Alerts and Updates
Interim Regulatory Guidelines Preclude Gaming Businesses from Receiving Support Under the CARES Act Paycheck Protection Program
April 3, 2020
The American Gaming Association issued a statement regarding the interim guidelines and is taking action to have these guidelines amended.
Much of the U.S. casino industry is currently ineligible to benefit from the Paycheck Protection Program portion of the newly enacted Coronavirus Aid, Relief and Economic Security Act (CARES Act). As articulated by Congress, under the CARES Act, the Paycheck Protection Program provides loans to any small business, nonprofit organization, veterans’ organization, and/or tribal business as long as the business has less than 500 employees. The Paycheck Protection Program is one of several tools to provide much needed support for small businesses and their employees experiencing economic distress caused by the COVID-19 crisis.
Subsequent to the March 27 enactment of the CARES Act, on the eve of April 2, 2020, the Small Business Administration (SBA) released clarifying interim regulatory guidelines for the Act’s Paycheck Protection Program. The guidelines detail the types of entities that are eligible for the paycheck protection loan, the procedure to obtain the loan and answers to other program questions. This release was one of the first steps toward implementation of the CARES Act and provides specific eligibility requirements for small businesses. The guidelines, in relevant part, reference the SBA’s previously developed Standard Operating Procedure, 50 10, Subpart B, Chapter 2. The Standard Operating Procedure, in turn, references 13 CFR 120.110, which provides that small businesses that obtain more than one-third of their annual gross revenue in the prior year, including rental income, from legal gambling activities are not eligible to receive SBA loans. Further, any business whose purpose is “gambling,” defined as a pari-mutuel betting racetrack or a gambling casino, is ineligible regardless of the percentage of gross revenue derived from gambling. These same restrictions apply to small businesses applying for the SBA’s Economic Injury Disaster Loan Program.
The interim regulatory guidelines—by cross-referencing previous SBA exclusions to specific industries including legal gambling businesses—effectively deny otherwise eligible legal gaming businesses the anticipated benefits of the Paycheck Protection Program. To be clear, there was no exclusion of the legal gambling industry in the CARES Act itself. The American Gaming Association issued a statement regarding the interim guidelines and is taking action to have these guidelines amended. Furthermore, the SBA has previously opined that restriction against providing financial assistance to small business enterprises engaged in gambling activities does not apply to manufacturers or lessors of materials used in these gambling activities.
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Duane Morris has created a COVID-19 Strategy Team to help organizations plan, respond to and address this fast-moving situation. Contact your Duane Morris attorney for more information. Prior Alerts on the topic are available on the team’s webpage.
For More Information
If you have any questions about this Alert, or for more detailed information about any of these newly released guidelines, please contact any of the attorneys in our Gaming Industry Group, any member of our COVID-19 Strategy Team or the attorney in the firm with whom you are in regular contact.
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