreement with or without notice to the retailer;

††††† 2. A Retailer License Agreement; and

††††† 3. If a cashing agent, a Retailer License Agreement Addendum for Cashing Agents[execute a "Retailer License Application" and other documents as may be required by the KLC. An applicant shall tender the licensing fees described in paragraph (b) of this subsection, which shall include a nonrefundable application fee in the amount of fifty (50) dollars].

††††† (b) Upon submission of an application for a ["]Retailer License[Application"], an applicant shall tender a $250 fee[the following licensing and related fees, as applicable], which shall be nonrefundable, except as provided in Section 5(5)(a)(2) and (b)(3) of this administrative regulation[after installation of the lottery equipment:

††††† 1. A $100 licensing fee for a retailer selling instant or pull-tab tickets, but not on-line tickets;

††††† 2. A $350 licensing fee for a retailer selling on-line tickets and instant or pull-tab tickets;

††††† 3. A $250 licensing fee for an existing retailer selling instant or pull-tab tickets who will commence selling on-line tickets;

††††† 4. A fifty (50) dollars fee for a partial change in owners of an existing retailer; and

††††† 5. A $100 licensing fee for a complete change in ownership of an existing retailer].

††††† (c) There shall be a $100 fee per new retail outlet for an existing chain retailer[Requirements for applicants for a "Retailer License" shall apply to an existing retailer who applies for a "Retailer License" for a new location, except the KLC may, in its sole discretion, temporarily license a retailer to sell lottery tickets at a new retail location for a period not to exceed sixty (60) days].

††††† (d) Criminal, financial, and other background investigations shall[, financial investigations and inquiries to the Kentucky Revenue Cabinet will] be conducted in accordance with Section 5 of this administrative regulation for[respect to] the applicant and each owner of the applicant. If the KLC determines that the applicant or an owner of the applicant does not meet the criteria established in KRS Chapter 154A and[or] in this administrative regulation for the issuance of a Retailer License[202 KAR Chapter 3], the applicant shall be notified in writing, and the ["]Retailer License["] shall be denied.

††††† (e) [If the applicant is an existing retailer undergoing relicensing or seeking to open a new retail location, or is a related entity to an existing retailer, or shares one (1) or more owners with an existing retailer, and facts are disclosed which would cause the KLC to deny an application for licensing or relicensing if tendered by the other retailer, the KLC may:

††††† 1. Immediately revoke or suspend all existing retailer licenses of the retailer; or

††††† 2. Notify all the retailers that their licenses will be revoked within thirty (30) days if the conditions justifying revocation are not corrected.

††††† e.] Upon satisfactory completion of the criminal, financial, and other background investigations pursuant to paragraph (d) of this subsection[and financial investigation and inquiry from the Kentucky Revenue Cabinet], the KLC may[shall]:

††††† 1. Sign[Execute] a ["]Retailer License Agreement["] with the successful applicant; and

††††† 2. Issue a ["]Retailer License Certificate for the successful applicant.

††††† (f) Unless earlier terminated by the terms of the Retailer License Agreement in accordance with KRS Chapter 154A or Section 9 of this administrative regulation, the Retailer License Agreement shall be in effect for an initial one (1) year term from the date it is signed by the KLC. At the end of the initial one (1) year term, the Retailer License Agreement shall automatically renew for additional successive one (1) year terms, not to exceed four (4) years from the date the Retailer License Agreement was signed by the KLC. At the expiration of the four (4) years, unless the Retailer License Agreement was earlier terminated, the retailer shall seek relicensing pursuant to subsection (4) of this section[" and one (1) or more unique retailer numbers for each location, with each separate On-line and instant validation terminal to have its own retailer number].

††††† (2) Special rules relating to chain retailers.[The KLC may treat] More than one (1) retail outlet[location] with identical owners may be treated as one (1) chain retailer. Each retail outlet[location] shall be issued a separate retailer number[or numbers] and a [unique"]Retailer License["]. The KLC may issue one (1) billing statement for all retail outlets[locations] or separate billing statements for each retail outlet[location]. If the chain retailer wishes to add a new retail outlet[location], the chain retailer shall[will] not be required to undergo a new background investigation.

††††† (3) Special rules relating to cashing agents.

††††† (a) The KLC may designate one (1) or more retailers as cashing agents. A cashing agent shall sign a Retailer License Agreement Addendum for Authorized Cashing Agents for cashing lottery products of a value up to an amount authorized by the KLC, not to exceed $25,000. If internet is available and if the KLC determines internet is necessary and in the best interest of the KLC to complete the claim process, the retailer may be required to maintain internet access during KLCís business hours.

††††† (b) All cashing agents shall:

††††† 1. During the KLCís business hours, cash validated winning lottery products by making a cash payment, or by issuing a check or money order;

††††† 2. Follow all KLC practices and procedures; and

††††† 3. Take all reasonable steps necessary to protect a playerís private information, including address, telephone number, social security number, and birth date from public disclosure or any disclosure beyond that which is necessary for awarding the prize to the player. If any private information is disclosed, the KLC shall be immediately notified.

††††† (c) The KLC may terminate a retailerís status as a cashing agent with or without revocation of the retailerís Retailer License.

††††† (4) Relicensing.

††††† (a) At least ninety (90) days prior to the expiration of the Retailer License Agreement as established in subsection (1)(f) of this section, each retailer shall seek relicensing by completing the application process in subsection (1) of this section, except the retailer shall not be required to tender the fees required by subsection (1)(b) and (c) of this section. If the retailer is a cashing agent, the retailer shall also complete the process in subsection (3) of this section.

††††† (b) If a retailer continues to sell lottery products beyond the term of the Retailer License Agreement, the retailer shall continue to be liable to the KLC for all products sold.

††††† (5) Change in Information. A retailer shall promptly notify the KLC of a change in information previously given to the KLC. For a complete or partial change in ownership, the retailer shall comply with Section 4 of this administrative regulation.

 

††††† Section 4. Rules for Change in Ownership. (1) Special rules relating to transfer of ownership of existing retailers.[transfer of retail locations,]

††††† (a) A ["]Retailer License["] shall not be sold, transferred, assigned, [hypothecated,] pledged, or otherwise conveyed.

††††† (b) A[Unless waived in writing by the KLC, a] retailer shall give thirty (30) days prior written notice to the KLC of its intent to vacate or convey its retail outlet[location] or business, change its location, or change the form of the business of the retailer. Retailer acknowledges that a complete change in ownership shall be accomplished by tendering to the KLC:

††††† 1. An application for Retailer License;

††††† 2. A Retailer License Agreement;

††††† 3. If a cashing agent, a Retailer License Agreement Addendum for Cashing Agents;

††††† 4. The fees required by Section 3(1)(b) and (c) of this administrative regulation; and

††††† 5. Proof of conveyance documentation acceptable to the KLC.

