Home Gaming and Government, Part 1: Looking Ahead to the November Elections

Gaming and Government, Part 1: Looking Ahead to the November Elections

November is possibly the most highly anticipated month of this year for most Americans, and those in the gaming industry are no exception. Since the last elections in 2008, there have been many major changes that have directly impacted those in gaming.

The U.S. entered a recession and the resultant large drop in consumer spending and national credit crunch—two factors that came together to produce what many in gaming call the “perfect storm”—hit the gaming industry hard. A few states, such as Oklahoma, remained relatively unaffected. Sheila Morago, executive director of the Oklahoma Indian Gaming Association, says: “It’s actually been pretty good. We have not seen a direct hit from the recession as much as most people have. We haven’t had a decline, so we’re really happy about that.” This has not been the norm. Across the country, many Americans tightened their purse strings, choosing to spend less on entertainment—gambling included. Many casinos experienced a decline in patronage, and casino-goers who did choose to gamble were more frugal. Additionally, indirect spending within the gaming industry decreased. Judy Patterson, senior vice president and executive director of the American Gaming Association (AGA) explains: “The gaming industry really generates its revenue from two sources. One is the actual gaming revenues itself—what gets spent on the gaming floor. However, it’s also, and significantly so, non-gaming sources. About a third of casino revenues come from food and beverage, hotels, retail, entertainment and meetings and conventions. Both sources were very negatively impacted.”

Gaming expansion also suffered as capital became more difficult to get, and some casino operators chose to halt projects or scrap them altogether. Thus, development slowed, and gaming growth slowed with it. Many casino operators were forced to cut costs through reductions in staff, pay and hours. The situation improved slightly in 2010, and the AGA reports that gross gaming revenues increased by just under 1 percent. Expansions in the industry were still limited though—this time due to the lack of advancement of gaming legislation. Moving into the 112th congress, democrats lost the majority previously held in the 111th, and republicans—understandably—chose to let gaming legislation take a back seat as they focused on more pressing economic issues. For a while it even seemed that the gaming industry was being forced to take a step backward; the Black Friday mess, during which the U.S. Department of Justice (DoJ) seized the domains of five of the largest online poker operations, both angered and frightened many foreign-based online gaming sites, and made those eager to launch such sites at home concerned about the future of Internet gaming (i-gaming) in the U.S. and the impact of the much-debated Wire Act. Luckily, 2011 ended on a bright note for those in gaming, with the DoJ declaring that every form of intrastate gambling is considered legal under federal law. This decision holds many implications for Internet gaming in the U.S., and many states are quickly figuring out their stance on the issue.

As the four November events loom large—the presidential, senate, house and gubernatorial elections—many are waiting with baited breath to see what November will bring. Will new proposals seek to support or limit the expansion of the gaming industry? Will they be ignored as we move forward, or given full consideration? What stances will states take on the i-gaming issue, and will they pursue policies that seek to expand the gaming industry? With the aftershocks of the recession still being felt, many in gaming are hoping that those in government can come to fully understand the contributions the industry can make through job creation and increased tax revenue. In this article, we shall explore what potentially game-changing legislation will be on the table as we enter the election period, look at which politicians seem poised to support gaming and examine expansion plans in states that hope to further develop their gaming industry.

Looking at the Race for Presidency
While gaming is primarily a state issue, decisions made on the federal level can still influence aspects of the industry. A change in administration will undoubtedly have slight implications for gaming, especially for tribes. The majority of regulation associated with tribal gaming comes from within the Department of the Interior. The head of this agency—the Secretary of the Interior—is a presidential appointee. So too is the chair of the National Indian Gaming Commission—a federal agency within the Department of the Interior. Many of the agency executives for the Bureau of Indian Affairs—also under the Department of the Interior—are members of the president’s cabinet. Decisions made within these agencies will undoubtedly reflect the views of their administration.

The president is also responsible for Supreme Court appointments. Supreme Court justices have life tenure, and thus it is uncommon that a new president will have to think about this. In the case that he or she does, however, it would be best for those in tribal gaming that the nominated justice support their industry and rights. As W. Ron Allen, tribal chairman of the Jamestown S’Klallam Tribe and member of the Washington Indian Gaming Association explains, “Tribes are not faring well in [current] cases and another conservative judge would continue to hurt our rights and jurisdiction in cases that reach the Supreme Court.” When it comes to gaming issues in the Supreme Court, justices have mostly been dealing with Indian gaming-related matters. It is important to understand, however, that a judge who opposes gaming would be unlikely to rule in favor of the industry should a broader issue come about.

