Casino Connection Atlantic City

My sainted mother, who’s so money-smart she should be president of the World Bank, has called a halt to speculation. She has taken a great deal of her hard-won fortune out of the stock market and socked it back in the bank, and I’m glad. After all, that’s my inheritance she’s been gambling with!

I think dear old Mom would agree with Pinnacle Chairman Dan Lee, who has finally conceded that Pinnacle Atlantic City may not be able to build a super-resort and casino on the Boardwalk.

With the credit market as dried up as Death Valley, and the country in the grip of what we might as well start calling a recession, it would be foolhardy to proceed with a billion-dollar plan that absolutely relies on people having discretionary income. Most of us these days are taking our play money and pumping it into the gas tank. When the tank’s full, there’s just not enough left over to risk in games of chance, no matter how entertaining they are—and no matter how desperately, in these tough times, we need to be entertained.

Lee told shareholders the odds are 50-50 Pinnacle will build in AC. If financing remains hard to find, the company could sell the land (an unlikely outcome because of the tax hit), take on a partner in the project, or have another entity buy Pinnacle Entertainment.

No decision will be made until 2010, and that reflects a certain cautious optimism. By that time, hopefully our new president will have instilled new optimism in this country, and backed it up with policies to release the economic chokehold we’re in now.

Then we can all go back to having a little fun from time to time, maybe even saving a buck here and there, and my mom can go back to being Bret Maverick in the stock market.

Mom would approve of Dan Lee’s prudence. (And Dan, as my siblings and I will all attest, her approval is hard to come by.)

–Marjorie Preston

Slogging through the gaming news these days is getting pretty damned difficult. For every story of legitimate value, there seem to be 10 stories about how the bad economy is bad for gaming.

This was fine when the economy really seemed to turn, and it is fine when new figures come out showing that things are either going to be OK, or that the status quo is in jeopardy. But I, for one, don’t need to read a story every week about how housing market troubles are keeping people away from casinos, or how high gas prices are doing the same. Certainly, I don’t need to read the local version from the Podunk Picayune doing a rewrite of the major metro daily with quotations from some local yokels.

Certainly, if folks in Memphis or Houston don’t want to drive to casinos in Mississippi because of high gas prices, then folks in the jerkwater bergs of the state will also be forced to deal with the same problems. It’s not just that it is sloppy journalism, it’s that it gets harder and harder to read the same story week-in and week-out without any new information being added.

As much as I enjoy watching the real estate vultures suffer from their own excesses, and as much as I enjoy the fact that the George W. Bush legacy as the antithesis of King Midas will remain in tact, I’m thinking it’s about time to call it a day on the recession stories unless there is some new information available.

If a casino operator has a plan to deal with the current economy, if half of a city’s work force is laid off because of it, fine, write it up. Otherwise, let’s just say this story no longer has legs. Not that some publications won’t continue to beat this dead horse all the way to the glue factory.

Here are some stories you can expect to see this summer:
• Gas at $4.50! What will casinos do?
• Gas at $5! What will casinos do?
• Rising oil prices impact airlines! What will casinos do?
• People making fewer trips to casinos! What will casinos do?
• Less money to gamble! What will casinos do?
• Less money for entertainment! What will casinos do?
• Less money to dine out! What will casinos do?
• Foreclosure rate remains high! What will casinos do?

To borrow from a fellow Las Vegas-based journalist: “Wake me up when the recession is over.”

At last week’s Canadian Gaming Summit, there was a session that looked at the legal state of online gaming in various jurisdictions worldwide. One of the more interesting tidbits provided by session panelists came from Tony Cabot, of Las Vegas law firm Lewis & Roca.  

While speaking about the U.S. Unlawful Internet Gambling Enforcement Act—known by the non-descriptive and unpronounceable acronym, UIGEA—Cabot pointed out that, along with all the things UIGEA says we may not do, there is one very interesting thing that is allowed. Namely, there is an exemption that would allow intrastate online gaming, meaning an individual state could offer online gaming to those living within its borders. Which set me to thinking. 

