ALJDEC decisions subject to certification as final

22F-004-GAM · Department of Gaming · 2021-11-11

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

In the Matter of

HILLSIDE (Arizona), LLC,

PCA No. EW2207,

Appellant.

No. 22F-004-GAM

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: October 22, 2021 at 9:00 AM.

APPEARANCES: Assistant Attorney General Lena Kalkbrenner, Esq. and Patrick Irvine, Esq. appeared on behalf of the Arizona Department of Gaming (“Department”). Ishra Solieman, Esq. Scott Scherer, Esq. and Thomas Galvin, Esq. appeared on behalf of Hillside (Arizona) LLC (“Appellant”) with Garrison Mason as a witness. Robert Mon

ADMINISTRATIVE LAW JUDGE: Jenna Clark.

_____________________________________________________________________

Having heard the evidence and testimony and having considered the record in this matter, the undersigned Administrative Law Judge hereby makes the following Findings of Fact and Conclusions of Law and issues the following Recommended Order to the Director of the Department.

FINDINGS OF FACT

Background and Procedure

On April 15, 2021, House Bill 2772, codified at Arizona Revised Statute (“Ariz. Rev. Stat.”) § 5-1301 et seq. was signed by Arizona State Governor Douglas Ducey. The legislation directs the Department to act as the primary regulate and enforcement body for event wagering in the state. A maximum of ten (10) event wagering licenses may be issued to non-Tribal applicants under the new law.

On August 09, 2021, Applicant, a designee of the soccer team Phoenix Rising Football Club LLC (“Phoenix Rising”), submitted an Event Wagering Operator License application to the Department.

On August 16, 2021, the Department issued a notice of Non-Qualification Determination Letter which denied the application on the grounds that Applicant did “not meet qualifications for licensure” as an Event Wagering Operator Designee under Ariz. Rev. Stat. § 5-1301(7)(a) and Arizona Administrative Code (“Ariz. Admin. Code”) R19-4-106(C).

On August 19, 2021, Appellant requested further clarification for the basis of its application denial from the Department. The Department provided the following reasons for its denial:

Application did not demonstrate that Appellant met the requirements listed in R19-4-106(C)(1);

Application did not demonstrate Appellant met the definition of “Professional Sport” as defined by Ariz. Rev. Stat. § 5-1301(14);

Application did not demonstrate that Appellant met the threshold application requirement pursuant to Ariz. Rev. Stat. § 5-1304(A)(1) by demonstrating:

Ownership of an Arizona Professional Sports Team or Franchise; or

Operation of a Sports Facility that hosts an annual tournament on the PGA Tour; or

Promotion of a national association for stock car auto racing national touring race conducted in this state; or

Designee status for one of the above listed categories.

On August 27, 2021, the Department granted Even Wagering Operator licenses to qualified licensees. Appellant was not issued a license. The licensees were authorized to begin marketing efforts on August 28, 2021, and begin accepting wagers on September 09, 2021.

A separate and distinct license category for Limited Event Wagering Operator licenses are codified at Ariz. Rev. Stat. § 5-1307. Although the Department may issue a total of up to ten Limited Event Wagering licenses to qualifying applicants, none have been issued to date.

Upon receipt of Appellant’s Notice of Appeal & Request for Hearing, the Department referred this matter to the Office of Administrative Hearings (“OAH”), an independent state agency, for an evidentiary hearing on October 22, 2021. Per the Notice of Hearing, the issues to be determined are whether Appellant satisfies statutory requirements for a Wagering Operator License pursuant to Ariz. Rev. Stat. §§ 5-1301(7)(a), 5-1301(14), 5-1301(18), 5-1304(A)(1), 5-1304 (B)(1), 5-1304 (C), and Ariz. Admin. Code R19-4-106.

Soccer Hierarchy

The Federation Internationale de Football Association (“FIFA”) is the governing body of soccer worldwide.

Operating directly underneath FIFA’s jurisdictional authority are six (6) regional confederations that oversee soccer at the continental level and assist FIFA in carrying out its regulations, directives, and statutes. The Confederation of North, Central and Caribbean Association Football (“CONCACAF”) is the regional confederation governing soccer in North America.

There are two hundred eleven (211) National Associations that operate directly beneath the regional confederations, each of which is authorized to represent FIFA as the governing body for soccer at the national level. In order to compete in any FIFA-affiliated event, a soccer league and its team must be sanctioned by their corresponding National Association and by FIFA.

The United States Soccer Federation (“USSF”), a member of CONCACAF, is the FIFA-recognized National Association for administering and overseeing soccer in the United States. USSF designates men’s soccer leagues as either Division I: Major League Soccer (“MLS”), the highest level of professional play; Division II: North American Soccer League (“NASL”) and United Soccer Leagues (“USL”) Championship League, mid-level professional play; and Division III: USL League One, the lowest level of professional play, based on its Professional League Standards (“Standards”). The Standards establish requirements that a league must meet to gain a divisional designation, also referred to as a sanction, for a season of play. As such, there is no affiliate, subsidiary, parent, or any other such “minor league” professional partnership between MLS, NASL, and USL.

