Gaming and Government, Part II: Where are We Now?

Last month, the U.S. was abuzz with political activity, especially during the last week before the elections—the “final push.” Politicians scrambled to make last appearances. Campaigners doubled up on door-to-door visits. And almost everyone on Facebook and Twitter became a political pundit overnight. While the presidential election came to an early close, some important races went on into the morning.

Election results brought a great deal of change, yet, at the same time, none at all. Various groups saw victories. Those in support of same-sex marriage were pleased to hear that it was approved in Maine, Maryland and Washington, with the proposed ban in Minnesota failing at the polls. A historic number of women were elected to the senate, a win for women and gender-equality groups nationwide. The majority of people whose votes led to the legalization of marijuana in Colorado, Washington and Massachusetts (medical), are certainly celebrating as well. And we in the gaming industry saw a number of triumphs at state polls with regard to ballot measures that hold the promise of gaming expansion.

On the other hand, not much changed for the federal government. President Obama remains in the White House, republicans maintain the house majority and democrats still control the Senate. Those who had been hoping for some change or shift in power—expecting it to be a panacea for all their woes—have been disappointed. And the concerns that we entered the election with have not changed either. The economy remains a primary issue, and one that affects every individual and every sector.

While the gaming industry has seen improvement lately, a stronger economy would help get us back to where we were before 2008. American Gaming Association President Frank Fahrenkopf captured the current state of our industry in his address at the Global Gaming Expo (G2E) this past October. “The revenues I’ve seen all indicate that we are in the midst of a continued slow but steady recovery from the economic turmoil of the past several years,” he explained. “We’re not out of the woods yet by any means, and there are certainly challenges that lie ahead, but we have most definitely turned a corner and are on our way.” The biggest challenge to be faced is not the economy itself, but the way in which it will be handled. Our industry’s hurdles are complicated by its increasingly hybrid character—maintaining brick-and-mortar markets as well as handling an up-and-coming online market.

iGaming still remains a hot topic, but few expect to see anything substantial—if anything at all—produced during the 113th Congress. Professor I. Nelson Rose, a world-leading expert on gambling and gaming law, tells us that when it comes to congressional i-gaming legislation, the boat has sailed. He expects we will see a tidal wave of states tackling the issue on their own, creating even more challenges for future i-gaming proposals.

So where does the gaming industry stand after Nov. 6? Let’s take a look at what exactly the elections brought us, and what we should take into consideration as we move forward.

Former Gov. Mitt Romney
Former Gov. Mitt Romney
Entering a Second Obama Administration
Obama was a clear winner in this election with 322 electoral votes to republican challenger Mitt Romney’s 206, and leading by about 3 million popular votes. Now, as the president enters his second term, feelings about his victory are mixed. While there is no indication that the Obama administration has been bad for the gaming industry thus far, some worry that the goals he has this time around may not be in our best interest. Casino moguls Donald Trump and Sheldon Adelson, two of the greatest contributors to the Romney campaign, were downright upset with the election results. Trump took to Twitter to express his feelings saying, “Our country is now in serious and unprecedented trouble…like never before,” and “This election is a total sham and a travesty.” The biggest concern for businessmen such as Adelson and Trump is the tax hike that large, high-earning corporations will probably see under the president.

Romney had promised to lower the corporate income tax rate for companies making more than $18 million from 35 percent to 25 percent, and had planned to maintain their tax breaks. Other plans included repealing the corporate alternative minimum tax and moving from the current “worldwide” tax system to a “territorial” tax system, ensuring that profits earned abroad by U.S. corporations would not be subject to taxation at home. This would certainly have decreased expenses for companies, allowing them to invest in themselves and expand. Obama only intends to lower the top corporate tax rate to 28 percent, and he hopes to eliminate many of the tax breaks that high-earning businesses currently receive. The president also plans to create a new minimum tax on foreign-earned profits from U.S. companies operating in countries that impose little to no taxes. He does plan to provide a 20 percent tax credit for companies that move their operations back to the U.S., thus encouraging development at home, but some worry that this isn’t enough to spur sufficient expansion in our industry. Entrepreneur Donald Trump
Entrepreneur Donald Trump

While some in commercial gaming are slightly worried about the impact the next four years will have on their industry, many in tribal gaming are pleased with the results of this election, confident that they will see more development under Obama than under a Romney administration. Ron Allen, tribal chairman of the Jamestown S’Kallam Tribe and member of the Washington Indian Gaming Association voiced his approval: “We in Indian country are delighted that President Obama was re-elected. Many, if not most of us, believe that Indian country has made great strides in advancing our political goals and objectives under the Obama leadership. I am very hopeful that we can build on the foundation and commitments of the past four years.”