††††† (c) The KLC may,[. The acquiring person, if it desires to be licensed as a retailer, shall apply with the KLC] for a period not to exceed sixty (60) days, temporarily license an owner or applicant who has acquired the retail outlet or business of an existing retailer, so that the sale of lottery products will not be interrupted during the application process. The temporary licensing of an owner or applicant to sell lottery products shall not limit the KLCís right to exercise its discretion regarding issuance of a ["]Retailer License to the owner or applicant["]. If the retail outlet[location] or business of a retailer is conveyed and the sale of lottery products[tickets] continues without issuance of a temporary or new ["]Retailer License["] to the acquiring owner[person], the conveying retailer and the acquiring owner[person] shall be jointly and severally liable for all debts and other obligations incurred to the KLC prior to and after the conveyance, and shall remain liable for all debts and other obligations until paid[, performed, and a new "Retailer License" is issued for the acquiring person].

††††† (d) In addition to other grounds for denial of a Retailer License or termination of a Retailer License Agreement, the[(c) The] KLC may deny issuance of a Retailer License to an owner or applicant[, in its sole discretion, temporarily, for a period not to exceed sixty (60) days, license a person] acquiring or seeking to acquire the retail outlet[location or business of an existing retailer, so that the sale of lottery tickets will not be interrupted during the KLCís performance of background investigations. The temporary licensing of a person to sell lottery tickets shall not limit the KLCís right to exercise its discretion regarding issuance of a "Retailer License" to the person, and the KLC in its sole discretion may hold the conveying retailer and the acquiring person jointly and severally liable for all debts and other obligations incurred to the KLC prior to the issuance of the new "Retailer License".

††††† (d) In addition to other grounds for denial of a "Retailer License", the KLC may, in its sole discretion, deny issuance of a "Retailer License" to a person acquiring or seeking to acquire the retail location] or business of a retailer, until all debts and other obligations of the conveying retailer [or the person or any owner of the person,] to the KLC are paid [and performed] in full.

††††† (2) Special rules relating to a partial change in ownership of a retailer.

††††† (a) To the extent possible, retailers shall provide the KLC with thirty (30) days prior written notice of any partial change in owners, and in any event, shall provide the KLC with written notice within fifteen (15) days after any partial change in owners. Failure to do so may result in termination of the retailerís Retailer License. Written notice of a partial change shall be accomplished by tendering to the KLC a new Retailer License Application and a fee in the amount of fifty (50) dollars.

††††† (b) The KLC shall conduct background and financial investigations of and make inquiries of the Kentucky Revenue Cabinet regarding a new owner of retailers.[(4) Special rules relating to partial changes in ownership.

††††† (a) To the extent possible, retailers shall provide the KLC with thirty (30) days prior written notice of any partial change in owners, and in any event shall provide the KLC with written notice within fifteen (15) days after any partial change in owners. Failure to do so may, in the KLCís sole discretion, result in termination of the retailerís "Retailer License". Written notice of a change shall be effected by tendering to the KLC a new "Retailer License Application" and a fee in the amount of fifty (50) dollars.

††††† (b) The KLC shall conduct background and financial investigations of and make inquiries of the Kentucky Revenue Cabinet regarding a new owner of retailers.

††††† (c) If the KLCís background and credit investigations and inquiries with the Kentucky Revenue Cabinet are not satisfactory, the KLC may revoke or temporarily suspend the retailerís retail license, or permit the retailer a period of time, not to exceed thirty (30) days, to remove the person as owner or to correct the situation resulting in the an unsatisfactory background check.

††††† (5) Special rules relating to licensing for the sale of specific lottery tickets.

††††† (a) The KLC shall not grant a "Retailer License" permitting the applicant to sell on-line tickets if the applicant has been denied a license to sell instant or pull-tab tickets, unless the reasons for the denial have been corrected by the applicant to the satisfaction of the KLC.

††††† (b) Unless specifically permitted in writing by the KLC, a retailer shall not sell on-line tickets unless it also sells instant tickets. Failure to actively sell instant tickets shall be grounds for termination of the retailerís retail license.

††††† (6) Special rules relating to cashing agents. The KLC may designate one (1) or more retailers as cashing agents. A cashing agent shall execute a "Retailer License Agreement Addendum for Cashing Agent" and shall follow the procedures established by the KLC for cashing tickets of a value from $601 to $5,000, inclusive. The KLC may, in its sole discretion, terminate a retailerís status as a cashing agent with or without revocation of the retailerís "Retailer License".

††††† (7) Renewal and relicensing.

††††† (a) The KLC shall relicense all retailers with the new licensing forms established in conjunction with the adoption of this administrative regulation.

††††† (b) Thereafter, the KLC shall provide continuous renewal of all retailer licenses, renewing one-eighth (1/8) of retailer licenses each calendar quarter, with the ultimate goal of renewing every retailer license not longer than once every two (2) years.

††††† (c) To be relicensed and to receive a renewal of a "Retailer License," each retailer shall:

††††† 1. Complete, execute, and submit the "Retailer License Application" or the "Retailer Relicensing Application";

††††† 2. Complete, execute, and submit new licensing documents; and

††††† 3. Successfully pass new background and financial investigations and inquiries with the Kentucky Revenue Cabinet.]

 

††††† Section 5.[4.] Requirements and selection criteria for applicants, retailers, and owners[Retailers or Owners]. (1) Criminal and other background investigations. The KLC may[shall, with the assistance of the Kentucky State Police and, in its sole discretion, with the assistance of any other available sources,] investigate, at any time and during any license term, the criminal and other background history of, and existence of any statutory or regulatory violations by, an applicant, an owner, a[prospective retailer, a] retailer seeking relicensing, a retailer seeking licensing due to a complete change in ownership, or a retailer reporting a partial change in ownership[or a regularly scheduled relicensing, or an owner].

††††† (a) The KLC may, unless required by statute,[shall] deny the application of an applicant,[a prospective retailer] and suspend or revoke the license of an[a] existing retailer[if]:

††††† 1. For any reason established in KRS 154A.400 for denying the issuance of a Retailer License;

††††† 2. For any reason established in KRS 154A.410(1) for terminating an existing Retailer License Agreement;

††††† 3. If the applicant, owner, or retailer[(a) A person, or an owner thereof,] has been convicted of[in] any offense that[jurisdiction of a:

††††† 1. Felony, if ten (10) years have not passed since the satisfactory completion by the person of the sentence imposed by the court for the offense;

††††† 2. Gambling-related offense, if ten (10) years have not passed since the satisfactory completion by the person of the sentence imposed by the court for the offense;

††††† 3. Offense under KRS Chapter 154A, any other statute governing the KLC, or any related administrative regulations; or

††††† 4. Offense which, in the sole judgment of the KLC,] relates to or may adversely impact the security or integrity of, or public confidence in, the KLC or its retailers. The KLC[KLC's determination] shall consider[include consideration of]:

††††† a. The physical and fiscal security of the KLC and its retailers and the integrity of the KLCís games;

††††† b. Public perception of and public confidence in the KLC and its retailers; and

††††† c. Other relevant factors.