Imagine a scenario where a state like Pennsylvania, which is the sole legal operator of liquor and wine stores within its borders, decided to offer its own online poker site, or allow a group of “white-listed” online sites to provide the service, for state residents. With a population of around 12 million, the state is larger than some European countries that operate their own gaming monopolies in one form or another.  

Ironically, Pennsylvania, a state within a nation that has a strong central government, would have via the UIGEA more rights in this area than E.U. member nations. Operating an online gaming monopoly is something which is being challenged by the European Court of Justice these days in many E.U. member nations, owing to a treaty that allows the unhindered provision of cross-border services. 

U.S. states with more autonomy than E.U. nations? Strange days indeed. But back to the Pennsylvania example. 

The state would of course want to tax the gambling activity. But rather than trying to collect a portion of GGR from a list of operators, who would certainly not want to see the precedent set, the state could license the individual user and tax annual winnings as income. For online poker players in particular this would make sense, because winning poker players generally see themselves as sole proprietorships anyway. For losing players, well, there’s at least the license fee. 

The user would purchase an annual license and receive tracking software from the state, install it on the computer and be ready to play, secure in the knowledge that withdrawing future winnings from the online operator would not involve legal problems at least. And if the white-listing background checks are performed more thoroughly than were those for the slot casino licensing, all should proceed smoothly. 

Of course, there will always be those players—especially poker players—who object to paying anything at all in licensing fees or taxes, or rake for that matter. But just as legitimizing the casino industry resulted in millions of new customers willing to play under less risky conditions, there should be a large, untapped market of potential players out there just waiting for this kind of change.

—Rich Geller

Some have complimented Pennsylvania officials on the speed with which the state’s nascent slot machine industry got up and running. Despite all the bumps along the way in the form of court challenges and bitter licensing battles, the fact that seven slot casinos were up and running barely two and a half years after the gaming law was passed means the process has been a lot smoother than in many other jurisdictions (New York comes to mind immediately).

Where the new industry goes from here, though, is very much open to conjecture. For the slot casinos to prosper, the state’s lawmakers must change the gaming law. Many have been trying to do this with proposed changes that make a lot of sense. Two bills currently working their way through the legislature address a glaring flaw in the way the law set up the regulatory system. Both would make background investigations the ultimate responsibility of the state attorney general’s office.

The current setup makes no sense, as was painfully demonstrated by the Louis DeNaples affair, in which the owner of the Mount Airy resort received unanimous approval for licensing by the Gaming Control Board without the board’s members even having an inkling that he was under a full-blown investigation by state police and the FBI involving alleged links to organized crime. The reason they had no inkling was that it would have been unlawful for the police to release details of a confidential investigation to the board, which has no law enforcement authority.

Two current bills address the problem. One, sponsored by Rep. Doug Reichley, would give the state attorney general authority over background investigations, permitting the state police to contribute information on confidential investigations to the gaming board’s investigative bureau. The better bill, in my opinion, is a separate measure sponsored by Rep. Ron Marsico that would place the board’s Bureau of Investigations under the authority of the state police, renaming it the Gaming Enforcement Office—installing a system similar to that currently in place in New Jersey.

There is a good reason that New Jersey’s regulatory system has been a model on which jurisdictions around the world have modeled their own gaming rules. It is a system that works.

Useful bills like these certainly will help, but more is needed. There should be a slew of bills to reduce the tax burden on the casinos. There is not. The current 55 percent tax rate in Pennsylvania means there will ultimately be little reinvestment in the market, and few of the customer perks that draw players to Atlantic City. A lot has been made of the defection of Atlantic City players to Pennsylvania, but the lower New Jersey tax rate permits addition of the types of amenities that will bring players back in the long run, after the novelty of new slot parlors wears off. (And it will.) Should Pennsylvania, as New Jersey has, ever end up passing its own smoking ban—which has been another long and painful process in Harrisburg—the gaming tax rate instantly becomes a critical competitive issue.

Next, legislation needs to move forward to free the structure of the gaming board from its laborious super-majority requirement in major decisions. All legislative appointees must agree on any decision for it to be valid. It is a requirement that slows down the entire process. Another good change for the board being considered is eliminating closed-door hearings, another source of much friction in the state.