Chairman of the National Indian Gaming Association Ernie Stevens also expressed his pleasure. “[Obama’s] first term produced historic firsts for Indian country: unprecedented outreach and hard results in the form of the long sought reauthorization of the Indian Health Care Improvement Act, the Tribal Law and Order Act and several other important policy achievements for tribal communities. Many in Indian country look forward to building on the success of the president’s first four years.”

One of the large issues for tribes is how they will fare in Supreme Court cases. Issues regarding state-tribal compacts have often required a ruling from the justices. As Allen mentioned in “Gaming and Government Part I” in CEM’s September 2012 issue, “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.”

Considering that four of the nine current justices are over the age of 70—Associate Justices Ruth Bader Ginsburg, Antonin Scalia, Anthony Kennedy and Stephen Breyer—it is not absurd to assume that there may be at least one position vacant within the next four years. Before the elections, there was slight concern as to how tribes would be impacted, should a new justice be appointed under a Romney administration. Indian country can now rest assured that should a new judge be selected during the next four years, he/she will continue to maintain the balance between the liberal and conservative judges, or perhaps even give the court a liberal leaning, should the regular “swing voter”—Kennedy—or conservative justice Scalia retire. Allen shared what he would like to see in future appointments. “Our concern over the last number of decades is there is limited understanding of the history of Indian law within the Supreme Court, including their clerks and staff. We are hopeful that any new appointments will be asked a question or two about their knowledge of tribal governments within the family of the American governmental system, as well as case law regarding tribal jurisdiction or treaty rights.”

Speaker John Boehner
Bridging a Partisan Divide
Democrats gained a few more seats in house and senate this time around, but, for the most part, the balance of power remains as it was before; the upcoming 113th Congress will still see a democrat-controlled senate and a republican-controlled house1. Leadership of both chambers is expected to stay the same as well. Vice President Joe Biden will of course continue to be president of the senate, and democrat tradition suggests that Sen. Daniel Inouye (D-Hawaii) will remain president pro tempore. Sen. Harry Reid (Nev.) will again be the senate majority leader and, as Rose put it, “this means Nevada casinos can keep the best friend they have ever had.” Sen. Mitch McConnell (Ky.) will remain the republican minority leader. In the house, Rep. John Boehner (R-Ohio) will continue on as speaker, and democrats have indicated that Rep. Nancy Pelosi (Calif.) will most likely remain on as their minority leader.

Although Congress is to remain the same, senators and house representatives are stressing that attitudes will change. And we certainly hope this is true. As congressmen and congresswomen hash things out in the lame duck session, it is important that they stop allowing partisan divides and gridlock to characterize the legislative body. If they succeed in tackling some of the big issues the country is facing, such as the still-unrecovered economy and the fast-approaching fiscal cliff, they could set a good precedent for the 113th congress.

In his speech post-election, the president addressed the importance of the issues on the table, but expressed confidence in his team. “We face a very clear deadline that requires us to make some big decisions on jobs, taxes and deficits by the end of the year. Both parties voted to set this deadline. And I believe that both parties can work together to make these decisions in a balanced and responsible way.” However, he reaffirmed his stance on the expiring tax breaks that, if not dealt with, could result in tax increases across the board. When asked if he was certain he would not extend the tax breaks as he did two years ago, Obama explained: “Two years ago, the economy was in a different situation. We were still very much in the early parts of recovering from the worst economic crisis since the Great Depression. And ultimately, we came together not only to extend the Bush tax cuts, but also a wide range of policies that were going to be good for the economy at that point … But what I said at the time is what I meant, which is this was a one-time proposition. And what I have told leaders privately as well as publicly is that we cannot afford to extend the Bush tax cuts for the wealthy. What we can do is make sure that middle-class taxes don’t go up.” The president’s spokesman, Jay Carney, has confirmed that the president will not sign an extension of tax cuts for the top 2 percent. This means that republicans, who would rather not see taxes raised on the wealthy and prefer spending cuts, and democrats, who certainly don’t want to see taxes raised on the middle class but disagree with some of the proposed cuts, must meet in the middle.