On an annual basis, soccer leagues apply to USSF to receive designations for the upcoming season of play by submitting reports demonstrating their compliance, or plans for compliance with the Standards.

Stipulated Evidence

USSF is the governing body for the sport of soccer in the United States.

USSF is responsible for sanctioning all domestic professional leagues and national tournaments.

USSF classifies professional leagues as Division I, Division II, and Division III.

MLS is currently the only USSF sanctioned Division I league.

There is currently no MLS team in Arizona.

Phoenix Rising has no affiliation with any MLS team.

USL is a professional soccer league based in the United States and sanctioned to operate by USSF.

USL currently operates two separate and distinct professional men’s soccer leagues: the USL Championship and USL League One. USL Championship is recognized by USSF as a Division II league. USL League One is recognized by USSF as a Division III league.

Phoenix Rising is the only Arizona professional soccer team that is a member of and competes in the USL Championship League.

Hearing Evidence

The Department declined to present a Case-in-Chief, but submitted its Prehearing Brief, including attached Exhibits A-B, into the record. Appellant called Garrison Mason as a witness and submitted its Prehearing Brief and Exhibits A-H into the record. The Notice of Hearing was admitted into the record as its own exhibit. The substantive facts of record are as follows:

USL Championship League has been designated as a “professional league” by the USSF.

The USL Championship League is the highest-level league operated by USL.

The Phoenix Rising is a member of the USL Championship League, and the only professional league in Arizona.

The Phoenix Rising’s soccer complex at Wild Horse Pass seats more than 10,000 fans and can accommodate additional standing-room only ticket purchases.

The Phoenix Rising participates in the US Open Cup; the oldest ongoing soccer competition sanctioned by the USSF in the United States. The winner of the US Open Cup is eligible to compete in international competitions as the US Champion.

USL Championship and MLS clubs get automatic entries into the US Open Cup, and have played against each other in the tournament.

The winner of the US Open Cup is awarded a place in the CONCACAF Champions League.

The winner of the CONCACAF Champions League is awarded a position in the FIFA Club World Cup.

The USL is separate and autonomous from MLS. USL is not a “minor league” for MLS, as no players are “called up” or “sent down” between organizations.

Additional Evidence

Representative Jeff Weninger (R) of Arizona's 17th Legislative District, located in Maricopa County, was the primary sponsor of HB 2772.

When Representative Weninger discussed MLS and Phoenix Rising during proceedings on HB 2772, it was his intent that Phoenix Rising would qualify, as the sport of soccer was specifically enumerated as a “professional sport” and it was known that Arizona did not have a MLS team at the time the bill was passed.

Per Representative Weninger, Senator Thomas Raye Shope (R), the Senate sponsor of HB 2772, was also of the belief that Phoenix Rising would be issued an Event Wagering Operator License upon application by the organization.

Closing Arguments

In closing, Appellant argued that the Department misinterpreted the intent and meaning of HB 2772 as it applies to Appellant’s application, and the Department misunderstood the general nature and organization of professional soccer. Specifically, Appellant argued that the Arizona Legislature intended for the Phoenix rising to be issued an Event Wagering Operator License, and that such issuance would be appropriate because the soccer club plays the USL Championship League which is the highest level of the Division II professional soccer. As such, Appellant beseeched the Tribunal to reverse the Department’s denial of its Event Wagering Operator License application.

While the Department did not contest the fact that Appellant is ranked at the top of USL, a Division II classified league, the Department opined that Appellant did not operate at the “highest level of play” as required by law because it was not a MLS club. Thus, the Department argued that Appellant could not be issued an Event Wagering Operator License because it was ineligible by statute. As such, the Department beseeched the Tribunal to affirm its denial of Appellant’s Event Wagering Operator License application.

CONCLUSIONS OF LAW

The Department is charged with issuing licenses for Event Wagering in the State of Arizona, and as such the Department has jurisdiction to resolve this matter. Hearings on appeals from the Department’s decisions are conducted through OAH.

Appellant bears the burden of proof in this matter and must establish that it meets the standards by clear and convincing evidence. Clear and convincing evidence is “[e]vidence indicating that the thing to be proved is highly probable or reasonably certain.”

Ariz. Rev. Stat. § 5-1301(7)(a) defines “event wagering operator,” in pertinent part, as “[a]n owner or operator of an Arizona professional sports team or franchise ... If an owner, or operator that qualified for an event wagering operator license appoints a designee, the designee will be considered the event wagering operator and the licensee with respect to the applicable license for the purposes of this chapter.”

