AGA and a Decade of Rapid Maturity

Any discussion about the American Gaming Association (AGA) should begin with the understanding that when we opened our doors in June of 1995, there were at least as many “experts” who believed it wouldn’t work as those who believed it would.  And, having been intimately involved with the industry since I began practicing gaming law in 1965, I must admit I understood that view point.

It is easy now that we are celebrating our 10th anniversary to forget how competitive, young and unaccustomed to thinking of itself as an “industry” the commercial casino industry was in 1995.  The specter of a federal gaming tax had created the need for a unified industry response, but whether the industry could sustain its own national association after that threat had passed was a great unknown.  After all, the gaming industry was among the last bastions of true entrepreneurs.  Casino companies competed ferociously for every customer and for every license in every new jurisdiction.  Every company sought to express its individuality – individuality that was often a direct reflection of the men who led them.  Unlike more mature, longer-existing industries that were into their fourth or fifth generations of leadership, the casino industry was still very young.  In 1995, it had barely been six years since casinos were legal anywhere in the United States beyond Nevada and Atlantic City, with first- and second-generation leaders – leaders accustomed to facing challenges independently.

The continued existence of the AGA and the ability of our industry to work together on a wide range of difficult issues – many where there exists wide disagreement among our members – are tributes to those leaders and to the rapid maturity and growth of the industry itself.
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The growth of commercial casino gaming in the U.S. has been one of the late 20th century’s great business and economic success stories.  In 1989, Iowa and South Dakota legalized the first casinos outside of Nevada and Atlantic City, marking the beginning of a dramatic expansion over the next three to five years. 

In the year before the first riverboats began operating, casino revenues were well below $10 billion.  In 2004, 445 commercial casinos posted revenues of nearly $29 billion.  This rapid growth has brought jobs, a stable tax base and hope to many areas of the U.S. that had been severely economically depressed for decades.  Rapid growth and expansion also brought a host of challenges and ultimately the need for the industry to create an association to help meet those challenges.

The proverbial straw that broke the camel’s back was a proposal in 1994 by the Clinton Administration to impose a 4 percent federal tax on all gross gambling receipts.  Although the idea of a federal tax on gaming never got beyond the proposal stage, it was the catalyst for the creation of the AGA.  But that decision, in retrospect, was a natural progression toward the “normalization” of the industry. 

Normalization began with the removal of the criminal element from gaming.  By the time the AGA was created – in fact, by the time of the expansion in the early 1990s – organized crime had been eliminated from casino gaming.  When I began practicing law in Reno, Nev. only the aura of the outlaw days of gaming and a very few of the notorious players still existed.  And even those few were gone by the early 1980s.  Today, no industry in the U.S., other than perhaps the nuclear energy sector, is more closely regulated and scrutinized than the commercial casino industry.  From the individual state gaming commissions to the Securities and Exchange Commission (SEC), casino companies run a gauntlet of rules and regulations that cover every aspect of the industry. 

If elimination of organized crime influences from the industry was a harbinger for the national acceptance that was to come a decade later, then the assimilation of the industry by Fortune 500 companies paved the way for expansion across America and the movement of casino gaming into the mainstream of the nation’s economy.  Acceptance of casino gaming as a legitimate investment by corporate boards and tens of millions of stockholders took the industry that much closer to normalization.

Expansion itself has proven to be the most significant step toward normalization.  A number of states legalized gaming in the early 1990s because they saw the opportunity to boost their flagging economy and tax rolls.  In the process, people became more familiar with the industry and, as I will explain later, familiarity accrued to the industry’s benefit.

The expansion took place in the face of a veritable firestorm of opposition and dire predictions that the communities that welcomed casino gaming would live to regret the decision.  That has hardly been the case.  In fact, political and civic leaders in those new gaming communities, while initially uncertain, are now the strongest supporters of the industry.  They see casino gaming as an important part of the community and find gaming-entertainment a normal leisure activity.

The proof of this affinity is found in a survey the AGA released earlier this year.  The survey, conducted by one of the nation’s most prominent polling firms, found that 79 percent of the civic and political leaders surveyed in a representative sample declared that casinos have had a positive impact on their communities.  And, in the most telling result, 75 percent of these leaders – men and women who are the most involved in their communities – said they would vote “yes” if asked again to legalize casinos.  Another finding from the survey even more emphatically makes the case that our industry has become a “normal” part of the communities where we operate.  Eighty-two percent of these leaders said they consider the casinos in their communities to be good corporate citizens.

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Those results are at the local level, from people who work with the industry every day.  Interestingly, policymakers and lawmakers outside gaming jurisdictions, as well as a skeptical media, have always lagged behind the American public when it comes to the acceptability of casino gaming as a viable entertainment option.  Industry surveys for more than a decade have shown from 79 percent to as high as 92 percent of the U.S. public find casino gaming an acceptable form of entertainment either for themselves or others.  Despite this public support, casino gaming expansion remains highly controversial.

