What the Obama administration means for the casino industry



When Barack Obama takes the oath of office this month, he’ll inherit myriad complex challenges facing the nation, not the least of which are two wars and an economy in tatters.

There have been few industries that have not suffered as a result of the loss of consumer confidence, the implosion of the credit markets and skyrocketing unemployment.

“Everybody is in that boat wherever they are in this country, whether you’re selling cars or running a movie theater,” said Frank J. Fahrenkopf Jr., president of the American Gaming Association. “I never believed gaming was recession proof. I kind of believed it was recession-resistant. But this economic downturn is different, and the impact on our industry is different.

“First of all,” he added, “we have the basic economic downturn that’s impacting consumer spending. We are no different than any other tourism site, whether it’s a restaurant in New York City or a hotel in Miami Beach.

“When people are no longer spending on consumer discretionary items, we’re going to take the hit like everybody else takes the hit. That’s clearly been the case.”

Secondly, he said, the credit crunch resulting from bank failures has caused an immediate curtailing of the casino industry’s almost constant expansion of the past decade.

“The second shoe that fell in this economic downturn was the lack of liquidity,” he said. “That has really had a disastrous impact on the industry. This has been a growth industry for the last 10 years, and the ability has dried up to go into the marketplace and find leverage so you can go and build these fantastic destination-style resorts, which attracted so many people to come to them.

“There’s no capital out there now to refinance or to restructure,” Fahrenkopf continued. “That has had a really, really bad impact on the industry. Even if a state was to decide tomorrow that they wanted to have a Las Vegas-type series of destination resorts built in their state, and it was approved, where are the companies going to get the financing to build it?

“This is not the normal downturn that we had in the late 1980s and early 1990s. The lack of liquidity is really the killer.”

Even if Obama and his team are able to navigate through the nation’s economic perfect storm without the merest stumble, most analysts believe it could take at least 18 to 24 months for the United States to pull itself out of the current recession, regardless of who is in the White House. So the new president’s impact on the most troubling challenges facing the brick-and-mortar casino industry may turn out to be negligible or at least not terribly evident for several years.

“I don’t think the election will have much of an impact on the land-based casino industry,” said longtime gaming attorney Anthony Cabot, partner in the law firm of Lewis & Roca. “I think that President-elect Obama already indicated that casino gaming is an issue that should be left to the states in terms of the legalization and regulation of casino gaming. So I really don’t see much of a shift in terms of how the federal government will look at land-based casinos.”

Where Obama may have his biggest impact on the industry, most longtime gaming observers believe, is in the realm of Internet gaming.

“The Internet, and issues relating to Internet gambling could see a substantial change under President Obama,” Cabot said. “The major proponents of trying to get some legalization and regulation of Internet gambling have been principally Democrats – including Barney Frank and Robert Wexler in the Congress and Sen. Robert Menendez in the Senate.

“Because of the fact that it’s coming from Democratic leadership, if it is able to get through the Congress, it’s highly unlikely that President Obama would veto it. So this is unlike past administrations where it would clearly face a veto if it got to the president’s desk.

“There’s a possibility that we’ll see some movement because there’s greater opportunity to get some things passed. That is augmented by the fact that the Democrats have a much greater majority in the House and Senate.”

Fahrenkopf

Fahrenkopf agrees.

“I believe that, particularly in the House, there will be more focus on Internet gambling,” he said. “We know from the last session when Congressman Frank introduced his legislation, that one of the bases upon which he and the others supported the legislation is that they believe it’s a way of introducing a new stream of revenue for the federal government which then members of Congress can then use to promote programs that they might support.

The companion bill to the Frank bill, Fahrenkopf added, was introduced in the Ways and Means committee by Congressman Bill McDermott of Washington. During his push for the bill, McDermott referenced a Price Waterhouse study that indicated legalizing Internet gaming could generate $8 billion to $15 billion in annual revenue for the federal government.

“Now I happened to have seen the report,” Fahrenkopf said, “And of that $8 billion to $15 billion, the guestimation – because again, they didn’t know how many states were going to adopt Internet gaming assuming it was going to be legal on the federal level – was that 65 percent of the revenue came from people who were winners paying their federal income tax.

“Regardless of the credibility of that report,” he continued, “I believe when the new Congress convenes we will see that new legislation introduced and there will be quite a push for it. We’ll just have to see where it goes. Because there will be more Democrats, there will be a strong case for it.

“I think that clearly that is one change that will occur with the new president and Congress.”

It’s a change that would almost surely would not have occurred with a Bush or McCain in the White House, both men said, due to the strong influence of the religious right in the Republican Party.

“It would be very difficult for a Republican president to not veto something that would effectively legalize Internet gambling, because that issue is such a strong issue of the conservative caucus and the Republican base, driven by the religious right,” Cabot said. “So from that perspective I don’t see a lot of policy emanating from the White House, but there is huge potential that they will not stand in the way of passage of legislation.”

Fahrenkopf emphasized that “there are elements in both parties” that are fundamentally anti-casino gaming.

“In the Republican Party you have people who are generally more conservative – particularly the social conservatives – who view gaming as a sin,” he said. “It’s a moral issue with them and they believe they should do everything in their power to keep people from sinning and spending eternity in hell with the devil.”

In the Democratic Party, he said, “they tend to be people more on the far left. They don’t care about the sinning part of it. They don’t think people are smart enough to make their own decisions on how to spend their own money and that government must be a paternalistic entity to protect them from themselves.

“But nationally,” he concluded, “I would say that if there was one party that was more open to casino gaming, it’s the Democratic party because the religious right, the base of the Republican party, are so morally opposed to it.”

A Democratic president and a potentially democratically controlled Congress might bode well, generally, for the industry therefore. But even cheerleaders for the industry are not predicting miracles under President Obama.

“I don’t know if anything is going to radically change,” said Cabot.

“From the presidential level, I don’t think the fact that an Obama or a McCain moving into the White House would bring much change at that level,” said Fahrenkopf.

But UNLV Professor Bill Thompson, who has been studying the industry for decades, emphasized that with the current economic crisis, Obama “is highly motivated by revenue streams that will come to the government. So I don’t think he’ll be reluctant to permit more gaming. And I think he might support Internet gaming, although the issue there will be confined to poker. I don’t think the other issues can get on the agenda.”

Overall, he said, “I think the industry has a friend in Obama.”