Finally, Pennsylvania lawmakers need to stop worrying about pleasing Philadelphia’s anti-slot fringe. Just last week, prominent state lawmakers introduced a bill that would move the locations of Philadelphia’s casinos to parcels near the airport, because of objections from city council members and a portion of their constituents to locating casinos on the Delaware River. The operators, who have already pumped millions into their casino plans, are quite understandably up in arms. Thankfully, Governor Ed Rendell is having none of this nonsense—he has promised to veto that bill “in two minutes” if it ever sees the light of day.

Rendell is understandably anxious to see Philadelphia’s casinos up and running, with the promised windfall of tax money sure to pour forth from the riverfront locations. But as some lawmakers understand, the problems with Pennsylvania’s gaming industry go far beyond Philadelphia.

Atlantic City’s operators, stung by Pennsylvania competition, hope those problems are never solved.
— Frank Legato

Last week, Steve Wynn hosted his quarterly conference call with investors for his company Wynn Resorts.

(A quick aside: When Wynn sold his Mirage Resorts to MGM he said he would never operate a public company again because of the short-term expectations of investors. That ended when he launched his present company and needed money to build in both Las Vegas and Macau.)

Anyway, an investor asked Wynn if he would consider layoffs at his Las Vegas property due to the poor economic conditions now afflicting the world’s gaming capital. It was a legitimate question since many Las Vegas companies, most notably MGM Mirage and Station Casinos, recently announced layoffs. Wynn responded that it would never happen.

“I am telling anybody who is interested in our company that under no circumstances will I give any consideration, even for a second, in changing our service levels or disrupting our work force,” he said.

He told the questioner that he didn’t want to instill a negative factor into his service team, a “who’s next” mentality. He also noted this was the sixth slowdown he’s experienced his his gaming career and has never laid anyone off as a result of slow business.

“In my career, I have never had a layoff,” Wynn said. “We don’t intend to do it. We consider the morale and feeling of security our employees have is the most important asset the company owns. More than our buildings or even our concessions.”

Now it is noteworthy that Wynn considers his people the most important asset of his company. That’s the Steve Wynn I knew when I worked for him in Atlantic City. This is the man who put his employees above all others. This is the man who gave new cars to his employees as a Christmas bonus the first year he was open in Atlantic City. This is the man who created such a bond with his employees that they cried and fell apart when he announced he was selling his Atlantic City property to go back to Las Vegas and build the Mirage. This is a man who truly understood his employees.

While his comments during the conference call last week were a reminder of this man, I have my doubts if he truly believes that anymore. And here’s why. Just last year, Wynn forced his dealers—who are the top of the heap when it comes to front-line employees—to share their tips with supervisors. You see, Wynn was concerned that the disparity in pay between his supervisors, who made around $60,000, and his dealers, who cleared around $100,000, would affect his gaming operations. He was correct in this concern. Apparently, no dealers would accept a “promotion” to supervisor because it meant such a dramatic decrease in pay.

The old Steve Wynn would have simply upped the salary of the supervisors, but the new Wynn apparently wasn’t concerned with “morale.” His method of telling the dealers of his new plan was ham-fisted, at the very least. He gathered them together and told them about the plan and, essentially, that they should be happy they have a job.

Not surprisingly, the plan has spurred several lawsuits (all of which have been won by Wynn so far) and a legislative move designed to make the tip-sharing policy illegal. The dealers also voted a union in—probably the worst union possible—but no contract has yet been signed.

The “old” Steve Wynn could have sold this policy to the dealers if he had demonstrated how everyone would benefit. But the “new” Steve Wynn took his legal opinions and tried to shove it down the throats of the dealers without considering the impact on morale.

So it’s nice to see that some of the “old” Steve Wynn has re-emerged in his loyalty and dedication to his workers. And I truly hope that he means it because he can be a charismatic leader when he wants to be.

