When it comes to gaming markets in 2014, all eyes likely will be focused on the trio of states that have rolled out online wagering. Their successes and failures will be under the microscope as analysts, legislators, gaming operators, lobbyists, opponents and others try to determine the true potential of the fledging U.S. online gaming market.
While many gaming companies and legislators are on board with expansion, battle lines are being drawn by others. A Nov. 17 article in The Washington Post outlined billionaire casino magnate Sheldon Adelson’s plan to persuade Congress to ban Internet gaming. Adelson has espoused the view that the practice is a danger to society, and it could tarnish the industry’s traditional business model.
The Las Vegas Sands Corp. chairman’s stance puts him at odds with most of his competitors, including executives at Caesars Entertainment and Station Casinos, both of which are active in Nevada and New Jersey, two of the three states that allow regulated online gaming, as well as the American Gaming Association (AGA).
“Time and again, government efforts to prohibit use of everyday products have failed,” AGA President and CEO Geoff Freeman said in a statement. “In 2012, Americans spent nearly $3 billion gambling with rogue offshore operators. The Internet cannot be forced back into the bottle—nor can market demand.”
The AGA supports pragmatism and strong regulation of online gaming that protects consumers, prevents underage play, ensures the integrity of the games and empowers law enforcement. “New government efforts to prohibit online gaming will unintentionally strengthen black market providers, create more risk for American consumers including children and drive U.S. jobs and potential revenues overseas,” he said. ”We appreciate divergent viewpoints and welcome a healthy discussion on this complex issue.”
Freeman can expect that healthy discussion to materialize because Adelson, who was the top donor in the 2012 presidential election, is readying a public campaign to demonstrate that online gaming is dangerous to children, the poor and others who could be exploited by easy access to Internet betting. Called the Coalition to Stop Internet Gambling, it is expected to roll out in January. According to The Washington Post, Adelson has already begun hiring lobbyists and public relations experts in Washington and state capitals nationwide.
Online gaming is clearly shaping up to be a dynamic debate in 2014, said Marlon Goldstein, shareholder and co-chair of Greenberg Traurig’s national Gaming Practice.
“There are going to be some additional states that will likely take up or enact similar online gaming legislation,” Goldstein said. “I think there’s going to be a continued push as there has been this year for a federal [regulatory] solution and an equal push to make online gaming illegal in this country.”
Goldstein acknowledged that Adelson is an industry force with substantial resources but also noted that most of Adelson’s industry counterparts believe online gaming should be allowed and regulated.
“I think it’s going to be a really interesting debate, and it’s going to be really hard to predict how that will play out,” Goldstein said. “I believe that’s a real indication that the heat is going to be turned up in 2014.”
Marcus Prater, executive director of Association of Gaming Equipment Manufacturers (AGEM), said it might not be too late for federal regulation. “Everybody’s holding out hope for some sort of federal solution before this state-by-state solution gets too far down the road,” he said.
In addition to Nevada, New Jersey and Delaware, at least a dozen other states are expected to consider it next year.
David Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas, said he believes many casino companies are “very eager to get involved” in the online gaming space. He noted that Caesars Entertainment and Station Casinos were the first to be rolled out in Nevada earlier this year and are now in New Jersey.
Other states, too, will be scrutinizing the legalized online gaming operations over 2014. “We’ll see if [online gaming] has a positive impact on revenues,” he said. If states see online gaming growing revenues in those three states, “I could see them more proactive about expansion,” Schwartz said.
Nevada became the first state to launch regulated online gambling in April, offering only online poker to players. Delaware came online in October, offering casino games, slots and lottery tickets. At Casino Enterprise Management’s (CEM) press time, New Jersey was in the midst of the soft rollout of its i-gaming operation that was to officially start Nov. 26.
Each state uses geolocation technology to satisfy requirements that gamblers be located within each state. But states with online gaming could permit reciprocal agreements that allow players to cross state lines.
In late October, the Nevada Gaming Commission adopted a regulation encouraging Nevada Gov. Brian Sandoval to seek such compacts with other states that also allow online gaming. Sandoval already has discussed with Delaware Gov. Jack Markell the possibility of Delaware permitting Nevada’s online poker games to operate in that state. According to a report in the Las Vegas Sun, Sandoval called the conversation “positive,” but nothing was expected to occur soon.
One of the questions gaming operators, analysts and legislators will be asking during 2014 will be what effect online play is having on existing brick-and-mortar casinos.
Some casino operators have expressed concern about potential cannibalization or erosion of brick-and-mortar business.
“That’s the one thing that keeps me up at night,” said Tim Wilmott, Penn National Gaming CEO, during a CEO roundtable discussion at the Global Gaming Expo (G2E) 2013. “Right now, what’s going to happen is as clear as mud.”
Analysts and operators will also be monitoring how well the protections for consumers are working, including those to monitor borders, age verification and problem gambling.
Beyond i-gaming, gaming industry proponents will be pinning their hopes on other markets, including Florida, New York and Massachusetts.
The Sunshine State promises to be a hotbed of activity in 2014 after the Florida State Legislature commissioned a $400,000 comprehensive study of Florida’s gaming industry in 2013. Now a Senate panel is holding hearings and evaluating what, if anything, to do to overhaul the state’s gaming system.
“I expect 2014 is going to be a very dynamic year as it relates to gaming,” said Goldstein, whose firm represents the Seminole Tribe, which operates seven casino resorts under compact with the state. “The wild card is what the state is going to do.”