The first meeting of the lame duck session however, did not inspire much hope. Both sides tread cautiously, perhaps eager to show that partisan passions have been tempered. Unfortunately, with a number of important issues on the agenda, Congress will have to move faster. The Former Speaker (105th Congress) Newt Gingrich
Former Speaker (105th Congress) Newt Gingrich
president’s meeting with congressional leaders to discuss the budget and fiscal cliff showed more promise. Boehner, McConnell, Reid and Pelosi agreed that the meeting was constructive and all seem ready to push their parties to a consensus. Boehner made a point of saying that republicans are aware that neither side is going to get everything it wants. Republicans are willing to compromise, as long as a proposition outlines significant spending cuts among its key points2. He also outlined a framework in the meeting that he claims is consistent with the president’s wishes.

While many in gaming may be glad to know that Congress plans to work on stabilizing the economy and averting the fiscal cliff, they may be frustrated with the lack of progress made on i-gaming legislature. As of now, the Reid-Kyl bill is not gaining any fans as it seeks to establish federally regulated and licensed online poker, but would ban many other forms of online gambling. Even some states, such as emerging market Massachusetts, are opposed to the proposal, seeing it as an attempt to regulate state activity. In a letter to both Reid and Kyl, Massachusetts State Treasurer Steven Grossman—also the chair of the Massachusetts State Lottery Commission (MSLC)—objected to their bill, saying the federal government should not interfere with activities that should be organized by individual states. He also stated that while they in Massachusetts have not yet come to a decision as to whether the state will offer online gambling, the MSLC is looking at the potential an Internet marketplace could hold.

There is little hope that any i-gaming legislature will be produced in this lame duck. Rose tells us that the only chance of seeing i-gaming come up is if it is tacked on to something that must pass, such as a fiscal bill. He thinks even that is unlikely. This means that those pushing for i-gaming legislature will have to start from scratch in the 113th Congress, a session that will see the loss of one i-gaming’s biggest supporters, Rep. Barney Frank (D-Mass.) and one of its largest opponents, Kyl. Considering how many countries are already profiting from legalized online gambling, the U.S. is certainly missing out. At G2E, Fahrenkopf shared: “Approximately 85 countries around the world have chosen to legalize online gambling. According to research by H2 Gambling Capital, it’s estimated that this year about 33 million players worldwide will gamble online with real money, generating total gross revenues of around $34.9 billion.”

A lack of federal regulation, however, does not mean that we will see i-gaming die. With less congressional gridlock and a need for revenue, states may begin to legalize i-gaming within their own jurisdictions, following in the footsteps of Nevada and Delaware. On a recent CEM Audio Edge show, Rose confirmed this prediction, going as far to say, “I wouldn’t be surprised if the first intrastate poker bets are taken before the first of the year.” And with 50 different states, it is certain that there will be many different regulations governing this new industry.

Sen. Mitch McConell
States Speak
Successes for the gaming industry were rampant at state polls, proving that they can, and will, advance gambling as they see fit. In Maryland, the most expensive political campaign in the state’s history finally came to an end, with votes for the contentious Question 7 overruling the opposition. There had been concern that the proposal would not garner enough support, as many early voters opposed the expansion. But at the polls, the ballot measure passed 52 percent to 48 percent. This will allow the addition of table games to the state’s existing slot casinos, and authorizes the creation of a large sixth casino in Prince George’s county. The hope is that the new casino will bring jobs and assist in funding education in the state.