It was even more so when the AGA opened in the mid-1990s.  A robust anti-gaming movement fought expansion at every turn.  This movement derived its energy primarily from religious activists who were morally opposed to gaming.  These politically savvy activists understood that simply opposing casinos on moral grounds would not persuade elected officials who were motivated by the need to create jobs and economic development.  Thus were born a host of myths about the impact of casino gaming.  Among the AGA’s greatest challenges was – and still is – dispelling those myths.

The AGA came into existence at almost the exact time anti-gaming opponents were at their strongest.  Casino gaming was too new in most parts of the country to have established a track record, and the skewed science used by opponents to stop expansion into new areas and to seek federal intervention played on age-old preconceptions of the “evils” of gambling.

There was a long list of these myths, allegedly supported by academic and scientific proof.  In fact, the academic sources were clearly biased against gaming and the scientific proof was never peer-reviewed.  Still, their “research” was the information most readily available to lawmakers and regulators.  The list of myths included:

- The gaming entertainment industry is controlled by mobsters and organized
crime;

- The introduction of legalized gaming brings an increase in street crime to a
community;

- The social costs of gaming far exceed the economic benefits;

- When gaming is introduced into a community, casinos succeed at the expense
of other businesses;

- There are no positive economic benefits to the community from the gaming
entertainment industry; and

- Pathological gamblers are the main source of revenue for casinos.

Today, all of these arguments have been discredited, and you rarely hear them used in opposition except by die-hard opponents.  But in 1995 most, if not all of them, were accepted as gospel by a majority of the media and many policy makers and regulators.

The AGA countered the myths with a simple strategy.  We were determined that we would allow no negative accusation to go unchallenged.  We worked with member companies to identify academic studies that disproved the opposition’s claims.  We commissioned several studies of our own by the nation’s top consulting firms that used irrefutable methodology to show the positive impact of gaming on the communities where we operate.  And, we began to fund peer-reviewed research by the most reputable universities in the U.S.

All of these activities helped discredit the opposition, but probably nothing had a greater impact than the National Gambling Impact Study Commission.

The Commission was created by rabid opponents of gaming in the U.S. Congress and they, no doubt, thought it would be a powerful propaganda tool against the casino industry.  In fact, it turned out to be just the opposite.

When the Commission idea was first introduced in 1996, it sent ripples of concern throughout the industry.  Not because we were worried about the outcome of a fairly conducted study, but because we were concerned that the Commission would be nothing more than a witch hunt against the industry. 

The AGA worked extremely hard with its allies on Capitol Hill and in the Administration to ensure the Commission was balanced and had no preconceived agenda.  The original version of the legislation authorizing the Commission called for a study of the negative impacts of gaming, with no acknowledgement at all of the possible positive impacts of gaming.  We also were concerned about the make up of the Commission.  We successfully made our case for a balanced study, and the final version of the legislation called for an examination of the overall impact of gaming and ensured a balanced committee membership.  With those changes, the industry no longer viewed the Commission as a threat, but rather as an opportunity.

The AGA provided the Commission with the studies we had conducted, but the real proof of the positive impact of the industry came during the 17 meetings and hearings from June 1997 to June 1999 where the commission members heard first-hand testimony from the people in casino gaming communities.  At every hearing, particularly those that were held in casino communities, the Commission heard from people with intimate knowledge of the industry’s impact, including casino employees, union leaders, community leaders and elected officials. 

The Commission’s findings, for the most part, laid to rest many of the chronic myths about gaming and acknowledged the positive economic and social impact of casinos on communities.  Even in the one area where the Commission expressed its greatest concern – problem gambling – the final report credited the commercial casino industry with as the only facet of the gambling industry making significant contributions to addressing the issue.

In the end, the Commission’s report provided confirmation of the positive impact of casino gaming with the added benefit of helping the industry deliver that message to a skeptical media.  It also proved to a nascent industry the value of working together through the AGA.
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Our response to the threat the Commission initially posed and to the opportunity it ultimately presented has been the single most important accomplishment of the AGA.  Had the Commission gone the way its originators had hoped, there is no doubt there would have been severely negative consequences for the industry. 

Even with the largely positive result, the AGA still is faced with daily challenges.  Many of those challenges come at the federal level, and the primary mission of the AGA is to help the industry meet those challenges by addressing federal legislative and regulatory issues that affect our members. 

Over the last decade the AGA has dealt with several threats, including:

- Proposals from the Internal Revenue Service to tax employee meals and to double or triple assumed taxable tip income of employees;

- Proposals from Congress to ban college sports wagering in Nevada;

- Proposals from the Internal Revenue Service to alter depreciation rates for casino equipment;

- Proposals from Congress to ban automated teller machines (ATMs) from the casino floor;

- And more.

With help from Congressional delegations from gaming state and the active support of our member companies, the AGA has managed to win these battles, and no adverse legislation has passed since we opened our doors.
 
