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Gaming Guru
Quick-takes: The month's trends in a glance – September 200715 October 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.
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.
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.
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 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.
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.
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. Recent Articles
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