THE BACK PAGE: Governing principles
June 1, 2012
I read somewhere recently that the 21st century is going to be known as the economics century. It made sense; free markets in their many versions have won the day and classic military conflicts are a thing of the past. There’s really nothing left to fight about except money and that other great obsession, which tends to play itself out in private.
The winners in this battle (the global wealth race, that is), will be the nations who do the best job developing resources on a mass scale and aligning them with strategy. That implies a pretty big role for governments, and the early indications are they’re very slowly warming up to the task, if at all. The quality of business/government relations is pretty appalling in the States at least. There are some basic ideological reasons why this is so, and fundamental disagreement over whether the two should have any interaction at all. Of course, in gaming, we don’t have the luxury of living out the libertarian dream, do we? The right to operate gaming businesses flows through government, which also sets the ground rules and the price.
Governments pick gaming winners and losers (or non-participants at the very least) and determine the fates of markets, which, until fairly recently, tended to fare well. But the struggles of Atlantic City combined with the challenges of a difficult economy have created a lot of ferment in mature markets everywhere, and operators can be excused for asking governments to keep an open mind about taking a fresh look at what they may believe to be relatively stable businesses.
Take Louisiana, for instance.
“We’ve asked Louisiana to call time out and do a study on where we’ve been in the last 20 years and make sure we have a clear road map on where we want to go the next 20,” said Geno Iafrate, executive vice president of regional operations at Pinnacle Entertainment, speaking at last month’s Southern Gaming Summit. “We’re not so sure that what we did in the last 20 years is going to get us the same results in the next 20.”
Iafrate’s list of topics to review includes the 30,000-square-foot gaming space limit and having to locate projects on the water. “Things that other states have already made adjustments to; Mississippi being one of them,” he said. “We have to make sure that we are going to be able to adapt our businesses and we want to make sure that from a regulatory standpoint there will be adaptation that occurs there as well.”
Louisiana is an interesting case, one among many, in that it will be adding three large new projects in the next two years in three of its four commercial markets; Baton Rouge, Lake Charles and Shreveport/Bossier City. In addition, new supply in neighboring states remains a transformational possibility.
“One of the reasons we talk about being careful to lay out the framework for the next 20 years in is because we could potentially face things like legalization in Texas,” said Iafrate. “If you look at a place like Atlantic City, it didn’t do a whole lot different for probably 30 years; didn’t diversify its economic offering, rode the casino horse the whole way and then other states came in and a $5 billion market is now in the mid-3’s. Those kinds of things can happen in states that border large population centers that don’t presently have gaming and then legalize it.”
The idea of legislative and regulatory make-overs isn’t new. Indeed, Atlantic City itself has revamped its framework, but many informed people in the business think it’s too late to reverse a stubborn decline in its business. There isn’t a mature market in the country where operators aren’t seeking some form of relief to promote competitiveness and profitability. What’s also true is that the industry almost as often confronts a mindset in legislatures even among friends that is resistant to doing anything for gaming that political opponents can frame as expanding the business.
Even when governments are in a business, like gaming, they can either do things that harm the business or oppose outright sensible measures that would improve it for everyone, including government. It can be maddening, but you wouldn’t be in this business if you weren’t patient and sensible.
“We need to go back to how gaming regulations were first developed and read the fine print,” counseled Jack Bernsmeier, senior vice president and general manager, IP Biloxi Casino & Spa. “In most cases, it had to do with jobs, the economy and growing businesses within the states. It’s everybody’s task to remind those folks that that’s the goal. Sometimes I think depending on who got in office and when, things can go a little astray and it’s our job to keep the focus where it needs to be.”