††††† 4. If an applicant, owner[(b) Person], or retailer[an owner thereof,] has been found by[violated] the Chief Financial Officer or his designee[provisions of KRS Chapter 154A or any other statute governing the KLC or any related administrative regulations, if ten (10) years has not passed since the last date that the violation existed; or

††††† (c) A person, or an owner thereof, or a retailer or applicant for a "Retailer License" with respect] to have[which any person or owner was an owner or related entity, has] made a statement of material fact to the KLC while the person was serving as a previous owner or related entity, and the person knew or should have known that the statement was false or untrue in any respect, unless at least ten (10) years have passed since the statement was made;

††††† 5. If an applicant, owner, or retailer has been found by the Chief Financial Officer or his designee to have provided false or misleading information, or failed to provide material information the failure of which to provide is false or misleading, to the KLC or to a law enforcement agency with respect to obtaining or retaining a Retailer License;

††††† 6. If an applicant, owner, or retailer provides products, services, or entertainment that may have an adverse effect upon the credibility, integrity, and reputation of the KLC;

††††† 7. If an applicant, owner, or retailer sells products, services, or entertainment that constitutes products or services deceptively similar to or in competition with the KLCís products or services; or

††††† 8. If an applicant, owner, or retailer does not demonstrate the ability to sell and continue to sell an acceptable level of lottery products.

††††† (b) The KLC may permit the applicant or retailer a period of time, not to exceed thirty (30) days, to remove the person as owner or to correct the situation resulting in an unsatisfactory criminal, financial, or other background check.

††††† (c) If an existing retailer is requesting a relicensing, seeking to open a new retail outlet, or is an entity related to an existing retailer, or who shares one (1) or more owners with an existing retailer, and facts are disclosed that would cause the KLC to deny an application for licensing or a relicensing if tendered by the existing retailer, the KLC may:

††††† 1. Immediately revoke or suspend all existing Retailer Licenses of the retailer in accordance with KRS Chapter 154A; or

††††† 2. Notify all the retailers that their licenses will be revoked within thirty (30) days if the conditions justifying revocation are not corrected.

††††† (2) Financial investigations.

††††† (a) The KLC shall conduct a financial investigation of each applicant[person and each owner] applying for a ["]Retailer License["], and of each retailer under consideration for licensing[relicensing] due to a change of ownership[or a routinely scheduled relicensing]. In addition to information available from other sources, the KLC shall maintain, and shall review during each financial investigation, a database regarding existing, suspended, and canceled retailers and their owners. The KLC may consider in its determination regarding the financial responsibility of an applicant or retailer undergoing relicensing, the connection of the owner[person, whether as owner] or related entity[,] with any retailer whose ["]Retailer License["] was suspended or canceled due to a default in its obligations to the KLC.

††††† (b) If, as a result of financial investigation of the applicant or retailer[person] and its owners, the KLC determines that a prospective or existing retailer poses a financial risk, the KLC may:

††††† 1. Deny the application or revoke the Retailer License[license;

††††† 2. License a prospective Retailer to, or permit an existing retailer to, sell instant tickets or pull-tab tickets only upon the condition that payment is made for tickets upon the delivery thereof] in accordance with KRS 154A.410(2)[good funds (COD)]; or

††††† 2.[3.] License an applicant[a prospective retailer] or permit an existing retailer to retain its Retailer License[license] upon receipt of the letters of credit, bonds, personal guaranty agreements,[guarantees] or other security or assurances of payment as the KLC may[in its sole discretion] deem satisfactory, in an amount based upon actual or potential sales.

††††† (3) Kentucky Department of Revenue inquiries[Cabinet inquires].

††††† (a) Except as provided in Section 4(1)(c) of this administrative regulation, a ["]Retailer License["] shall not be issued to an applicant[a person] which is not, or has an owner which is not, and a[no] retailer shall not be permitted to retain a ["]Retailer License["] which is not, or has an owner which is not, current in the payment of taxes, interest and penalties owed to, and current in filing of applicable tax returns with, the Commonwealth of Kentucky[and all political subdivisions thereof, including, without limitation, any political subdivisions in which lottery tickets are being or are proposed to be sold, exclusive of items under formal appeal pursuant to applicable statutes].

††††† (b) A ["]Retailer License["] shall not be issued to an applicant[a person] which has not previously been issued a federal employment tax identification number, or if the applicant is an individual, a social security number, and, if applicable, a Kentucky sales tax license number. The KLC shall confirm with the Kentucky Department of Revenue[Cabinet] that an applicant for a ["]Retailer License["], and an existing retailer seeking[in the event of a] relicensing, complies with[the provisions of] this paragraph. The KLC shall rely upon information received from the Kentucky Department of Revenue[Cabinet]. The KLC may[, in its sole discretion,] permit an existing retailer a period of time[,] not to exceed thirty (30) days[,] within which to meet or cause the owner in question to meet its obligations with the Kentucky Department of Revenue[Cabinet] prior to revocation of the retailerís ["]Retailer License["] or prior to final denial of issuance of[renewal of] a relicensing of the ["]Retailer License["].

††††† (4) Kentucky Secretary of State Inquiries. An applicant shall be registered and in good standing with the Kentucky Secretary of State if the applicant is a corporation or limited liability company.

††††† (5) Selection criteria:

††††† (a) In order to sell draw-based products, an applicant shall meet the following criteria:

††††† 1. Whether, based on historic traffic patterns in the geographic area of the proposed retail outlet, the applicant is likely to have sales equal to or in excess of $100 per week in draw-based product.

††††† 2. If the KLC determines that the applicant is not likely to have the expected draw-based product sales, the KLC may deny the applicantís application for a Retailer License and refund any license fee previously paid by the applicant.

††††† (b) In order to sell instant products, an applicant shall meet the following criteria:

††††† 1. Whether, based on historic traffic patterns in the geographic area of the proposed retail outlet, the applicant is likely to have sales equal to or in excess of $300 per week in draw-based and instant products;

††††† 2. Whether the applicant will agree to and has the physical space to carry a minimum of six (6) unique instant products at its retail outlet at all times; and

††††† 3. If the KLC determines that the applicant is not likely to have the expected draw-based and instant product sales, the KLC may deny the applicantís application for a Retailer License and refund any license fee previously paid by the applicant.

††††† (c) Retailers shall sell both draw-based products and instant products unless specifically authorized by the KLC to sell one (1) or more draw-based products only based on the retailerís type of business.

††††† (6) Storage of unsold products. A retailer shall store unsold lottery products and ticket stock in a safe and secure place to minimize the risk of loss, theft, damage, or destruction. The KLC may inspect, and require alteration or relocation of, the storage place.

††††† (7) Reasonable access to lottery products, equipment, and supplies. A retailer shall provide the KLC with reasonable access to lottery products, equipment, and supplies upon reasonable notice.

††††† (8) Game end dates. A retailer shall adhere to the KLCís directives and policies on game end dates and return dates for lottery products. A retailer shall adhere to the KLCís directives on return of unsold lottery products upon the announcement of game end dates.