Previously, the attorney general—another presidential appointee—was responsible for prosecuting those engaging in Internet gaming. This job may no longer be necessary, as it is now up to states to regulate i-gaming within their districts. However, should i-gaming be regulated at the federal level, the attorney general will be responsible for interpreting the laws set forth and regulating as he sees fit.

The current administration has not been too hard on the gaming industry. Shortly after losing a great deal of favor among gamers for the Black Friday mess, the Obama administration produced its greatest contribution to gaming thus far; the memorandum written by Assistant Attorney General Virginia Seitz declared that the Wire Act only applies to sports betting. This clarification essentially legalized Internet gambling on a federal level. President Obama’s two Supreme Court appointments— Sonia Sotomayor and Elena Kagan—brought about a balance of conservative and liberal judges (4-4) leaving just one wild card; this has been essential when dealing with Indian gaming cases. In late 2008, there had been speculation that Seitz was being considered as a potential nominee to the U.S. Supreme Court. While it is obvious that she was not chosen, perhaps she may still be a candidate should the current administration be re-elected.

Despite the actions of his administration, one cannot be sure what Obama’s true stance is on gambling. When discussing the economy in early 2010 at an event in New Hampshire, the president criticized patrons’ decision to gamble in Vegas. An article in The Telegraph quotes him as having said, “You don’t blow a bunch of cash on Vegas when you’re trying to save for college. You prioritise [sic].” 1 This was an unwelcome comment for those in gaming, especially in Las Vegas. Obama attempted to correct his blunder during a speech to the Las Vegas Chamber of Commerce a few weeks later. He stated that he loved Vegas and always has. This was not enough to win him approval and many are still skeptical of Obama’s feeling towards gambling.

Additionally, many magnates in the gaming industry are critical of the president’s proposal to raise taxes on large corporations that make money abroad. As these companies typically pay taxes overseas, they are granted deductions at home; many pay less than the 35 percent tax required of companies making more than $18 million. The president’s proposals thus far have repeatedly been blocked by republicans. Gaming businessmen are confident that a Romney administration would allow them to reap more rewards.

Republican presidential candidate Mitt Romney has already promised to lower the corporate income tax rate to 25 percent and supports transitioning from the current “worldwide” tax system to a “territorial” tax system. This would mean that companies earning money in foreign countries will not be taxed at home if they choose to repatriate profits back to the U.S. Changes such as this would allow gaming corporations to retain more of their profits, which can then be used for expansion and reinvestment. But it is difficult to determine what position Romney will actually take on gambling. As governor of Massachusetts, he proposed his state seek millions in blocking payments from casinos in Connecticut or legalize casinos in Massachusetts. Yet, as a member of The Church of Jesus Christ of Latter-Day Saints, one would think he would be opposed to gambling of any kind. The church’s website states that: “The Church of Jesus Christ of Latter-day Saints is opposed to gambling, including lotteries sponsored by governments. Church leaders have encouraged church members to join with others in opposing the legalization and government sponsorship of any form of gambling.” 2 Not long before republican caucuses in Nevada, Romney announced his opposition to i-gaming, causing many to wonder whether these sentiments will eventually trickle down to all types of gambling. It must be noted though, that much of Romney’s campaign funding is provided through super PAC donations from gaming moguls such as Sheldon Adelson and Donald Trump.

In Congress
Although the end of the 112th congressional session is drawing near, the debates are just heating up, and one hot topic now is Internet gaming. During this congressional session, little has been produced in the way of i-gaming legislature, and many proposals have not even made it to the floor. Shortly after entering the 112th congress, Congressman John Campbell (R-Calif.) sponsored bill H.R. 1174, the Internet Gambling Regulation, Consumer Protection and Enforcement Act. It proposes to “provide for the licensing of Internet gambling activities by the Secretary of the Treasury” and “to provide for consumer protections on the Internet” among other things.3 The bill resembles one previously sponsored by Congressman Barney Frank (D-Mass.) in the 110th session. His H.R. 2267 died before it could reach the house floor. No updates on Campbell’s bill H.R. 1174 have been reported since it was referred to the House subcommittee on Crime, Terrorism and Homeland Security on June 1, 2011. A similar bill, H.R.2366, sponsored by Congressman Joe Barton (R-Texas), has also been stuck in the aforementioned house committee since Aug. 25, 2011. This bill, more specifically, seeks “to establish a program for state licensing of Internet poker, and for other purposes.” 4

