That doesn’t fit on t-shirts, and won’t gain me a mention in Bartlett’s Familiar Quotations, but in the gaming universe, it is an absolute truth.
Caesars Entertainment Chairman and CEO Gary Loveman, speaking at the East Coast Gaming Congress a few years back, lamented how his industry bought into higher and higher tax rates on gross gaming revenue as a means of getting into more states. Gaming surely expanded across the United States as a result, but tax rates kept expanding as well.
In part, you can blame political forces for this. Spectrum Gaming Group noted in an often-cited, peer-reviewed white paper that:
“When Maryland voters approved a referendum to legalize casinos in 2008, [Spectrum] met shortly thereafter with officials from the Maryland Lottery who were beginning the process of authorizing the casinos, based on a statute that established an effective tax rate of about 70 percent.
“The officials were concerned that they were not sensing significant interest from potential bidders for the proposed five licenses, with the likelihood of one license receiving no interest at all. Our comment was: ‘The first thing you should do is re-examine the proposed tax rate.’ After a lengthy pause, the officials responded: ‘What is the second thing we should do?’ “
The message was that political considerations made an examination of the tax rate a non-starter, but that is no longer the case in many statehouses. A change is clearly taking place as more and more state lawmakers recognize that tax rates can stifle investment and make an industry less competitive. Loveman and Spectrum have been in the forefront of that effort, and more states from Delaware and Maryland to Indiana and others have become more willing to examine all aspects of their rules and regulations.
Spectrum professionals have been studying gaming impacts for more than 32 years. (I could joke that Mark Twain had not even made his quip when Spectrum professionals pioneered this discipline, but the joke would backfire. I have been around longer than Spectrum.) Spectrum and Loveman have put forth compelling arguments that can determine the type of business model that a casino operator will deploy, and are a core component of the type of facility that gets built, and how many adults a gaming operation will reach.
Spectrum makes a compelling case that states should look at all forms of tax revenue when examining the impacts of a proposed or existing gaming property. And Loveman—whose place in the pantheon of thoughtful, insightful leaders is fixed and permanent—makes a similarly compelling argument.
I can only add my thoughts as an industry attorney whose work includes assisting casino applicants to make their cases before governing bodies that they have earned the privilege of casino licensure. In my view, applicants must accept that they bear the burden of demonstrating that they have earned that privilege, and they can best do so by showing in clear, convincing terms that they are best positioned to advance public policy. That means demonstrating that they will promote tourism, employment and other factors such as improving the general quality of life in their regions. It does not mean pursuing a bidding war for higher and higher tax rates.
Taxes may be permanent, but they do not have to be set at the highest possible rate to produce the highest possible benefits. Quite the opposite. And you can quote me on that.