Florida is very different from other states that are considering offering gaming for the first time because it already has gaming operations, Goldstein said. “It’s a much more complicated question with a lot more factors to consider,” he said. There are many different constituents vying to be heard, including the tribe, which has its compact with the state, the established pari-mutuel industry, interested new players, gaming opponents and Florida’s family-friendly defenders, namely Disney.
Already the money is flowing in the form of campaign contributions, according to an article in the The Florida Times-Union. It cited a flood of campaign contributions from interested parties, including casinos, dog tracks, gaming opponents and Indian tribes.
During the first 11 months of the 2014 election cycle, gaming interests gave $2.8 million to candidates and political committees—twice the
$1.4 million the industry had given at the same point in the 2012 election cycle, according to campaign finance records, the newspaper said.
Legislative committees are expected to consider possible gaming reforms during the 2014 spring session. The largest single gaming-related donor is the Seminole Tribe of Florida at $919,994, with 81 percent going to the Republican Party of Florida or a fundraising committee for Gov. Rick Scott, the newspaper said. The legislature also could consider renegotiating the tribe’s 20-year compact as part of overall gaming reforms. The portion of the compact that covers “banked card” games such as blackjack and baccarat is set to expire in 2015. Under the compact, the tribe can operate those games at three casinos.
Lawmakers also may consider approval of destination-resort-style casinos. In 2012, lawmakers killed a proposal to approve megaresorts in South Florida.
Bayfront 2011 Development, a group associated with Malaysian gaming giant Genting Group, has given $652,500 so far this election cycle. Ninety percent has gone to the Republican Party of Florida or the Scott committee.
Disney is also expected to use its deep pockets and political clout to oppose gaming expansion, which it says would hurt Florida’s family-friendly reputation.
New York voters in November approved a constitutional amendment to expand casino gambling, authorizing as many as seven full-scale casinos.
The move is part of a plan designed to bring jobs to economically distressed upstate regions.
The state of New York already has five Indian-run casinos, all of them upstate, and nine slot machine parlors at racetracks. The New York State Legislature has required that only four new casinos will be allowed at first, and they will only be allowed in upstate New York in the Albany area, the Catskills-Hudson Valley region and part of a region known as the Southern Tier, located along Pennsylvania’s northern border.
New York Gov. Andrew Cuomo, a proponent of the gaming expansion, has said that casino development would create jobs, bring in tourists and let the state hang onto some of the gaming money now going to other states with casinos.
“We literally hemorrhage people from the borders who go to casinos,” Cuomo said in a New York Times article. “I think it will keep the money in this state, and I think it’s a major economic development vehicle for the Hudson Valley especially and for upstate New York.”
The casino amendment was promoted by a coalition called New York Jobs Now, which was primarily financed by gaming interests and labor unions.
The State Gaming Commission hopes to select the first four operators by late 2014, and then those operators would have to go through a suitability process. Several large gaming companies have indicated they would be interested in pursuing one of the New York licenses, Goldstein said.
The expansion is predicted to affect casinos in nearby Pennsylvania, but to what degree and when is still to be determined.
The Sands Bethlehem may be the casino with the most at risk because its high table games performance due mainly to New York and New Jersey gamblers. Any damage won’t be felt for a while because the New York vote entails two phases. The first phase calls for four casinos in upstate New York as soon as licenses can be issued. Casinos conceivably could be up and running as soon as 2016. The upstate casinos would have a limited impact on Pennsylvania gambling. Seven years later, phase two would authorize as many as three casinos in New York City and its suburbs. That move likely would have a more detrimental effect on five casinos in eastern Pennsylvania.
The twists and turns of the Bay State’s roller coaster licensing experience may soon be over, and 2014 will offer clarity as the determinations over which casino operators receive licenses will likely be made. Early in the year, the Massachusetts Gaming Commission is expected to make a decision on issuing licenses for three regional casinos and one slot parlor. “It’s potentially one of the last significant gaming markets on the East Coast to open up,” Goldstein said.
One of the important aspects to watch once Massachusetts gaming does open up is how heavily those operations impact regional northeastern gaming facilities that for years have been drawing customers from Massachusetts, he said.
Two years after Gov. Deval Patrick and state legislators approved a casino law, would-be Massachusetts casino operators are entering their final sprint to the finish. Key decisions are expected soon, including a vote at press time on a casino in Milford proposed by the operators of the Foxwoods casino in Connecticut and a Nov. 26 recount of a vote that turned down a Mohegan Sun-proposed casino in Palmer.
The Massachusetts Gaming Commission set a Dec. 31 deadline for receiving final applications from casino resorts. The state’s casino law allows up to three casino resorts in different geographic areas of the state and one slots-only facility that could be anywhere.
In the gaming panel’s two-step application process, all companies must first pass a background check on ethics and finances before they are cleared to file a final application that would include a site for a project. Companies also need approval of voters in a community where a casino or slots facility would be located.
If the recount in Palmer on Nov. 26 confirms the defeat of the Mohegan Sun, that would leave only MGM Resorts International in the running for the single casino license in western Massachusetts.
MGM Resorts’ plans call for an about $800 million casino resort on 10 to 15 acres in the South End of Springfield. In July Springfield citizens voted in favor of the project by 58 percent to 42 percent. MGM still must pass a background check, and, as Caesars Entertainment learned, that can be difficult. It withdrew from its partnership with a Suffolk project after commission investigators recommended against a license because of the company’s $23.7 billion debt and connections to a hotel group that had an investor with alleged links to organized crime in Russia.
Regarding the license for the Greater Boston area, Suffolk, if it chooses to continue its bid, is competing with Wynn Resorts Ltd., which is planning a $1.2 billion casino in Everett. While voters have approved the project, Wynn also needs to pass a background check.