ATTORNEY AT LARGE: Learning from the Economic Meltdown
by Lloyd Levenson
February 1, 2009
What the casino industry’s dedication to regulation and transparency can teach the rest of the nation
The casino industry has some serious lessons to
learn from the extremely painful economic crisis. At the same time, however,
the industry has some equally serious lessons to impart. Either way, such
lessons cannot be ignored.
On the learning side, the
casino industry and all its many moving parts – from Wall Street analysts to
suppliers, and from regulators to investors and executives – has recognized
that its fate is inextricably linked to the economy at large. What happens in a
variety of locations, from Washington to Moscow, ripples through
the world and impacts the casino industry.
Spectrum
Gaming Group’s Michael Pollock, publisher of the
Gaming Industry Observer for the past 14
years, offers insights to put these lessons in proper perspective. “For several decades, the casino industry was shrouded in a myth that it was somehow
immune to economic vagaries, and was essentially recession proof. It
never was.
“Indeed,
if casinos did not see their revenues move in lockstep with the economy, it
could largely be attributed to the fact that casinos catered to a relatively
small segment of the population, those gaming aficionados who liked to play at
casinos in good times and bad.”
Pollock cautions that the
industry’s growth in recent years – in which gaming is exposed to more adults
who are increasingly willing to play – has much upside, but there is a
downside: increased economic risk.
“The
ongoing recession is proving to be particularly painful for casinos, because we
have learned that much of the discretionary income that fueled spending in many
leisure industries was funded by money that would have otherwise been saved or
invested.
“As consumers watched their
net worth increase, thanks to rising housing and stock prices, they felt little
compunction to save. Thus, they were able to spend more. It was, to use the
Aesop analogy, smarter to be a grasshopper than an ant,” Pollock said.
The lesson is clear.
Casinos cannot count on such discretionary spending to rise endlessly. Growth
will come as the industry expands to reach more adults, and expectations of
that growth must become more realistic.
But
what about the lessons that the casino industry can teach the rest of society?
For that, we need look no further than the latest in a long line of Wall Street
scandals. The Bernie Madoff scandal – in which $50 billion practically
evaporated in what is alleged to be the world’s largest Ponzi scheme – caught
some otherwise very smart people in its web, according to
prosecutors.
Note that, despite all the
angst that has developed regarding the casino industry’s ability to generate
revenue and earnings in recent months, the industry remains free of taint in
such scandals going back years, from Enron and Tyco to
Madoff.
Questions now surrounding
the Madoff scandal are focusing on the Securities and Exchange Commission, the
federal agency responsible for protecting investors against such forms of
fraud.
Recent
congressional hearings have shown the intense heat is on the SEC, which, by
most accounts, failed to note red flags that should have prompted earlier
action.
U.S. Rep. Gary Ackerman,
D-N.Y., put it most bluntly: “Who is responsible for protecting the securities
investor because I want to tell that person that they suck at it. … This is a
spike in the heart of the investment community that makes America run.”
Of
course, gaming has had instances in which state regulators have taken heat,
have gotten it wrong, or have ignored the core principle of maintaining integrity. Still, in states that are the bellwether of
gaming integrity – most notably New Jersey and
Nevada – the
notion of regulators missing warning sign after warning sign is practically
inconceivable.
Transparency is at the
heart of gaming regulation, and is a necessary to ensure public confidence. A
focus on transparency, and a rigorous response to red flags, make gaming
regulation effective, and – using the words of Gary Ackerman – it's what makes
gaming run. That is a lesson that the rest of the nation should take to heart.
Lloyd Levenson
ldlevenson@cooperlevenson.com
Lloyd Levenson is CEO and chairman of the Casino Law Department of the Atlantic City/Las Vegas law firm Cooper Levenson (www.cooperlevenson.com). He can be reached at (609) 344-3161.
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