—Roger Gros

For 30 years Atlantic City has played kid sister to Las Vegas, a city that’s always been perceived as more enticing, more desirable, more seductive and a lot more fun after dark. Now a new hospitality survey suggests that big sister Vegas better prepare for some serious competition.

The results, culled from a poll of about 10,000 travelers, were published in Hotel & Motel Management magazine. According to Market Metrix of California, Atlantic City is the winner by far in value, pampering–even sophistication. Who knew?

“Compared to the Las Vegas Strip, Atlantic City guests are more satisfied with their hotel and casino experience,” the report said. An overwhelming 78 percent of Atlantic City visitors were “very likely to recommend” the resort to others, compared to just 59 percent of Las Vegas visitors, according to the group.

“Wow,” said Market Metrix CEO Jonathan Barsky. “It’s really surprising … to see Las Vegas, the king of gambling and entertainment, get beaten by Atlantic City.”

The Las Vegas Convention and Visitors Authority reserved comment, but operators in Atlantic City are crowing.

“It’s a coup for Atlantic City,” said Borgata President Larry Mullin. “The town should be proud.” He cites Atlantic City’s accessibility and increasing development as reasons for the new trend. “As the town matures,” he said, “I think the future looks bright.”

It’s no secret that sisters are competitive. But it’s always fun when the gap-toothed, pigtailed baby of the family is unexpectedly revealed not just as a beauty, but the one to beat. Atlantic City deserves this accolade, and as we all struggle with sluggish revenues, it should come as a heartening reminder that hard work, dedication and class always prevail in the end.

–Marjorie Preston

My mother always told me to be polite, and the army of nuns who helped to raise me reiterated the point. “Be polite,” they said. “Speak no evil. And if possible, always leave a fractious situation on good terms.” Then they usually whacked me about the head and neck with a ruler (just kidding, Sister!).

This good (and painful) advice has kept me out of trouble more times than I care to remember. It also seems to be working for the three players in a recent legal dispute.

According to published reports, Resorts Atlantic City, Wall Street giant Morgan Stanley and casino exec Audrey Oswell have nothing bad to say about each other now that their lawsuits have been quietly settled.

Oswell, you may recall, is the former Resorts who admitted that she worked covertly on behalf of a competitor during her tenure at Resorts, where she made $800K a year.

Here’s how it went down. While CEO at Resorts—where she did a credible job updating the place in an evolving market—Oswell spent her lunch breaks helping Morgan Stanley broker a deal for a 20-acre oceanfront tract down the Boardwalk. Oswell claims she did it in exchange for a new job and part ownership of the property. But when Revel came on board to develop the project, Morgan Stanley supposedly pushed her out of the deal. So Oswell sued the firm, saying it did not honor its commitments to her.

Next in line to sue the Wall Street firm: an astonished Resorts, which said the firm had no right to appropriate Oswell’s break time to make a multibillion-dollar deal.

Alas for those who love a good potboiler, Resorts and Morgan Stanley settled their litigation last December; Oswell and Morgan came to terms in March. Details of both settlements were not and will never be disclosed, unless you can catch one of the parties at happy hour at Chili’s some night.

Oswell has since left Resorts and is now president of the nearly $3 billion Fontainebleau Resorts casino hotel, under construction on the Las Vegas Strip. And not one of them has a discouraging word to say about any of the others.

They must have been talking to my mother.

– Marjorie Preston

Station Casinos is proposing a meta resort for Las Vegas, making it the fourth major operator to enter the large-scale casino arena.

Las Vegas Sands was the first to the market with the Venetian-Palazzo complex, MGM Mirage will be next with CityCenter and Boyd Gaming will follow with Echelon. That Station is throwing its hat into this elite group isn’t surprising, but it is a little shocking that the company is doing so before there has been any word from Harrah’s.

Initial plans for the project call for three casinos and three hotels with as many as 10,000 rooms to be built on the 110 acres the company owns on Tropicana near I-15—the site of the Wild Wild West. The property would be called Viva.

The estimated price tag for the project is $10 billion, which would make it the most expensive casino project ever.

