Quick-takes: The month's trends in a glance – September 2007

New Jersey and Illinois have problems that are much alike – the budget process. The deadline to establish a budget for the state in each case is set by law. But when the deadline approaches, political differences raise their ugly heads, and they can and have delayed a final budget approval. Last year, the governor of New Jersey used the lack of an approved budget as an excuse to close down government services, including gaming regulation, and therefore closing the casinos in Atlantic City. The political pressure from the unpaid workers, the unions, and the casinos brought a quick resolution to the budget impasse. This year, the legislature failed to pass legislation to prevent that from happening again.

In Illinois, the governor has asked the state workers to work without pay until the impasse is bridged. He could have closed the state down, including the casinos as they too would be operating without proper regulatory oversight as required by law. Instead, it appears he thinks that working for free will cause enough of a backlash to end the delay and win his financial agenda. Gaming is always threatened by these political stunts and showmanship; gaming requires regulation and regulators are paid by the state. Please, dear elected officials, get your acts together and find a way to protect a major tax and job source – then no one cares what games you play.

A state lawmaker's proposal for a constitutional amendment to protect the casinos from another government shutdown like the one that halted gambling last year will die today. Sen. James "Sonny" McCullough, R-Atlantic, conceded defeat after his plan stalled in the Senate and had no chance of winning legislative approval by today's deadline for placing it on the November ballot… Lawmakers have been searching for ways to prevent a recurrence of the state budget crisis that temporarily shut down New Jersey's government last year and forced the casinos to close from July 5 to 7. Thousands of casino employees were out of work for three days and the gaming industry lost an estimated $50 million to $55 million in revenue. (Donald Wittkowski, Press of Atlantic City, 8-1-07)

Gov. Rod Blagojevich called Tuesday for state workers to stay on the job even though no budget is in place, and legislative leaders suggested they are making headway toward completing a budget deal that would avert a state government shutdown. Nearly nine weeks into a record impasse, the beginning of the new month marked the expiration of a temporary budget. Blagojevich sought another one-month spending plan through August, but key lawmakers from the House and Senate kept focused on reaching a deal on a full-year budget instead. (Jeffrey Meitrodt/ Monique Garcia, Chicago Tribune, 8-1-07)

Unions are continuing to increase in political importance. The major democratic candidates for president are lining up to speak to the membership in Nevada and in New Jersey. Mostly, they are just making a very broad and general statement of support for unions, but not saying much about casinos and unions. When Barack Obama was in Atlantic City last month speaking to UAW members, he opined that dealers are underpaid and treated without respect. But everyone is apparently ready to join the picket line when the time comes.

From there to a hooting, hollering union hall. Question: Will you strike with us…That was Hillary Clinton's day in Las Vegas on Thursday…At the next stop, Clinton's third visit with the Culinary union, she told union workers that unions are good and that more people should be in them. She praised the workers' continuing fight to get the contract they want from their biggest employer, MGM Mirage, and made her picket-line pledge, as Obama, D-Ill., and John Edwards, a former North Carolina senator, also have done…Today, Obama and Edwards will be back for their fourth and third Culinary meetings, respectively. (Molly Ball, Las Vegas Review-Journal, 8-10-07)

There is another place where unions are trying to exert their political muscle – regulation. In Indiana, New Jersey, and Nevada, a union is protesting to regulators. They contend that Columbia Sussex is violating regulation and endangering the industry with personnel cuts. The company spent over $2 billion to buy Aztar, the parent company of Tropicana. As any responsible buyer, the company did its due diligence on operating margins and found some expenses too high. At the top of that list of expenses was payroll, so at each property, Columbia Sussex started to cut back on the number of employees. That move has politicians in Indiana and New Jersey up in arms – spurred one might guess by a desire to "gain" the union vote. Now, the unions are pushing regulators in Nevada to investigate – again guessing – having found that Nevada politicians are more supportive of casinos and their campaign donations.

An apparent lack of concern by Nevada gaming regulators regarding staff cuts at the Tropicana has the Culinary union seeing red…"I'm not sure our gaming officials have been extremely concerned about anything," Culinary Secretary-Treasurer D. Taylor said. "They seem to be either asleep at the wheel or afraid to speak out on conditions at a casino that clearly has raised concerns of New Jersey gaming officials and Indiana gaming officials. I think their silence and lack of concern is very telling." (Arnold M. Knightly, 8-10-07)

The worst of sports stories continue their pace through the courts, the media, and by implication at least, the gaming industry. Michael Vick and Tim Donaghy, whether they are guilty or not, have been judged guilty by the professional leagues they represent. Both leagues are characterizing the men and their deeds as among the worst ever in professional sports. Vick's case makes the argument best when the league says that gambling is a more egregious sin than the cruel treatment and death of dogs. For all of us who are or have earned our living from gaming, the meaning is clear; there would have been more honor in torturing animals or maybe as Mafia hit men. Is your face not red with shame because of your association with gambling? The NFL is trying to make this a religious issue and draft church and religious organizations into its war against gambling. The Vick and Donaghy cases will add weight to the argument. Whetherthey should or not is another question.