††††† (9) Loss, destruction, or theft of lottery products, equipment, or supplies.

††††† (a) A retailer shall promptly report to the Security Division of the KLC and to the appropriate local law enforcement agency, a loss, destruction, or theft of lottery products, equipment, or supplies and cooperate, and cause its employees to cooperate, fully with the investigations of the KLCís Security Division and law enforcement officials;

††††† (b) The retailer shall be liable to the KLC for payment in full for all lottery products allegedly lost, destroyed, or stolen after activation of the relevant pack of products; and

††††† (c) Retailers shall receive reimbursement for activated products stolen during a robbery or burglary, if the Security Division and law enforcement each receive accurate game, pack, and ticket number ranges in a timely manner, followed-up by a copy of the police offense report submitted to the Security Division within ten (10) business days.

††††† (10) Security Inspection and Investigations. The KLC Security Division may inspect the retail outlet to ensure that lottery products, equipment, and supplies are maintained in an environment that will minimize the risk of loss, theft, damage, or destruction. The KLC may require alteration of the environment or relocation of lottery products, equipment, or supplies if a security risk is evident. The retailer shall cooperate, and cause it employees to cooperate, fully with all investigations of the KLCís Security Division and law enforcement officials.[Relationship with KLC vendors, officers or directors. A person shall not be licensed as a KLC retailer, and a retailer shall not be permitted to maintain its "Retailer License", if the person or an owner of the person:

††††† (a) Is a vendor, as defined at KRS 154A.010, of major lottery-specific procurement items to the KLC, or is an officer, director, employee or agent of a vendor; or

††††† (b) Resides in the same household as an officer or director of the KLC.

††††† (5) Miscellaneous requirements. A person shall not be licensed as a KLC retailer, and a retailer shall not be permitted to maintain its "Retailer License" if the person or an owner of the person:

††††† (a) Has provided false or misleading information, or failed to provide information the failure to provide which is materially misleading, to the KLC or to a law enforcement agency with respect to obtaining or retaining a "Retailer License";

††††† (b) Provides products, services, or entertainment that, in the sole discretion of the KLC, may have an adverse effect upon the credibility, integrity, and reputation of the KLC;

††††† (c) Sells products, services, or entertainment that, in the sole discretion of the KLC, constitutes lottery products or services deceptively similar to or in competition with the KLCís products or services; or

††††† (d) Does not demonstrate, in the sole discretion of the KLC, the ability to sell and continue to sell an acceptable level of lottery tickets.

††††† (6) Additional requirements.

††††† (a) The KLC may promulgate administrative regulations to:

††††† 1. Revise or add requirements for the licensing of new Retailers, the relicensing of existing retailers, and the ability of retailers to retain retailer licenses; and

††††† 2. Amend the licensing documents, the "Retailer License Agreement," and the Retailer Manual.

††††† (b) The KLC may, in a document not in 202 KAR Chapter 3, amend that document unilaterally.

††††† (c) The KLC may deny retailer licenses to a prospective retailer, deny relicensing to an existing retailer, and revoke the retailer licenses of a retailer based upon the failure to meet additional or revised requirements established by KLC or by administrative regulation.]

 

††††† Section 6. Lottery equipment and supplies[5. Terminals and Other Equipment].

††††† (1) Criteria for allocation of lottery equipment and supplies[Allocation].

††††† (a)[One (1) or more instant validation terminals (for retailers licensed to sell only instant tickets or pull-tab tickets) or on-line terminals (for retailers licensed to sell on-line tickets) may be installed by the KLC at the retailerís retail location. At the request of the retailer, the KLC may install vending machines and other lottery equipment at a retail location.] Installation and retention of lottery equipment and supplies at a retail outlet[location] shall be determined by[in the sole discretion of] the KLC, based upon the following criteria, as appropriate:

††††† 1. The probable future or actual historic sales at the retail outlet[location] relative to the[:

††††† a. Initial and ongoing maintenance and] installation costs of any lottery equipment and supplies and ongoing communications[telecommunications] charges associated with any lottery equipment and supplies;

††††† 2. The retailerís and the retailerís ownersí and related entitiesí history with the KLC;

††††† 3. The number of games carried by the retailer; and

††††† 4. The retailerís retail outlet, including business, location, size, and hours[and

††††† b. Probable sales generated by the Lottery Equipment at another retail location;

††††† 2. The incremental costs associated with the installation of the Lottery Equipment under the KLCís agreements with its on-line ticket vendor, vendors of instant and pull-tab tickets, and other applicable vendors; and

††††† 3. The geographic distribution of retailers and various types of lottery equipment].

††††† (b) In calculating the probable future or actual historic sales, the KLC shall[may] consider[information it deems appropriate, to include one (1) or more of the following sets of data]:

††††† 1. Actual historic sales of the lottery products sought to be sold by similarly situated retailers; and

††††† 2. Total actual historic sales by the retailer in question[of instant or pull-tab tickets (in the case of a retailer seeking to become licensed to sell on-line tickets or seeking installation of lottery equipment, vending machines or additional instant validation terminals); and

††††† 3. Actual historic sales by the retailer in question of on-line tickets (in the case of a retailer seeking installation of additional on-line terminals).

††††† (c) The KLC may also consider factors including:

††††† 1. The retailerís and the retailerís ownersí and related entitiesí history with the KLC;

††††† 2. The retailerís participation in promotional activities including the display of point of sale promotional materials;

††††† 3. The number of games carried by the retailer; and

††††† 4. The retailerís store hours].

††††† (c)[(d)] The KLC may establish initial fees and periodic charges with respect to installation or maintenance of lottery equipment and supplies.

††††† (2) Title, placement and removal of lottery[to] equipment and supplies.

††††† (a) Lottery equipment and supplies provided to retailers are[is] and shall remain the property of the KLC or its vendors, and shall not be or become property of a retailer or person claiming an interest in lottery equipment and supplies through a retailer including, without limitation, the holder of any[a consensual, judgment, landlordís, or mechanicís] lien.

††††† (b) Before placement of lottery equipment and supplies within a retailer's retail outlet[location], the retailer shall obtain KLC approval of the proposed location for the lottery equipment and supplies. The retailer shall not move, modify, or alter the equipment or supplies.

††††† (c) The KLC shall have the right to enter a then-present or former retail outlet[location], during normal business hours, or at any other time with the consent of the holder of any interest in the real property on which the retail outlet[location] is situated, to remove lottery products,[property belonging to the KLC, including, without limitation, lottery] equipment, and supplies[lottery tickets, on-line ticket stock, signs, and point of sale materials, with or without revocation of the "Retailer License" and termination of the "Retailer License Agreement" applicable to the retail location].

 

††††† Section 7.[6.] Prize Payments. (1) Prize payments up to and including $600. During its business hours, a retailer shall [upon presentation of a winning KLC ticket which properly validates,] pay the nonminor holder of a validated winning lottery product[the ticket] the amount of the prize to which the winner is entitled, up to and including the sum of $600, by making a cash payment, or by issuing a check or money order.