It’s an ambitious announcement considering the current economic situation in Las Vegas. The city is feeling the pinch of a nationwide recession, as well as a localized downturn brought on by one of the most troubled housing markets in the country. The impact for locals casino operators is generally worse than what it is for their competitors on the Strip.

Of course, Station isn’t spending $10 billion to build a locals casino, they want some of that tourist action, too. And the location is close enough to the Strip that it might work.

Station Casinos has a pretty strong track record of successes, so there isn’t much reason to doubt them, but as we’re still trying to warp our heads around a 66-acre development from MGM Mirage, it’s hard to imagine what a monstrosity a project nearly twice that size would entail.

—Greg Jones

When it became clear that smoking was going to be outlawed on 100 percent of the casino floors in Atlantic City, I wondered what would become of the much-promoted non-smoking casino offered by Trump Plaza. Turns out that the powers-that-be at Trump Entertainment were way ahead of the curve on that one.

By the time the city fathers made their stupid and ill-timed decision to ban smoking, Trump Plaza already had plans well under way to convert the non-smoking East Tower Casino at Trump Plaza into something new, and something that is present in no other Atlantic City casino: a completely automated poker room.

The Plaza has purchased a dozen “PokerPro” tables from North Carolina-based PokerTek, Inc. These are self-contained, 10-player Texas Hold’em poker games. The standard-sized poker table has 10 individual player stations, each with a touch-screen monitor. Players inset their stake, and touch icons on the screen to move animated chips in place for all wagers. A video screen in the middle of the table depicts the deal and the flop. Players can actually use the touch-screen to “turn up” the corners of their hole cards to peek. Play thereafter proceeds just as in any other poker game. Blinds, wagers and raises go on, and players are pitted against each other. The only difference is that there is no human dealer. And, importantly for casinos, the hands proceed about 50 percent more quickly.

PokerTek has been selling these tables like hotcakes to casinos in places where live table games are not permitted. It is more rare to sell a big order like this to a casino in a place where live poker rooms abound, as in Atlantic City. The dealers’ union—a new thing in Atlantic City, as the United Auto Workers only recently organized the dealers—can’t be too happy about this development, as other casinos in Atlantic City will no doubt be keeping an eye on Trump Plaza to see how successful this experiment turns out to be.

In the case of the Plaza, this is the first poker of any kind (other than video poker) to be offered. The casino has no live poker room. Whether or not other casinos replace any live tables with the automated version is something that remains to be seen.

For more on Atlantic City’s first automated poker room, check the June issue of our Casino Connection Atlantic City magazine.
— Frank Legato

Indian Gaming ‘08, the trade show of the National Indian Gaming Association, was held in San Diego last week. The show has become the second most important trade show in the U.S. following G2E and draws about 7,000 people (more when it’s in San Diego, less when it’s in Albuquerque; go figure!).

The theme of the show was the 20th anniversary of the passage of the Indian Gaming Regulatory Act, and at the conclusion of the show, a two-hour session was held to review the history of IGRA and then the impact of the act. Some of the historical figures honored in the annual Tribal Government Gaming magazine were present and offered their insights on what occurred then and how it impacted Indian Country. Some felt that IGRA was a compromise that didn’t have to be reached since the Cabazon v. California Supreme Court decision in 1987 paved the way for Indian gaming on a legal basis. While many in Congress wanted to control the spread of Indian gaming, the tenets of the act allowed Indian gaming to proceed. Congress wanted to limit Indian gaming to states that already equivalent forms of gaming. But little did they realize that things like “Las Vegas Nights” would be interpreted as full-blown gambling. And when states became desperate for revenue, the revenue-sharing models adopted by states like Connecticut and California were more attractive.

So after 20 years, IGRA is still alive and kicking. There have been some attempts to further amend the act, but even Native Americans who did not like the original intent of the act are busy defending it so IGRA doesn’t become a pale imitation of the revenue generator it has become.

For more information on the 20 years of IGRA, get a copy of Tribal Government Gaming ‘08. If it doesn’t arrive with your May issue of Global Gaming Business, send me an email (rgros@ggbmagazine.com) and we’ll get it out.

—Roger Gros