The assertion that Atlanta Falcons quarterback Michael Vick gambled on dogfighting appears to be a more serious threat to his professional football career and freedom than the federal felony charges that he helped organize and run a dogfighting ring. Federal prosecutors are preparing a new set of indictments in the case against Vick. The charges are believed to include counts stemming from gambling that he is suspected of having financed. (Michael S. Schmidt, New York Times, 8-15-07)

Former NBA referee Tim Donaghy pleaded guilty in a New York federal courtroom Wednesday to two felonies connected to illegal bets on league games, an arrangement detailed in court records. A maximum 25-year prison sentence confronts Donaghy, 40, a 13-year veteran official who pleaded guilty to conspiracy to engage in wire fraud and transmitting waging information through interstate commerce, the Associated Press reported. In a Brooklyn courtroom, U.S. District Court Judge Carol Bagley Amon said Donaghy provided co-conspirators information that was not public. Amon said the recommendations, which she called "picks," were directed by Donaghy, who would then get paid up to $5,000 per tip if his information was correct. (Lance Pugmire, Los Angeles Times, 8-15-07)

The behind-the-scenes putsch that forced the Unlawful Internet Gambling Enforcement Act (UIGEA) through a skeptical Congress last year saw a little sunshine this week. Witness the news that the National Football League has teamed up with James Dobson's Focus on the Family and other right-wing Christians to head off efforts to liberalize and regulate the online gambling industry. The NFL has brought in some big guns to make sure that Congressman Barney Frank's attempt to repeal the law and regulate the troublesome industry never gets out of committee, according to the Financial Times. Former Senate Majority leader Bill Frist attached the controversial UIGEA in the middle of the night to an unrelated port security bill, and one of his top advisors, Bill Wichterman, is now lobbying on behalf of the NFL to uphold the UIGEA. As the Finanancial Times noted, an email obtained from Wichterman "encouraged conservative groups to co-sign a letter to Congress that ostensibly was written by Focus on the Family. 'The threat posed by the Frank legislation is very real, and we must actively work against it,' Wichterman wrote." The letter encourages anti-gambling Christians to take up the fight against Frank's legislation. (Burke Hansen, Register, 8-17-07)

The pressures of competition are universal, enough so that Harvard business professor Michael Porter listed competition as one of the five most important factors in business. Gaming hasn't always understood that principle, mainly because regulation and the limited number of legal gaming jurisdictions artificially reduced or even eliminated competition. Atlantic City and Indian gaming are classics in that regard – for most of its gaming life Atlantic City has faced little competition in its primary feeder markets. That has changed with the advent of slot machines in Pennsylvania.

Indian tribes have very often enjoyed the same kind of freedom from immediate competitors, sometimes because tribes are frequently in remote locations and located away from other tribes. For Atlantic City it was because the surrounding states did not offer the same legal environment for gaming – there were simply no casinos in neighboring states. That is changing for tribes also. In Connecticut gaming revenues have been flat or down, and this month a tribe in Oklahoma is seeing its revenues virtually dry up. The reason? Other tribes have opened casinos closer to the customer base and siphoned the players off the road before they reached the Thunderbird Wild Wild West Casino.

Professor Porter said the next thing to consider is the financial strength of the competitor; do they have the ability to respond to any move your company makes – and even more important, does your company have the ability to respond to their moves? In Atlantic City, we will see that question played out over the next few years as the Atlantic City casinos fight to keep their market share, fight against each other, and fight against the growing competition in their feeder markets. It will be a brutal battle with casualties on both sides – just ask the Donald.

Casino earnings plummeted in the second quarter, further proof that Atlantic City's partial smoking ban and extra competition from slot parlors in neighboring states continue to hurt the bottom line for the gaming industry. Gross operating profits for the 11 casinos totaled $291.3 million for the quarter, down 19 percent…net revenues fell 6.1 percent to $1.19 billion, and net income slumped 34 percent to $65 million…In the second quarter, nine casinos saw gross operating profits drop by double-digit margins. (Donald Wittkowski, Press of Atlantic City, 8-18-07)

Two years ago, the Absentee Shawnee Tribe seemed flush with money. The tribe's Thunderbird Wild Wild West Casino was raking in millions of dollars a month...While Thunderbird Wild Wild West Casino was considered one of Oklahoma's nicer casinos just two years ago, today its parking lot is virtually empty. Two much larger and more modern Indian casinos have opened on nearby interstates, rendering the Absentee Shawnee Tribe's main business virtually obsolete. (Tony Thornton, Oklahoman, 8-18-07)

Atlantic City is feeling the pressure of competition. Revenues were down again in July, while in the rest of the country gaming revenues were up – not the double digit growth of the early years of each of those jurisdictions – as we will see in Pennsylvania in the beginning – but still up.