††††† (2) Prize payments up to $25,000[$5,000]. The KLC may[shall] establish a network of cashing agents. During the KLCís business hours, authorized cashing agents shall[agent retailers which shall, upon presentation of a winning KLC ticket which properly validates,] pay the nonminor holder of a validated winning lottery product[the ticket] the amount of the prize to which the winner is entitled, up to and including any sum that the KLC has authorized the cashing agent to pay, not to exceed the sum of $25,000, by making a cash payment, or by issuing a check or money order[$5,000].

 

††††† Section 8. Retailer Accounting[7. Ticket Purchases, Deposit of Funds and Payments]. (1) Lottery product[ticket] purchases, billings, and payment. The KLC shall make available [promulgate and distribute] to all retailers detailed accounting procedures regarding purchases of and billings for lottery products[tickets], which procedures shall be deemed to be a part of the ["]Retailer License Agreement["]. The KLC may[, in its sole discretion,] establish payment terms with individual retailers to address situations unique to those retailers. All proceeds from the sale of lottery products[tickets] shall be deposited not later than the close of the next banking day after the date of their collection by the retailer and shall be held in an account designated, in writing, by the retailer to the KLC in the ["]Retailer License Application[" or "Retailer Relicensing Application"]. The account shall be in an institution insured by the Federal Deposit Insurance Corporation or Federal Savings and Loan Insurance Corporation, or their successors. All proceeds of the sale of lottery products[tickets], net of credits for compensation due to retailers and for prizes paid by retailers, are the property of the KLC and shall be held by retailers in trust and in a fiduciary capacity for the benefit of the KLC.

††††† (2) Credits. Retailersí accounts with the KLC shall[will] be credited by the KLC in accordance with its retailer compensation policies, as established by the KLC pursuant to KRS 154A.050(1)(d)8.

††††† (3) Delinquent accounts. In addition to all other rights and remedies available to the KLC at law or in equity, including the rights and remedies provided in KRS Chapter 154A, the KLC shall have the following rights and remedies:

††††† (a) The right to set off against and recoup from sums due by the KLC to a delinquent retailer or owner any sums due the KLC by the delinquent retailer or owner, or by any other retailer in which the delinquent retailer or[an] owner[thereof] is an owner;

††††† (b) The right to request the Commonwealth of Kentucky to set off against and recoup from sums due any delinquent retailer, owner [thereof], or other retailer which is in part owned by an owner of the delinquent retailer by the Kentucky Department of Revenue[Cabinet], any sums due to the KLC by the delinquent retailer;

††††† (c) The right to require payment of all sums due the KLC[, in the KLCís sole discretion,] by a retailer prior to issuance of a ["]Retailer License["] to a new retailer at the same retail outlet[location]; and

††††† (d) The right to write off a retailer's obligations to the KLC, without releasing any retailer from its obligations for repayment of sums owed the KLC, and reimburse its operating accounts in the amount of the write-off from a segregated account that may[shall] be established from all licensing fees received by the KLC, including any additional sums authorized for that purpose by the board. The board may increase or reduce the amount held in the segregated account.

 

††††† Section 9.[8.] Termination or Suspension. (1) Termination for cause. Unless required by statute, the KLC may terminate or suspend a retailerís Retailer License and[In addition to any other bases for termination or suspension established in this administrative regulation, KRS Chapter 154A, and the"]Retailer License Agreement[", the KLC may, in its sole discretion, terminate or suspend a retailerís "Retailer License" and "Retailer License Agreement"] at any time, for good cause, upon a finding that[by the Senior Vice President of Finance and Administration that the retailer or an owner of the retailer]:

††††† (a) The retailer or an owner has committed any act or omission established in KRS 154A.410(1) for termination of a Retailer License Agreement;

††††† (b) The retailer or an owner has committed any act or omission that would prevent the issuance of a Retailer License for any reason in this administrative regulation;

††††† (c) The retailer or an owner has committed a material breach of any provision of its Retailer License Agreement with the KLC;

††††† (d) The retailer or an owner has provided false or misleading information in obtaining or attempting to obtain a Retailer License and Retailer License Agreement;

††††† (e) The retailer or an owner been convicted of, or has entered a plea of guilty or nolo contendere, regardless of adjudication, to an offense punishable as a felony, or to any gambling-related offense, unless the time established in KRS 154A.400(1)(b)(3) has expired;

††††† (f) The retailer or an owner has outstanding tax delinquencies owed to the federal government or any taxing authority within the Commonwealth of Kentucky;

††††† (g) The retailer or an owner has jeopardized the integrity, security or efficient operation of the KLC;

††††† (h) The ownership or location of the business has changed without providing prior notice to the KLC as provided in this administrative regulation;

††††† (i) The retailer has failed to accurately account for lottery tickets, revenues, or prizes as required by the KLC;

††††† (j) The retailer has failed to remit or is delinquent in remitting money owed to the KLC;

††††† (k) The retailer or owner has committed any fraud, deceit, or misrepresentation to the KLC or to any individual purchasing a lottery ticket or tickets from retailer;

††††† (l) The retailer has sold a lottery ticket or paid a prize to any person under eighteen (18) years of age;

††††† (m) The retailer has sold a lottery ticket at any place other than the place authorized in its Retailer License;

††††† (n) If required by statute, the retailer has not prominently displayed its Retailer License Certificate at the approved sales location;

††††† (o) The retailer has not prominently displayed and maintained ticket displays/dispensers and points-of sale materials provided by the Lottery;

††††† (p) The retailer has not made point-of-sale information for lottery products accessible to the public;

††††† (q) The retailer has sold tickets at a price other than established by the KLC;

††††† (r) The retailer or an owner has committed a material violation of any rule or administrative regulation promulgated by the KLC;

††††† (s) The retailer has violated any directive or instruction issued by the KLC;

††††† (t) The retailer or an owner has committed a material violation of KRS Chapter 154A;

††††† (u) The retailerís reputation is no longer consistent with the protection of the public interest;

††††† (v) The retailer has materially changed any factor considered by the KLC in selecting the retailer;

††††† (w) The retailer or an owner has engaged in conduct prejudicial to public confidence in the lottery;

††††† (x) The retailer has charged a fee or tip to redeem a lottery ticket or has required a customer to purchase another item in order to purchase a lottery ticket;

††††† (y) The retailer has paid a prize valued greater than the retailer is authorized to cash by the KLC, or the retailer has refused to cash a winning lottery prize, properly validated, up to the amount authorized by the KLC; or

††††† (z) The retailer has insufficient sales of lottery products.[Is in default or has violated any of the terms and conditions of its "Retailer License Agreement";

††††† (b) Has violated or is in violation of any provision of 202 KAR Chapter 3 or KRS Chapter 154A;

††††† (c) Failed or fails to meet the requirements and minimum standards for granting a "Retailer License" as established in 202 KAR Chapter 3, KRS Chapter 154A, or the licensing documents;

