From the Client’s Seat

Having spent many years hiring, dealing with, and tolerating lawyers in my executive positions with major gaming interests, I can honestly say that the experience has not always been a proverbial “walk in the park.” Sometimes I even had to work, and work hard, to get my own attorney to understand my business or regulatory perspective. The bottom line is that most CEOs view lawyers as nothing more than a necessary evil and a regrettable cost of doing business in the gaming industry.

Perhaps I have a different perspective, at least in part, from CEOs. Apart from the “normal” matters involving licensing and business contracts that mostly fall into the “necessary evil” category, there have been an enlightened few lawyers who deemed it important to know the “business” of gaming and the economic impact of statutes and regulation, including becoming proactive to effect sensible change.

I had the pleasure of functioning both as an attorney, representing what was then the Golden Nugget, and as an executive who could make professional appearances before regulatory agencies. In the early days in New Jersey, there was plenty of “low-hanging fruit,” simply because the regulatory scheme was unbelievably restrictive and pervasive—for example, mandating low-limit table games, requiring live entertainment, placing significant restrictions on advertising, and requiring fresh playing cards for each shift. Still, those regulations had been in place for several years without challenge. Therein was an opportunity to prove that the overhead of representation was worth the cost and, in some instances, was actually cost effective because of the savings reaped.

My point is simple. A proactive attorney who has an understanding of the business can sometimes glean for himself a regulatory burden that can be alleviated or, equally important, can understand what is frustrating management. He can articulate a solution in legalese that includes the practical reason for seeking change. And, of course, the attorney has to have a client who allows a certain level of freedom to think, to ferret out the frustrations, and to understand the burdens. Not all clients take comfort in their attorney having those abilities or in the fact that it might do the client good if the attorney had the freedom to initiate change. That situation is unfortunate.

There is still much that can be done in most jurisdictions to establish a better business environment for the industry. Nowhere is this more true than in New Jersey right now. Multiple Atlantic City venues face the real possibility of closure—up to 10,000 jobs could be eliminated, bringing the loss of investment dollars and an impact on future development.

While the situation in Atlantic City is in free fall, the economic situation prevailing in most gaming jurisdictions is nearing disaster as well. While the typical business response is to first address expenses, the loss of revenue almost universally has outpaced cost reductions, resulting in significant losses of operating profit and, in many cases, so significant a loss as to result in significant layoffs and many applications for the re-structuring of debt.

Certainly regulatory reform in a traditional sense could not have compensated for the existing economic downturn. But relief from unnecessary overhead could have been put into play long before now. And most operators would have been delighted to have $4 million or $5 million extra to help cover the bad times. But these bad times require a more comprehensive response.

The bad times also offer opportunity. State governments from coast to coast are looking for revenue. The prospects for the creation of new gaming jurisdictions are favorable. State governments are fearful of losing existing tax bases. The opportunity is ripe for reform to reduce operating costs. These savings can be used to enhance marketing efforts, which in turn will enhance revenue, to everyone’s benefit. State governments are concerned about capital stagnation and jobs. In addition, the opportunity is perhaps ripe to have economic incentives created, as they have been for many other industries, that create or preserve jobs and invite the investment of significant capital.

Yet, not many voices offering comprehensive solutions are heard from the gaming industry.

For example, in New Jersey a legislative panel is about to consider a number of reform measures, some of which will be helpful to the Atlantic City business climate, while others are potentially detrimental to the industry. The Governor’s Advisory Commission on New Jersey Gaming, Sports and Entertainment has recently issued a report on gaming that will impact the entire state,suggesting policies that would likely have impact for years. This commission has not had any public hearings or discussions with the gaming industry other than apparently, as reported in the press, entering into discussions with one group seeking to place video lottery terminals in the Meadowlands. The governor has announced his agreement with the commission report’s main recommendations, and that will likely lead to a public dialogue. This forum should present an opportunity for the casino industry to broaden the discussion on solutions to the economic crisis it faces. But the industry had better be prepared, because this opportunity is likely the last one it will get.

To the extent that the industry has had input into the legislative panel’s agenda, the program announced currently does not contain nearly the breadth of considerations that it ought to contain at this dire time. The governor’s policy statement and the advisory commission’s report have certainly broadened the subject matter to be considered. But virtually none of the “solutions” offered have come from the industry, which should have been sought out for its views and should also be able to take advantage of the forum created. The time has come to think big. And, for those attorneys who have an intimate knowledge of the industry, it is time to invest in developing our own agenda for the client to consider, along with our own that can be at least be put on the table.

New Jersey is not alone in the economic morass. Nevada now has surpassed Michigan in unemployment numbers. Most other gaming jurisdictions are negatively affected to one degree or another, causing defaults on financing that had been placed during better times as well as widespread unemployment.

At least a partial solution may be a proactive effort on the part of the gaming industry, counsel and sober economic analysis offering major, as well as more traditional, reforms and approaches. Some consideration should be given to creating incentives for capital investment, such as TIFs, sales or gaming tax credits, in order to stimulate new attractions, open new or expanded markets and create jobs. But this sober economic analysis has to come with public-interest credentials and cannot be viewed as purely self-serving. It is unnecessary and unproductive to play victim to those who do not have the depth of knowledge to solve the prevailing economic and investment problems. While it is likely that not all of a gaming industry wish list would be granted, the public consideration of a pro-business perspective cannot be bad. It is already late in the dance to begin the contemplated initiative, but it is better late than never. And, at least to me, it is a great opportunity for the knowledgeable attorney to help carry the water for the gaming industry and, perhaps, to carry the day.

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