Atlantic City: July gaming revenues fell 2.3% to $469.6 million. (Alan R. Woinski, Gaming Industry Weekly Report, 8-13-07)

Colorado: July casino revenue increased to $68.9 million, up 8.5 percent from 2006. (Denver Post, 8-17-07)

Detroit's casino revenues up nearly 3 percent in July to $113.3 million. (Joel J. Smith, Detroit News, 8-15-07)

Connecticut: Mohegan Sun took in $88.9 million from its 5,902 slot machines in July, an increase of $4.7 million or, 5.6 percent, over the same month last year…Foxwoods reported slot revenues of $75.2 million for July, a decrease of $960,000, or 1.3 percent from the same month last year. (Mark Peters, Hartford Courant, 8-15-07)

Florida: July slot revenue totaled $18.5 million with an average slot win/day of $156, up 11.1% from June. (Alan R. Woinski, Gaming Industry Weekly Report, 8-13-07)

Illinois: July gaming revenue rose 1.3% to $173.4 million. (Alan R. Woinski, Gaming Industry Weekly Report, 8-13-07)

Indiana: July gaming revenue rose 7% to $236.7 million. (Alan R. Woinski, Gaming Industry Weekly Report, 8-13-07)

Iowa: July gaming revenue rose 11.6% to $124.9 million. (Alan R. Woinski, Gaming Industry Weekly Report, 8-13-07)

Louisiana's 13 riverboat casinos, Harrah's Entertainment Inc.'s downtown casino in New Orleans and slot machine casinos at Louisiana Downs, Evangeline Downs and Delta Downs took in $228.3 million, compared with $226.5 million in July 2006. (Associated Press, 8-21-07)

Mississippi: July gaming revenues increased to $266.2 million. (Associated Press, 8-17-07)

Missouri: Revenues at 11 casinos statewide were up a modest 0.6 percent in July, to $136.9 million. (Rick Alm, Kansas City Star, 8-15-07)

Nevada's June gaming revenue rose 6% to $959.8 million. (Reuters, 8-10-07)

Pennsylvania: July slot revenue was $106.4 million with a win per slot per day average of $402. (Alan R. Woinski, Gaming Industry Weekly Report, 8-13-07)

These forces – competition, the presidential campaign and sports gambling scandals –are likely to affect gaming for a long time to come. The election will come and go, but politicians pandering to unions are not going to go away, particularly in New Jersey. Atlantic City is being hit with non-smoking legislation, competition from Pennsylvania, and the growing strength of unions, all of which are going to challenge the industry's ability to adapt and grow. Reno and northern Nevada were only facing one of those, competition from Indian gaming, but it permanently changed the industry there. It is too soon to predict what impact the sports scandals may have on the industry as a whole, but we certainly can expect them to play a big role in any debate in Congress over Internet gambling.

In the meantime, a couple of new jurisdictions are coming out of the blocks: Kansas, Florida, and Massachusetts. Kansas has enabling legislation, soon to be tested in the state Supreme Court, and the first company, Penn National, has applied for one of the available licenses. That probably means in a year or so there will be at least one casino up and operating. In Massachusetts and Florida, we are waiting for the governors to announce their intentions.

The governor of Florida and the Seminole tribe are negotiating a compact, but the details have not been announced, nor is it clear what the process will be for approving that compact. There is also a ballot initiative for slot machines in Miami Dade County. If it passes, it is also unclear just what will need to take place and how long it will take before the slots are ready to play. Florida could have a compact and new slot machines sooner than either Kansas or Massachusetts.

The governor of Massachusetts is studying the question and is expected soon to articulate his intentions. That will be just the beginning. It will be entertaining to watch, but too early to put your money on any horse in the race, or on any race at all.

As was true in Pennsylvania we can expect each new jurisdiction, and there aren't many left, to reflect the history of legalization in the last twenty years. All of the issues from the past will be heard – increased crime, increased problem gambling, mob influence, corrupt politicians, and all of the other social issues. On the other side, we can expect to hear the same list of advantages – the willingness of bidders to bid very high for licenses, increased taxes, keeping the gambling dollars at home, increased employment and all of the favorable economic arguments. Both sides will exaggerate and possibly even lie, but one thing is for sure, we can expect to watch the same process repeated with very little learned from previous states. That doesn't mean gaming in Massachusetts won't be a success, but it does mean it might happen a little faster and be less difficult for everyone concerned if the politicians stopped for a moment or two and studied the process in other states.