††††† (d) Has provided false or misleading information, or has failed to provide information the failure of which to provide is false or misleading, to the KLC or to a law enforcement agency with respect to obtaining or retaining a "Retailer License";

††††† (e) Provides or has provided a product, service, or entertainment that, in the sole opinion of the KLC, may have an adverse effect upon the credibility, integrity and reputation of the KLC;

††††† (f) Sells, and continues to sell after written notice by the KLC to cease and desist the sale, a product, service, or entertainment that, in the sole opinion of the KLC, constitutes a product or service deceptively similar to or in competition with a KLC product or service;

††††† (g) In the case of a retailer, sells its business, or, in the case of an owner, sells all or a sufficient part of its interest in the retailer, that the buyer meets the definition of an owner;

††††† (h) Has not, in the sole judgment of the KLC, maintained an acceptable level of sales of lottery tickets; or

††††† (i) Poses a situation that causes the President of the KLC to determine that the action is necessary in order to ensure the integrity, security, honesty, or fairness of the operation of the KLC or any of its games.]

††††† (2) Termination without cause. The KLC may terminate a retailerís Retailer["Retail] License["] and ["]Retailer License Agreement["] without cause, upon thirty (30) days prior written notice.

††††† (3) Termination by retailer. A retailer may terminate its Retailer["Retail] License["] and ["]Retailer License Agreement["] upon thirty (30) days prior written notice. The KLC may, at its option, elect to terminate the retailerís ["]Retailer License["] and ["]Retailer License Agreement["] prior to the end of the thirty (30) day period.

††††† (4) Effect of termination or suspension. If a retailer possesses multiple retail outlets, suspension or termination of one (1) outlet is grounds for suspension or termination of the others. Every obligation of a retailer to the KLC shall survive termination or suspension of the ["]Retailer License["] and ["Retailer License Agreement". Upon termination of a "Retailer License" and"]Retailer License Agreement[", the retailer]. Upon termination or suspension of a Retailer License and Retailer License Agreement, the retailer shall immediately pay to the KLC all sums owed to the KLC and shall surrender to the KLC the retailerís ["]Retailer License["] and all lottery products, equipment and supplies[other property of the KLC or its vendors, including, without limitation, all lottery tickets, on-line ticket stock, point of sale materials, signs, and other property provided to the retailer by or on behalf of the KLC].

††††† (5) Other remedies. In addition to the remedies of termination or suspension, the KLC may avail itself of any other remedies available to it at law or in equity, including, without limitation, injunctive relief.

 

††††† Section 10.[9.] Retailer Remedies. (1) Right to protest. An applicant for a ["]Retailer License["] or a retailer aggrieved in connection with an action taken by the KLC pursuant to KRS Chapter 154A[154A.400] or this administrative regulation[202 KAR Chapter 3] may protest, in writing, to the president of the KLC. The protest shall be submitted within thirty (30) calendar days after the aggrieved applicant or retailer[person] knows or should have known of the facts giving rise to the protest. An applicant or retailer[A person] shall be deemed to have knowledge of the facts giving rise to the protest within thirty (30) days of the KLCís issuance of a written notification to the retailer or applicant for a ["]Retailer License["] regarding the action or decision of the KLC.

††††† (2) Effect of protest. If a timely protest is filed under this section and the action protested is the termination of a ["]Retailer License,["] the ["]Retailer License["] shall be temporarily suspended rather than terminated until all administrative and judicial remedies have been exhausted. In all other circumstances, the KLCís action or decision shall stand unless and until reversed or revised as a result of the protest.

††††† (3) Action by President and Right to Appeal. The decision of the president shall be promptly issued in writing and shall be immediately furnished to the protesting person by hand-delivery, telecopier (with a hard copy sent by certified mail, return receipt requested,)[or by] certified mail[,] (return receipt requested), or by appropriate electronic means. A notice shall be deemed received on the date hand-delivered or sent by telecopier,[or] three (3) business days after deposit of the notice in the United States Mail, postage prepaid, if sent by certified mail, return receipt requested and upon receipt, if sent electronically. The decision shall recite the grounds relied upon[on] by the president in reaching the decision and shall inform the protesting party of its further appellate rights under subsections (4) and (5) of this section. The president's decision shall be final and conclusive, unless within ten (10) calendar days from the date of receipt of the decision, the protesting party delivers a written appeal to the board, by hand, by telecopier (with a hard copy sent by certified mail, return receipt requested) or by certified mail, return receipt requested, all pursuant to KRS Chapter 154[154A.090]. The address is: Board of Directors, Kentucky Lottery Corporation, 1011 West Main Street, Louisville, Kentucky 40202, Telecopier No. (502) 560-1532.

††††† (4) Board appeal.

††††† (a) After[Upon] receipt of an appeal, the board shall[promptly] schedule a hearing for the protesting party[person] which shall be scheduled[held] as soon as practicable; and

††††† 1. The hearing shall be conducted in accordance with KRS Chapter 13B; or

††††† 2. The chairman of the board may determine that the hearing will be conducted by a hearing officer. The chairman shall determine whether the hearing officer will conduct the hearing in the presence of a quorum of the board, who renders a decision without the recommended order of the hearing officer, or whether the hearing officer will conduct the hearing outside of the presence of the board and will complete and submit to the board a written recommended order, which shall include findings of fact, conclusions of law, and recommended disposition, as provided in KRS 13B.110. The[after receipt of the appeal. The board may hold the hearing at the next regularly scheduled board meeting. The protesting person and the president shall have the right to be represented by counsel before the board and, in addition, shall have the following rights relative to the hearing:

††††† 1. To submit written memoranda as to relevant facts or applicable law, if submitted at least ten (10) calendar days before the hearing;

††††† 2. To call and examine witnesses;

††††† 3. To cross-examine witnesses called by the opposing party; and

††††† 4. To introduce evidence.

††††† (b) The parties shall exchange a list of witnesses they intend to call at the hearing, a summary description of the evidence to be presented by each, and the documents proposed to be presented at the hearing, at least five (5) business days prior to the dates set for hearing.

††††† (c) The board may consider and grant motions by either party for extensions of time, for the right to file responsive memoranda, and to call additional witnesses after receiving the opposing partyís list of witnesses.

††††† (d) The protesting person shall have the burden of proving, by a preponderance of the evidence, that the presidentís decision was clearly erroneous, arbitrary and capricious, procured by fraud, or was a result of misconduct of the president or another employee of the KLC.

††††† (e) An accurate transcript of the hearing shall be kept, and the protesting person shall have the right to obtain a copy of the transcript upon payment of reasonable charges associated with the preparation of the transcript.

††††† (f) The chairman of the board shall act as the presiding officer at the hearing, unless the chairman appoints another board member or an independent hearing officer specifically for that purpose. The presiding officer shall act to maintain decorum and shall determine the order of procedure during the hearing, making all rulings on matters of law, evidence, and procedure.