The one certainty about the future for the gaming industry is that there will continue to be challenges.  Legislatively, we will always be threatened with federal interest in tax revenues, restrictions on gaming activities and the numerous regulatory requirements all industries face, as well as those unique to casinos, such as those presented by handling large amounts of cash.  From working to establish workable indoor air quality standards for casinos, to working with the U.S. Coast Guard to establish fair security standards for permanently moored riverboat gaming vessels, the AGA will continue to address the legislative and regulatory issues affecting our members.

Among the major legislative issues the AGA is closely monitoring is Internet gambling –a subject that has been much debated within our membership for a decade.  Ironically, the first online casino launched in the same year the AGA was created, and the industry is still not of a single mind on how to approach the issue.  The U.S. Congress is equally uncertain of how to deal with the issue: some in that body have recommended a study commission, while others have introduced legislation seeking to make clear that Internet gambling is illegal in the United States.

At this point, the AGA is opposed to legalizing Internet gambling because we do not believe the technology currently exists to provide rigorous legal and law-enforcement oversight and regulation of this type of gambling.  And, we consider tight regulation critical to the continued growth of our business.

As for future legislation, the AGA evaluates specific pieces of Internet legislation on a case-by-case basis, but any Internet gambling legislation must meet three tests to gain our support:

1) The right of states to regulate gaming must be protected;

2) It must not create competitive advantages or disadvantages between and among commercial casinos, Native American casinos, state lotteries and pari-mutuel wagering operations; and

3) No form of gaming that currently is legal should be made illegal.

The continued growth of the industry, not only by expansion but within the jurisdictions where we currently operate, also presents new challenges and opportunities for the association.  Initially, the AGA did not participate at all in the public or political debate at the state level.  In 2003, the AGA board decided our organization should participate at the state level by providing expert testimony to lawmakers and helping correct erroneous propaganda presented by gaming opponents.  As the industry matures, there may be a greater role for the AGA in working with member companies at the state level, particularly when it comes to the perception of the industry among the media and other opinion elites.

And the views of the media and opinion elites are a continuing problem.  Despite the overwhelming support for casino gaming among the public and local community leaders, there continues to be a disconnect, both at the state and national level, within the media and among those who help set policy and influence lawmakers.  The AGA considers changing negative views of our industry among these groups as one of its highest priorities in the coming years.

Another priority is the continued growth of Global Gaming Expo (G2E), our industry trade show and conference, which celebrates its fifth year this September.  G2E – developed by the industry, for the industry – has grown into the largest gaming business event in the world.  With the ongoing expansion of gaming at the international level, we plan to bring G2E to other continents in the near future. 
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Finally, in addition to managing these issues and projects, the AGA directs a number of industrywide initiatives.  One issue the U.S. casino industry takes extremely seriously is disordered gambling.

From its inception, the AGA has presented a consistent position on disordered gambling.  We acknowledge that, while the overwhelming majority of people who gamble do so responsibly, there is a very small percentage (1 percent of the population, as determined by the National Research Council of the National Academy of Sciences) that cannot.  As an industry, we are committed to funding and supporting research and programs designed to address this issue.

To that end, the AGA has been actively involved in promoting responsible gaming within the industry and in communities where casinos operate.  One of our earliest acts was the creation in 1996 of the National Center for Responsible Gaming, which is the first and only national organization exclusively devoted to funding independent, peer-reviewed research on disordered gambling. 

Since then, the gaming industry and related businesses have committed $15 million in grants for research conducted by more than 20 leading institutions and universities in the United States and Canada.  These grants have resulted in groundbreaking research and have even spurred the U.S. government to begin awarding more grants in the field.

The NCRG also sponsors an annual conference, which brings together top researchers and clinicians in the disordered gambling and addictions field with policy makers, lawmakers and regulators to discuss new approaches to disordered gambling.

Throughout its 10-year existence, the AGA has provided member companies with the most up-to-date information on effective responsible gaming programs and sponsored numerous activities to raise awareness among employees and managers.  The commitment of AGA member companies to responsible gaming was most dramatically demonstrated in 2004, when all member companies adopted a comprehensive set of guidelines for integrating responsible gaming tenets into their daily operations.  The AGA Code of Conduct for Responsible Gaming establishes high standards for employee and patron education, prevention of underage gambling, alcohol service and advertising.  The Code also reiterates each member’s commitment to continuing support of problem gambling research.
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The American Gaming Association celebrates its 10th anniversary this year with a long list of successful undertakings and a new list of challenges that stretches into the future.  The AGA represents an industry that has grown well beyond the slot machines and table games that characterized it little more than a decade ago into a multi-faceted entertainment industry.  Our companies’ stocks are bought and sold on the major stock exchanges and our communities are among the most popular entertainment destinations in the world.  All these changes are a testament to a vibrant, mature industry.  There is no longer any doubt that this industry can unite within an association to seek the common good.  The experts who were uncertain a decade ago have been proven wrong.