As states, tribes and gaming policymakers contemplate the implications of the DoJ’s ruling on the Wire Act, more congressmen are rushing to produce legislature that may provide some regulation as we enter the relatively unchartered territory that is i-gaming. Prior to the DoJ’s change of heart, the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006 removed the U.S. from the online gambling market. The statute “prohibits gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law.” 5 Thus, under UIGEA, financial transactions that assisted online gambling were considered illegal, and service providers that engaged in such activity would be held liable. But this act did not define what constituted illegal gambling and the Federal Wire Act of 1961—produced before the Internet even came into existence—was often used to give credence to prosecutions made based on UIGEA rhetoric. Ever since the DoJ’s ruling that the Wire Act only pertains to sports betting, online gaming has proliferated and states are quickly trying to determine what approach they will take. Some states, attracted to the potential of increased revenue, stand poised to act, while a few, concerned with potential regulatory issues and societal impacts, promise to ensure it remains illegal. Nevada and Delaware have already approved online gaming.

The fear that states may each develop their own rules for i-gaming and potentially hurt traditional brick-and-mortar casinos is encouraging congressmen (and congresswomen) to pay attention to upcoming i-gaming legislation. This issue is of particular concern to tribes who fear that state advances in the i-gaming arena may negatively impact their revenues. Chairman of the Senate Committee on Indian Affairs, Sen. Daniel Akaka (D-Hawaii), has already unveiled a draft of his Tribal Online Gaming Act of 2012. He argues that, as gaming revenues have been the most effective form of economic development for tribes, it is essential that their views and priorities not be compromised in any bill that may have an impact on tribal gaming. Akaka, along with others on his committee, is wary of the bill that Sen. Harry Reid (D-Nev.) and Jon Kyl (R-Ariz.)—with the possible support from Sen. Dean Heller (R-Nev.)—may produce. Similar to Barton’s bill, the latter would focus on only legalizing online poker.

It is improbable that any i-gaming bills will be dealt with in the remaining legislative days. Rather, they will likely be pushed back onto the already-full agenda of the post-election lame duck. This session is jam-packed with big issues with rapidly approaching expiration deadlines, and i-gaming bills may not be considered a priority. The best solution for those hoping to get their bill some attention would be to marry it to a piece of legislation that has to be dealt with. This may prove difficult. If not dealt with in the lame duck session, these congressmen will have to start from scratch in the 113th congress—that is, if they even choose to start again. With 33 senators and 435 house representatives up for re-election, it is impossible to tell whether the future congressional makeup will be supportive of i-gaming bills, or any gaming legislation.

The Gubernatorial Elections
Governors Jack Markell (D-Del.), Jack Dalrymple (R-N.D.), Gary Herbert (R-Utah), Peter Shumlin (D-Vt.), Earl Ray Tomblin (D-W.Va.) and Jay Nixon (D-Mo.) are likely to hold on to their seats, as incumbents typically do. In North Dakota, casinos are all tribal-run and the state seems set to keep it that way. Recently, Gov. Jack Dalrymple supported the three affiliated tribes’ decision to offer riverboat gambling. This would be the first of its kind to open up in the state. In Utah, no type of gambling is allowed, and Gov. Gary Herbert is making sure this does not change. He recently signed anti-gambling legislation that would ensure i-gaming is illegal in the state, even if Congress chooses to legalize it. Vermont only has charitable gaming and lotteries, and the state does not seem interested in expanding its gaming industry.

For those in gaming in Delaware, it may be a very good idea to assist Markell in his re-election efforts as he nears the end of his first four-year term. In the past four years, Markell has allowed massive expansion of the commercial gaming industry, generating millions in taxes for the state. Recent data from the AGA shows that in 2011 Delaware saw $552.37 million in gross gaming revenue, with $230.16 million in tax revenue. Since Markell entered office, he has signed legislation that has legalized pro-football betting, allowed table games in casinos, opened up sports betting and instant lottery to non-casinos and legalized Internet gambling. Despite all this, Delaware still saw a 3.3 percent decline in gaming revenue, due to competition from neighboring Maryland and Pennsylvania.6 Delaware residents can be sure that if re-elected, Markell will not allow all his hard work to be for naught.

Although many agree that Gov. Jay Nixon’s seat is safe, no one can be certain what will happen with gaming in Missouri. During his term, Nixon vetoed a bill that sought to expand bingo gambling in the state and he worked to raise casino entrance fees. Although one can understand the reasoning behind this—the funds from the latter initiative are to help finance Missouri’s veterans homes—it does cut into casino profits. The state already claims a 21 percent tax on gross gaming revenue that goes toward education, public safety programs and veterans programs, among other things. West Virginia faces similar uncertainties. The state’s gaming industry, already dealing with competition from Pennsylvania and Ohio, may soon see increased competition from neighboring Maryland as expansions continue there.

In Montana, New Hampshire, North Carolina and Washington, the current governors are either retiring or term-limited. This may not mean too much in Montana, North Carolina or Washington. However, a change in governor may have implications in New Hampshire. Current Gov. John Lynch (D) is opposed to any expansion of the gaming industry and is certain to veto any such bills. During his term, he signed legislation that prohibits business from carrying gambling machines and sweepstakes games. All current candidates for his position support the expansion of the gaming industry in some form. This may mean a complete change of the gaming landscape in New Hampshire.

Across the States
Maryland is racing ahead with plans for gaming. Recently, Gov. Martin O’Malley unveiled a bill that would enable an expansion of the industry. It has made it safely through the state’s senate committee and is set to move through the house. This is where critics think it may die. Groups, divided on the issues, have been lobbying feverishly, both against the expansion and in support of it. If the bill were to pass, it would allow table games, taxed at a rate of 20 percent; approve the construction of a casino in Prince George’s county; provide a 5 percent tax break for both Maryland Live! and Caesars and many other things. It does not include any mention of i-gaming as O’Malley decided not to take a step in that direction. If the bill is approved by the General Assembly, the final decision will then be left up to Maryland voters in November.

In California, a bill originally seeking to legalize online gaming has been modified in an attempt to ensure safe passage through the state’s congress. Senate Bill 1463, sponsored by Sens. Rod Wright and Darrell Steinberg, now focuses on the legalization of online only. The bill however, still faces opposition from both the California Online Poker Association and some tribes within the state. The California Online Poker Association does support legislature that would allow online poker, but is not pleased with the current bill. Tribes are divided on the issue.

Gaming expansions continue in Massachusetts as Gov. Deval Patrick recently signed a compact between the Mashpee Wampanoag tribe and the state, allowing the tribe to open and operate a casino in Taunton. Nine months prior, on Nov. 22, 2011, Patrick also signed a bill that legalized the construction of and operation of casinos in the state.

As November draws nearer and we all get ready to head to the polls, keep in mind the potential impact your vote can have on gaming legislature. Even a decision to not vote may decrease much-needed support. The gaming industry makes valuable contributions to the American economy and can continue to do so through continued gaming expansion. Patterson informs us that in a recent AGA study, using 2010 data, shows “if you take the direct, indirect and induced impacts [of the gaming industry, we actually support $125 billion in spending, nearly 820,000 jobs in the U.S. economy. This $125 billion is roughly equivalent to 1 percent of the U.S. GDP in 2010. So that clearly demonstrates the major impact that the commercial casino industry has on the US economy.” Who wouldn’t want those figures to remain that high?

Editor’s Note: Watch for part two of this article in CEM’s December issue, where we will discuss the election results and where the industry sits post-polls. Also, special thanks to I. Nelson Rose and Whit Askew for their invaluable input.

Footnotes
1 Harnden, T. (Feb., 11, 2010). “Barack Obama tells Americans ‘don’t go to Las Vegas”. Retrieved Aug. 8, 2012, from The Telegraph website, www.telegraph.co.uk/news/worldnews/barackobama/7149616/Barack-Obama-tell…
2 “Gambling”. Retrieved Aug. 13, 2012, from The Church of Jesus Christ of Latter-Day Saints website, www.lds.org/topics/gambling?lang=eng
3 “H.R. 1174: Internet Gambling Regulation, Consumer Protection, and Enforcement Act”. Retrieved Aug. 7, 2012, from Govtrack.us website, www.govtrack.us/congress/bills/112/hr1174#
4 “H.R. 2366: Internet Gambling Prohibition, Poker Consumer Protection, and Strengthening UIGEA Act of 2011”. Retrieved Aug. 7, 2012, from Govtrack.us website, www.govtrack.us/congress/bills/112/hr2366
5 “Unlawful Internet Gambling Enforcement Act”. Retrieved Aug. 7, 2012 from The Office of the Comptroller of the Currency, formerly the Office of Thrift Supervision website, www.ots.treas.gov/_files/422372.pdf
6 American Gaming Association (2012). State by State Economic Impact continued: Delaware. State of the States: 2012 AGA Survey of Casino Entertainment, 12.

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