††††† (g) Admissibility of evidence shall be determined by the presiding officer.

††††† (h) A] decision of the board shall be made by a majority of the board members present at the meeting in which the appeal is decided.

††††† (b)[The board shall issue its decision on the appeal within thirty (30) calendar days following the hearing and shall provide copies of the decision to the president, the protesting person and their respective counsel via certified mail, return receipt requested. Proof of receipt shall be made a part of the administrative record.

††††† (i)] The decision of the board shall be final unless the decision is appealed as provided by subsection (5) of this section and other applicable law.

††††† (5) Access to state courts. A person aggrieved by a decision of the board under this section may appeal the decision, within thirty (30) calendar days of its date of issuance, to a court of competent jurisdiction, in accordance with KRS Chapter 154A[154A.090].

 

††††† Section 11.[10.] Sales of Lottery Products[Tickets] by KLC. Nothing in 202 KAR Chapter 3, licensing documents[a retailer licensing document], or any other document shall limit the right of the KLC to sell lottery products[tickets] directly to the public, in person, electronically, by mail, by subscription, or otherwise.

 

††††† Section 12.[11.] Incorporation by Reference. (1) The following material is incorporated by reference:

††††† (a) "Application for Retailer License"[Application], 12/8/17[11/16/01"];

††††† (b) ["Retailer Relicensing Application, 11/16/01";

(c)] "Retailer License Agreement", 12/8/17[11/16/01"];

††††† (c)[(d)] "Retailer License Agreement Addendum for Authorized Cashing Agents"[Agent], 12/8/17[11/16/01"]; and

††††† (d)[(e)] "Retailer License Certificate", 12/8/17[11/16/01"].

††††† (2) This material may be inspected, copied, or obtained, upon reasonable notice[subject to applicable copyright law], at the Kentucky Lottery Corporation, 1011 West Main Street, Louisville, Kentucky 40202-2623, Monday through Friday, 8:00 a.m. through 5:00 p.m. E.T.

 

TOM DELACENSERIE, President and CEO

††††† APPROVED BY AGENCY: December 12, 2017

††††† FILED WITH LRC: December 15, 2017 at 9 a.m.

††††† PUBLIC HEARING AND PUBLIC COMMENT PERIOD: A public hearing on this administrative regulation shall be held on January 23, 2018, at 10:00 a.m., at the Kentucky Lottery Corporation, 1011 West Main Street, Louisville, Kentucky 40202-2623. Individuals interested in being heard at this hearing shall notify this agency in writing by five (5) workdays prior to the hearing, of their intent to attend. If no notification of intent to attend the hearing is received by that date, the hearing may be cancelled. This hearing is open to the public. Any person who wishes to be heard will be given an opportunity to comment on the proposed administrative regulation. A transcript of the public hearing will not be made unless a written request for a transcript is made. If you do not wish to be heard at the public hearing, you may submit written comments on the proposed administrative regulation. Written comments shall be accepted through January 31, 2018. Send written notification of intent to be heard at the public hearing or written comments on the proposed administrative regulation to the contact person.

††††† CONTACT PERSON: Mary Harville, Senior Vice President and General Counsel, Kentucky Lottery Corporation, 1011 West Main Street, Louisville, Kentucky 40202-2623, phone: (502) 560-1576; fax: (502) 560-1532, email mary.harville@kylottery.com.

 

REGULATORY IMPACT ANALYSIS AND TIERING STATEMENT

 

Contact Person: Mary Harville

††††† (1) Provide a brief summary of:

††††† (a) What this administrative regulation does: Pursuant to KRS 154A.400(1), the Kentucky Lottery Corporation is required to develop and maintain a statewide network of lottery retailers that will serve the public convenience and promote the sale of lottery tickets, while insuring the integrity of the lottery. This administrative regulation contains the regulations by which lottery retailers are governed.

††††† (b) The necessity of this administrative regulation: To govern the selection of lottery retailers, KRS 154A.400(1)(b) requires that the Board of Directors of the Kentucky Lottery Corporation shall, by administrative regulation, develop a list of objective criteria upon which the selection of lottery retailers shall be based.

††††† (c) How this administrative regulation conforms to the content of the authorizing statutes: This administrative regulation lists the objective criteria upon which the selection of lottery retailers is based as required by KRS 154A.400(1)(b).

††††† (d) How this administrative regulation currently assists or will assist in the effective administration of the statutes: This administrative regulation lists the objective criteria upon which the selection of lottery retailers is based as required by KRS 154A.400(1)(b).

††††† (2) If this is an amendment to an existing administrative regulation, provide a brief summary of:

††††† (a) How the amendment will change this existing administrative regulation: The amended regulation contains the following amendments:

††††† Section 1 Ė Definitions

Updates the definition section to delete definitions that are antiquated and no longer used in the industry;

Adds a definition for a license applicant;

Increases the cashing agent limit authority to $25,000 and requires cashing of lottery products during KLC business hours;

Removes the term "online" and adds a definition for instant product, draw-based product, lottery product and draw-based retailer to conform to updates in lottery products offered;

Amends the definition of "owner" to conform to current laws and practice concerning corporate entities

††††† Section 2 Ė Conditions of Licensing

Requires retailers to be in compliance with the Americans with Disability Act;

Removes the indemnity provision as duplicative of the indemnity provision in the Retailer License Agreement;

Specifies the terms of using ticket stock;

Requires retailers to cash tickets during regular business hours by cash, check, or money order;

Prohibits retailers from charging a fee for cashing tickets;

Requires retailers to provide players with a validation slip upon request;

Clarifies that retailers must keep accounting records for the prior and current fiscal year.

††††† Section 3 Ė Licensing

Requires all applicants for a retailer license to submit a retailer application authorizing a complete background check at any time,

Changes the one-time license and application fee to $250.00 for each applicant, and an additional $100 fee for each additional retail outlet for chain retailers,

Amends the license term to allow for one-year automatic renewal of licenses up to four years (unless earlier terminated), with relicensing every four years,

Amends the cashing agent requirement to allow cashing lottery products up to $25000 as authorized by KLC,

Requires cashing agents to cash during KLC business hours by cash, check, or money order, and

Requires cashing agents to protect private player information

††††† Section 4 Ė Rules for Change in Ownership

Clarifies that a complete change in ownership of a retailer will require a complete relicensing and new license fee

††††† Section 5 Ė Requirements for applicants, retailers, and owners.