Ariz. Rev. Stat. § 5-1301(14) defines "professional sport" as “[A] sport conducted at the highest level league or organizational play for its respective sport and includes ... soccer.”

Ariz. Rev. Stat. § 5-1301(18) defines "sports facility," in pertinent part, as a facility that is owned by a commercial entity that hosts professional sports events and holds a seating capacity of more than ten thousand persons at its primary facility.

Ariz. Rev. Stat. § 5-1304(A)(1) provides the following, in pertinent part(s):

The department may issue not more than ten event wagering operator licenses to applicants other than an Indian tribe... The department shall issue event wagering operator licenses only to applicants that are either of the following in compliance with this chapter:

An owner of an Arizona professional sports team or franchise, If a designee is used, the designee shall be considered the applicant and be subject to any requirements of the application process rather than the owner, operator or promoter.

Ariz. Rev. Stat. § 5-1304 (B)(1) provides the following, in pertinent part(s):

An applicant for an event wagering license shall submit an application in a form prescribed by the department, including the all of the following:

The identification of the applicant's principal owners that own more than five percent of the company, the partners, the members of its board of directors and the officers, the identification of any holding company, including its principals, engaged by the applicant to assist in the management or operation of event wagering, if applicable, and information to verify that the applicant is qualified to hold a license under subsection A of this section.

Ariz. Rev. Stat. § 5-1304 (C) provides, in pertinent part, that any applicant for licensure agrees to be subject to state jurisdiction to the extent necessary to determine the applicant's qualification to hold a license.

Ariz. Admin. Code R19-4-106(C)(1) provides, in pertinent part, that for a professional sports team to be qualified for an event wagering operator license it must meet the definition of an event wagering operator pursuant to Ariz. Rev. Stat. § 5-1301(7)(a) and all requirements set forth in Ariz. Rev. Stat. § 5-1304 (A)(1), (B) and (C).

Deference is given to the agency's factual findings if they are supported by substantial evidence, even if other evidence before the agency would support a different conclusion. Courts will “consider the evidence in a light most favorable to upholding the agency's decision,” but “are not bound by the agency’s legal conclusions.” However, an agency's decision must be rejected when it is “not supported by substantial evidence, is contrary to law, is arbitrary and capricious or is an abuse of discretion.” “

An agency acts arbitrarily and capriciously when it does not examine ‘the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made.’”

In interpreting statutes, words should be given “their ordinary meaning unless it appears from the context or otherwise that a different meaning is intended.” Statutes shall be liberally construed to affect their objects and to promote justice. If a statute is unambiguous, courts “apply its terms without resorting to other tools of statutory interpretation, unless doing so leads to impossible or absurd results.”

A reviewing tribunal is not bound by an agency’s conclusions regarding questions of law, Seigel v. Arizona St. Liq. Bd., 167 Ariz. 400, 401, 807 P.2d 1136, 1137 (App. 1991), but is free to determine and apply the appropriate legal standards.

Here, the relevant and credible evidence of record establishes by clear and convincing evidence that while Appellant meets some of the statutory requirements required to receive an Event Wagering Operator License, Appellant does not meet all enumerated requirements and therefore its application for licensure cannot be granted by the Department.

The highest level of soccer in the United States is MLS, which is recognized as Division I by USSF. Phoenix Rising is not in Division I. Appellant’s argument that it is highest in its region is not persuasive. Furthermore, it is clear that the Legislature understood that there was not a highest level soccer team in Arizona at the time HB 2772 was enacted, but they realized that there could be a MLS/Division I club in Arizona in the future and/or that Phoenix Rising could become a MLS/Division I team in the future, so they enumerated soccer as a “professional sport.”

. Notably, Appellant’s participation in the US Open Cup bears little to no relevance in the evaluation of its status as league that operates at the “highest level.”

An evaluation of whether Appellant meets any other relevant statutory provisions for licensure is rendered moot by the aforementioned conclusion(s).

The Tribunal finds that no evidence in the record establishes that the Department’s denial decision was arbitrary or capricious.

Therefore, based on the preceding legal analysis, the undersigned Administrative Law Judge must affirm the Department’s denial of Appellant’s Event Wagering Operator License application.

RECOMMENDED DECISION

Based on the foregoing,

IT IS RECOMMENDED that on the effective date of the Final Order, the Department dismiss Appellant Hillside (Arizona) LLC’s, PCA No. EW2207, appeal and affirm its decision to deny Appellant’s application for an event wagering operator license.

In the event of certification of the Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order will be five days from the date of that certification.

Done this day, November 12, 2021.

Office of Administrative Hearings

/s/ Jenna Clark

Administrative Law Judge

Transmitted electronically to:

Ted Vogt, Director

Department of Gaming