It looks like table games are coming to Rhode Island. Voters approved the ballot questions that seek to expand two slot parlors into full-fledged casinos. The owners of the Twin River and Newport Grand argued that table games are now necessary if they are to compete with the casinos coming to Massachusetts. Local approval was also needed, and while voters in Lincoln approved the plan for the Twin River slot parlor, 54 percent of voters in Newport opposed the plan for Newport Grand.

In Illinois, gambling expansion may finally have a chance. Gov. Pat Quinn has seemed opposed to an expansion of gaming in the state and recently vetoed a bill that would increase the number of casinos from 10 to 15, citing a lack of sufficient regulatory oversight. However, the democrat majority in the legislature has now been increased to veto-proof numbers that could overturn the governor’s decisions. Such a bill could also give Chicago its first casino and allow slot machines at race tracks. If passed, it could certainly help the cash-strapped state, which is already losing gaming profits to nearby casinos in Indiana.

A measure to bring slot machines to pari-mutuels in Palm Beach County, Fla., was approved by 56 percent of voters. It must be approved by the Florida legislature before any machines can be installed. If passed, this will represent a significant step for the Palm Beach Kennel Club, the county’s only pari-mutuel.

Voters in Oregon chose to vote against allowing privately owned casinos in the state. While this removes any chance for a commercial gaming industry at this time, it is a win for tribes who won’t have to worry about competition from non-tribal casinos.

In Kentucky, gaming opposition is pleased with the defeat of legislators who often support gaming expansion. Gov. Steve Beshear has no plans to give up though. A proponent of expansion since elected in 2007, Beshear hope to push for it again in January. He expects to face opposition from the state’s republican-controlled senate, but hopes that the removal of one of gambling’s strongest opponents could help him. Senate President David Williams, recently appointed to an open circuit court seat in the Southern Kentucky district last week, is not too sure Beshear’s plan will work, as many republicans are still opposed to any expansion whatsoever.

Governors’ GoalsGov. Chris Christie
Gov. Chris Christie

The gubernatorial elections did not bring too many surprises. As expected, Governors Jack Markell (D-Del.), Jay Nixon (D-Mo.), Jack Dalrymple (R-N.D.), Gary Herbert (R-Utah), Peter Shumlin (D-Vt.) and Earl Ray Tomblin (D-W.V.) won re-election. It is likely that these governors will continue on their current tracks with regard to gaming. Indiana, New Hampshire, North Carolina, Montana and Washington are under new governorship, and it will be interesting to see what their new governors have planned.

Indiana remained republican with Rep. Mike Pence as successor to Gov. Mitch Daniels. Of the five new governors, Pence is the only one who seems to take a definitive stance against gambling. Opposed to both expansion and online gambling, he was a cosponsor of bills H.R. 4777 and H.R. 4411, the Internet Gambling Prohibition Act and the Goodlatte-Leach Internet Gambling Prohibition Act respectively. Both bills sought to greatly restrict mobile and internet gambling, and make engagement in that sector of the industry—whether directly or indirectly—a greater criminal offense. When discussing the passage of the Internet Gambling Prohibition Act in the House, Pence is reported to have said: “Gambling is an addiction that destroys families across America and unfortunately, gambling on the Internet has been allowed to go on unregulated. This bill provides the necessary enforcement tools to combat illegal gambling. By cutting off the flow of money to gambling websites and authorizing law enforcement to seek injunctions against persons who facilitate illegal online gambling, Congress is taking great strides to curb the moral and legal consequences of this unregulated activity.”3 It will be interesting to see what stance Pence will take as governor, considering that his state does rely on the gambling industry for jobs and income.