Clarifies that the KLC may conduct a background investigation of applicants and retailers at any time;

Allows retailers to provide a social security number in lieu of a Federal Employer Identification Number (FEIN) if a sole proprietorship and only require a sales tax number if the retailer sells taxable products (to accommodate fraternal organizations);

Requires corporate entities to be registered with the Kentucky Secretary of State;

Adds the "personal guaranty agreement" to the list of security or other assurances of payment which may be required by the KLC if applicant is determined to be a financial risk;

Adds additional selection criteria for applicants to sell draw-based and instant products based on likely or historic sales and physical space;

Requires retailers to sell both draw-based and instant products, unless otherwise authorized by the KLC;

Sets out the procedure for handling lost or stolen tickets, updates the security inspection policy

††††† Section 6 Ė Lottery equipment and supplies

Revises the and criteria for allocation of lottery equipment and supplies;

††††† Section 7 Ė Prize payments

Requires retailers to cash lottery products up to $600 by paying cash or by issuing a check or money order;

Increases cashing agent authority up to $25,000 from $5000;

Requires cashing agents to cash lottery products during KLC business hours;

††††† Section 8 Ė Retailer Accounting

No material changes

††††† Section 9 Ė Termination or Suspension

Incorporates the provisions of KRS Ch. 154A that require termination or suspension of a retailer license agreement;

Clarifies that "material" violations may result in termination or suspension, and expands upon the reasons for which a retailer license agreement may be terminated or suspended,

Clarifies that for chain outlets, termination or suspension of one outlet may be the basis for terminating or suspending all outlets

††††† Section 10 Ė Retailer remedies

Revises the procedures for retailers to appeal a decision of the KLC to be consistent with the provisions of KRS Ch. 13B;

Documents Incorporated by Reference

Includes revised forms necessary to update, streamline and facilitate the retailer licensing process, including the application for retailer license, the retailer license agreement, and the addendum for cashing agents.

††††† (b) The necessity of the amendment to this administrative regulation: the amendments align the regulation with current operating procedures of the KLC and updates, simplifies, and streamlines the retailer licensing process and formats the regulation to comply with statutory requirements.

††††† (c) How the amendment conforms to the content of the authorizing statutes: This administrative regulation lists the objective criteria upon which the selection of lottery retailers is based as required by KRS 154A.400(1)(b).

††††† (d) How the amendment will assist in the effective administration of the statutes: The amended regulation would simplify and streamline the retailer licensing process and update the regulation to conform to current business and industry practices.

††††† (3) List the type and number of individuals, businesses, organizations, or state and local governments affected by this administrative regulation: This regulation will affect the approximately 3,241 currently active licensed lottery retailers, as well as prospective retailers.

††††† (4) Provide an analysis of how the entities identified in question (3) will be impacted by either the implementation of this administrative regulation, if new, or by the change, if it is an amendment, including:

††††† (a) List the actions that each of the regulated entities identified in question (3) will have to take to comply with this administrative regulation or amendment: The regulation, both existing and amended, require all retailers to take a number of actions in order to obtain and maintain a lottery retailer license, including: take the steps required to apply for a retailer license; comply with the conditions of licensing; pay the application fee; requirements for retailers that apply to be cashing agents; the criteria for installation of lottery equipment; follow the steps required to pay prizes and for the handling and storage of tickets; and follow requirements for addressing security matters, training personnel.

††††† (b) In complying with this administrative regulation or amendment, how much will it cost each of the entities identified in question (3): the regulation establishes a flat $250 application fee for all retailer applicants, and a $100 fee for each additional chain outlet. It is unknown whether a retailer would incur other costs over and above that fee to comply with the regulation, such as adequate space to accommodate a lottery terminal or training of personnel.

††††† (c) As a result of compliance, what benefits will accrue to the entities identified in question (3): the licensed retailer may sell lottery products and be entitled to a selling and cashing commission and other incentives.

††††† (5) Provide an estimate of how much it will cost to implement this administrative regulation:

††††† (a) Initially: This regulation will be implemented with existing agency resources and add no additional implementation costs. The application fees will cover the costs of the required background and financial investigations.

††††† (b) On a continuing basis: This regulation will be implemented with existing agency resources and will add no additional implementation costs. The application fees will cover the costs of the required background and financial investigations.

††††† (6) What is the source of the funding to be used for the implementation and enforcement of this administrative regulation: The administrative regulation will be implemented and enforced with agency funds. The application fees will cover the costs of the required background and financial investigations.

††††† (7) Provide an assessment of whether an increase in fees or funding will be necessary to implement this administrative regulation, if new, or by the change, if it is an amendment: No increase in fees or funding will be necessary to implement the amendment to this administrative regulation.

††††† (8) State whether or not this administrative regulation established any fees or directly or indirectly increased any fees: The existing regulation required a $100 fee for retailers selling only instant tickets and a $350 fee for retailers selling both instant and online lottery tickets. The amended regulation establishes a flat application fee of $250 for all lottery retailer applicants and an additional $100 for chain retailers for each additional outlet.

††††† (9) TIERING: Is tiering applied? Generally, the administrative regulation will apply equally to all retailers and prospective retailers; therefore, no tiering is applied.

 

FISCAL NOTE ON STATE OR LOCAL GOVERNMENT

 

††††† (1) What units, parts, or divisions of state or local government (including cities, counties, fire departments, or school districts) will be impacted by this administrative regulation? State and local government entities may be indirectly impacted by this administrative regulation to the extent that current retailers and new retailers within the state or a local government entity may be licensed and regulated in the sale of lottery products.

††††† (2) Identify each state or federal statute or federal regulation that requires or authorizes the action taken by the administrative regulation. The state statute which authorizes the action taken by this administrative regulation is KRS 154A.400 (1).

††††† (3) Estimate the effect of this administrative regulation on the expenditures and revenues of a state or local government agency (including cities, counties, fire departments, or school districts) for the first full year the administrative regulation is to be in effect.

††††† (a) How much revenue will this administrative regulation generate for the state or local government (including cities, counties, fire departments, or school districts) for the first year? This administrative regulation is an amended version of an administrative regulation that has been in effect since 2002, and the regulation does not have the effect of directly generating revenues for the state or local government. The regulation establishes an application and relicensing fee of $250 for all retailer applicants and this fee is to cover the KLCís estimated costs for the required background and financial investigations. Other fees are established for a complete change in ownership of a retailer and for adding a new retailer outlet if the retailer is a chain. In addition, the retailers that are licensed and regulated under the regulation are responsible for selling lottery products. Lottery sales for Fiscal Year 17 were $1,000,501,000, with dividends to the Commonwealth of $238 million (to the General Fund and then to the funds as provided in KRS 154A.130); and lottery sales for Fiscal Year 18 are projected to be $1,033,100,000, with dividends to the Commonwealth of $252.5 million (to the General Fund and then to the funds as provided in KRS 154A.130).

††††† (b) How much revenue will this administrative regulation generate for the state or local government (including cities, counties, fire departments, or school districts) for subsequent years? See above response: the administrative regulation will not directly generate revenue for the state or local government.

††††† How much will it cost to administer this program for the first year? The license fees established in the regulation will cover the cost of the required background and financial investigations.

††††† (c) How much will it cost to administer this program for subsequent years? The license fees established in the regulation will cover the cost of the required background and financial investigations.

††††† Note: If specific dollar estimates cannot be determined, provide a brief narrative to explain the fiscal impact of the administrative regulation. N/A

††††† Revenues (+/-):

††††† Expenditures (+/-):

††††† Other Explanation: