Gambling regulators in Louisiana, New Jersey and Massachusetts have some big issues on their plates and no one is quite sure what to expect. Big issues in regulation are not uncommon in gaming. Casino gaming is a highly regulated industry and regulators play very prominent roles. As conditions change and the industry evolves, regulators are faced with adapting to new circumstances and that can be challenging.
Every casino jurisdiction has its own, unique set of regulations based on the requirements of the enabling legislation. For years there were two major models from Nevada and New Jersey that states used to write their own regulations. Both states had two priorities – protecting the integrity of the games and collecting taxes due to the state. Nevada has a broad general approach dictating the result, but not the specific methods while New jersey took the opposite tact, creating exact requirements. Nevada requires the outcomes of all games to be random and the revenue accurately recorded. New Jersey expected the same, but in the process specified how many table game supervisors a casino must employ and what percentage of its slot machines could come from any one manufacturer.
New states developing regulations wanted both integrity and accurate revenue reporting. In addition to those requirements, other states had additional goals; some specified the minimum investment in building a casino, others the number of employees and some dictated the number of slot machines required. One case in point is Louisiana and the license for the Harrah’s casino in New Orleans. A land-based casino in New Orleans was the single exception to the riverboat casinos authorized by voters in 1991. Harrah’s outbid and out-promised all other prospective licensees for the New Orleans license. Harrah’s got the license; Louisiana required Harrah’s to maintain a minimum number of employees and to guaranteed $100 million a year in taxes to the state. The conditions were onerous and twice the casino filed for bankruptcy. The state relented to reducing the number of employees and the annual taxes.
Louisiana and Harrah’s have just come to an agreement to renew the license for 30 years. To get a 30-year extension Harrah’s agreed to pay a minimum of $60 million in taxes annually, to be increased to $65 million over time, to increase its guaranteed employee count by 500 and to invest $325 million in a hotel by 2024. Lawmakers in Louisiana were eager to get a deal done, they wanted the additional investment, jobs and tax revenue. The state and Harrah’s parent company, Caesars have resolved the issue to the satisfaction of the state, but Harrah’s is not as satisfied. A spokesman called the conditions the worst ever imposed on a license renewal; indicating Harrah’s does not like the deal, but sees no choices.
Based on a recent study, New Jersey is considering a major change in its regulation for the second time. When Chris Christie was first elected governor, he pushed for easing regulatory requirements and reducing the cost of regulation. The study recommends that the state should limit the number of casinos in Atlantic City to nine, the number now operating. Since 2006, Atlantic City has lost over half of its gaming revenue to neighboring states and even with the addition of online gaming and sports betting, the situation is still difficult. The competitive pressures on the borders are not easing and in fact can be expected to increase over the next couple of years.
Limiting the number of casinos in Atlantic City might help protect the existing casinos, the employee base and the tax revenues. And there is a possible license application pending, so the issue is pressing. Regulators will be facing tough choices, should they risk losing jobs and taxes by allowing more casinos to come in to further destabilize the market, or protect what exists. This is new territory and it is not covered by existing regulations.
The final big issue of the moment comes from Massachusetts. Wynn Resorts is in the final stages of development of Encore Resort Boston Harbor. The cost of the property is approximately $2.4 billion. Encore is scheduled to open in June, less than two months away. However, the Massachusetts Gaming Commission has yet to issue a casino license. The parent company, Wynn Resorts is stuck in the aftermath of a me-too affair. The company founder, Steve Wynn was accused of sexual harassment and assault. That was a year ago, Wynn resigned and sold his stock and the company restructured its management and board of directors. Massachusetts investigated and held hearings. The commission delayed its decision for over a year, but finally ran out of time.
Massachusetts regulators did grant a license to Wynn Resorts. There was a lot at stake. Everyone in the state is eager for Encore Boston Harbor to open and to begin to pay its employees and state taxes. However, the commission did impose a $35 million fine and some additional conditions. The Boston Globe was calling for a $100 million fine, but had stopped calling for the CEO to resign. Wynn Resorts and CEO Matthew Maddox were found suitable. Maddox was hit with a fine of $500,000 for his “clear failure” to investigate at least one misconduct complaint. Did the Massachusetts Gaming Commission really have a choice? If the gaming commission had found Wynn Resorts unsuitable, what then?
That is the regulator’s dilemma; in unique situations not covered by existing regulations, what is the role of regulators? Is it to protect the jobs and investment in existence? Or is it simply to license, tax and oversee the integrity of operating casinos? If that is the case, regulators should not consider the fate of individual companies; it should allow the market place to sort out the winners and losers. Either the company is suitable or it is not. If on the other hand, the task is to protect the investment, jobs and taxes, the decision is much more complicated. It is soul-searching time, the regulators will have to carefully read the enabling legislation and the regulations to decide what role they should be playing and thus what decisions to make. Integrity and taxes are important, but they are not the only important things to take into consideration. The gaming industry is evolving rapidly and regulation is being forced to adapt to the changes.