With the election of Maggie Hassan, New Hampshire can expect to see their gaming industry develop. Unlike Gov. John Lynch (D) who is opposed to expansion and was certain to veto any such bill, the governor-elect supports expansion, albeit limited and highly regulated. Hassan believes that the creation of one or two casinos in her state could help with job creation and assist in funding essential state services. Furthermore, Hassan hopes that the expansion of New Hampshire’s gaming industry will increase its competitive positioning in the region, especially against neighboring Massachusetts. During a debate with previous gubernatorial candidate Ovide Lamontagne at New England College, Hassan is reported to have said, “Given what’s happening in Massachusetts, where there are going to be at least three if not four high-end casinos that will draw business from New Hampshire—gambling revenues, rooms-and-meals revenues—I think it’s important that we do what we’ve always done, which is compete with our neighbor to the south and make sure we get revenues up here.”4 In Massachusetts, many companies have already submitted applications for one of the four casino licenses in the state—three full-fledged casinos and one slot machine parlor—and the state expects to begin awarding licenses by February 2014. If Hassan hopes to successfully compete with Massachusetts, she should starts pushing for that casino as soon as she gets into office.

Conservative radio talk show host Rush Limbaugh
Conservative radio talk show host Rush Limbaugh
In North Carolina, governor-elect and former Charlotte Mayor Patrick McCrory seems tentative to deal much with the gaming industry, especially when it comes to issues not yet clarified. For example, McCrory has made it clear that he will not allow plans for sweepstake machines to be developed (regarding their taxation and regulation) until the state’s Supreme Court gives an official ruling as to whether these machines are legal or not. While he may not be the one to expand gaming within the state, he does not seem interested in changing the current landscape either. McCrory has already decided that should the machines be considered legal, he would like use their revenue to help pay off the state’s debts. During a debate with Lieutenant Gov. Dalton (D) who also ran for governor in the past election, Dalton claimed that McCrory has intentions of repealing the state lottery. McCrory however claims that he has no intention of doing so at the current time, saying it would be unrealistic. His goal is to tackle the state’s debt and he is aware that the money the state currently makes from the gambling industry provides a means of doing so.

Jay Inslee will soon succeed Gov. Christine Gregoire as governor of Washington. While he does not seem poised to expand commercial gambling in the state, he is a big supporter of tribal gaming. Tribal operators are confident that Inslee will continue to support them, and it is expected that Native American gaming will further develop in the state. Allen confirms: “[Inslee] will stand up for our tribal sovereignty and recognize tribes as a proud partner across economic sectors of our state. Jay Inslee has been a champion for Indian country for more than 20 years and he will be the governor tribes need to continue to prosper and succeed in Washington state.” Inslee also has no intention of demanding that Indian casinos share gambling profits with the state. He has often said he would prefer to see the profits stay within the tribal communities, than make their way to the cooperate headquarters of some commercial casino.

It is evident that votes cast on Nov. 6 will have a significant impact on gaming legislature in many states. Approved ballot measures that seek to add new casinos or expand the offerings of slot parlors and/or pari-mutuels will encourage the expansion of our highly profitable industry. Newly elected governors, aware of the revenue gambling can bring their states, seem set on opening up or developing their jurisdictions. And different congressional makeups offer some states a glimpse of hope at getting gaming bills passed. While all this progress is certainly a boon to the industry, Congress’ inability to address gaming issues may impact development in the future. A lack of clarification on i-gaming regulations paves the way for the proliferation of unregulated online gambling and varying regulations across states. The fast-approaching fiscal cliff may once again threaten economic stability and development if not dealt with soon. So too will heavy taxes and the elimination of tax breaks for businesses. Hopefully, the president and Congress will be able to come to a deal that ensures high-earners pay their fair share, without hindering chance of development. As we have seen over the past few years, no industry remains unaffected by a less-than-stable economy. We have also learned, however, that the gaming industry is resilient and we can, and will, face whatever comes.

1 Democrats won 53 of the 100 senate seats. In addition, two seats were claimed by Independents who will caucus with the democrats, Senator-elect Angus Stanley King, Jr. (Maine) and Sen. Bernard Sanders (Vt.).
2 Calmes, Jackie. “At White House, Top Lawmakers Say They Expect Budget Deal”. Retrieved Nov. 20, 2012 from The New York Times website,…
3 “Pence Supports Internet Gambling Prohibition and Enforcement Act”. Retrieved Nov. 20, 2012 from Congressman Mike Pence website,….
4 Leubsdorf, Ben. “New life for gambling legislation”. Retrieved Nov. 20, 2012 from Concord Monitor website,

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