ATTORNEY AT LARGE: Capital ideas for Atlantic City
by Lloyd Levenson
April 5, 2011
We are clearly in an era when casino operators must also take into account that other group of “investors”: the public.
If armies travel on their stomachs, as the saying goes, then casinos travel on capital investment. Capital is the fuel that continually feeds the ability of a casino to attract new customers and keep its existing customer base coming back.
In fact, capital investment is also the factor that can keep adults on site longer, which allows them to enjoy themselves for longer periods of time. Time is money in the gaming industry, and those who enjoy themselves more will spend more.
Those who provide that capital investment have a different calculus, however. Their idea of “fun” is calculating the potential return on investment, and then cashing those dividend checks. Whatever your idea of fun happens to be – increasing the ROI or piling on more pasta from the buffet – it still must run on the notion that capital investment is what makes gaming grow.
From the standpoint of elected or appointed public officials, “fun” takes on an entirely different meaning. They smile when revenues increase, when more people are employed, and – in markets such as Atlantic City – when there is renewed interest in the future.
That is the scenario in which Revel Entertainment and other present and future gaming providers find themselves. They want capital investment, and in fact need it in order to build or grow their businesses. So, they must acquire this capital under circumstances that make sense to their shareholders, as well as to their investors. And we are clearly in an era when casino operators must also take into account that other group of “investors”: the public.
In the case of Atlantic City, for example, the public is vested in casinos as customers, but also as taxpayers – at least for those members of the public who reside in the Garden State. But the same principle holds true in any and all states that offer casinos. The public is a partner in the success of the industry. That may strike some as an odd statement, but it is inevitably and invariably true. When casinos can attract capital investment, they will employ more people. They will also generate more tax revenue, both in the form of direct casino taxes, but in a variety of other forms as well, from payroll taxes to corporate income taxes. And, when employees spend money outside of working hours, they support additional economic gains as well. This all results in even more tax revenue.
That situation translates into a very real partnership and those who issue their licenses. As in all such situations, the partnership is based on certain principles. Licenses often provide some level of exclusivity – either in the number issued or the geographic location – while the licensees guarantee that they will operate in the public interest in various areas, from employing people, say, to developing responsible gaming practices. The single largest requirement of such a partnership is that policies between the casinos and the state must have common, parallel goals. When one succeeds, the other prospers.
What does this mean for the casino industry going forward? Partnerships that meet these standards should be developed and cultivated.
Governments at all levels invest in a variety of industries that all ostensibly serve some public purpose. Cities want movies filmed there, and states want car companies to build assembly plants within their borders. Casinos are no different.
Again, Atlantic City has offered numerous examples over the years in which the state effectively invested in its casinos by offering tax breaks or tax subsidies, in which casinos and other developers that meet certain criteria have been allowed to keep some of the taxes generated on site to reduce their risk. The result of these practices has been evident. Developments from The Walk to The Quarter, and from The Pier to Revel’s casino hotel have been built because the state of New Jersey had the foresight to recognize that Wall Street is not the only home for investors.
The results of that investment are evident throughout the city. I call it capital investment. Customers call it an attractive destination.
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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