The Gaming Industry: Current Legal, Regulatory and Social Issues

I am glad to have the opportunity to speak to all of you today.

As many of you know, my organization, the American Gaming Association, is the trade organization representing the commercial casino industry. While commercial casino gaming is legal in 11 states - Nevada, New Jersey, Mississippi, Louisiana, Indiana, Missouri, Illinois, Iowa, Colorado, Michigan, and South Dakota - the AGA’s role is national in scope. We represent casino operators, along with equipment manufacturers, suppliers and vendors, financial services companies, and others that work with the gaming industry, on federal legislative and regulatory issues that affect our business.

But we have another important mission: to serve as an information clearinghouse - a truth squad of sorts - to correct the many misperceptions about our industry. We’re all familiar with the colorful history of this business. Some people still believe this is the way we operate. But it is precisely because of this past that the gaming industry now operates in a legal and regulatory environment unlike any other industry. Every aspect of our business - from the hours we operate to the people we employ - is monitored and enforced.

Despite these safeguards, which make our industry one of the most scrutinized in the country, those opposed to gaming like to perpetuate misinformation in an effort to turn back the clock. During the time I have here today, I would like to share a little about this environment - the environment that will face anyone involved in the business of gaming.

Let me start by giving you a snapshot of the social issues that have swirled around this industry for years, as well as an overview of the latest research on this topic. Fortunately, a lot of good, independent research has been done recently that disprove nearly everything opponents of our industry have ever said about our business. The most comprehensive study in the past 20 years on the subject of legalized gambling was completed in 1999 after a two-year federal commission appointed by Congress conducted a comprehensive, legal and factual study of the social and economic impacts of gambling on federal, state, local, and Native American tribal governments, and on communities and social institutions. The final report of the National Gambling Impact Study Commission addresses many of the issues the industry faces, and I would urge you to get a copy and familiarize yourself with it. It’s important for you to be aware of all this information so you can counter their attacks with facts.

For years, anti-gaming advocates had been selling the American people, media and decision makers a defective bill of goods based on so-called economic theories with no basis in fact. That bill of goods faced intense public scrutiny for the first time ever during the commission’s deliberations. Today, I’d like to give you an overview of what the commission heard to refute that and add what the latest independent research reveals.

Let’s start with the morality argument. The United States is a wonderful country where a divergence of opinion is not only tolerated but encouraged. The United States and Canada share a common ancestral heritage with England. But as you are probably aware, the first settlers in our country were the Puritans - religious extremists of their era. In some ways, this cultural heritage still manifests itself today. And so there are many who find what we do immoral. So be it. Nothing we can say or do will change their minds. While we respect their right to maintain their moral views, the fact is they are not shared by the vast majority of Americans. The latest polling data says that more than 80 percent of Americans believe that casino gambling is acceptable for themselves or others. And U.S. households visited casinos more than 162 million times last year.

Even the most religious Americans believe in the public’s right to choose whether or not to gamble. According to a national survey we did in 1998, three of four Americans who attend religious services regularly (at least once a week) consider casino gaming an acceptable form of entertainment. What is interesting in this survey is that the overwhelming majority of regular churchgoers not only share that attitude, but also are pretty much like the rest of America when it comes to their attitudes and actions about gaming.

Some people, however, make exceptions about acceptability for one segment of the population: senior citizens. And so last year we surveyed seniors and found that they are even more likely than other customers to always set a budget when gambling (69 percent vs. 62 percent), overwhelmingly believe in personal freedom and in making their own choices about how they spend their time and money (over 90 percent) and cite fun and entertainment as the primary reason they visit casinos, not just the gambling.

Moral questions, of course, cannot be proven or disproved with numbers, research or testimony. But I venture to say that with this widespread acceptability our opponents have a difficult case to make.

Anti-gaming advocates more often rely on the faulty argument that the social costs from gaming exceed the benefits. They will argue that people go to casinos, lose their money, lose their jobs, end up on welfare or commit crimes, go into bankruptcy and then the public has to pay the price. That reasoning is just not very sound, and is contrary to the facts.

The NGISC made a number of remarkable findings about the positive impact of commercial casinos. The commission makes clear that gambling in the United States is not monolithic and that there are seven very distinct types or classes of gambling with different impacts and benefits on society: 1) commercial casinos; 2) tribal casinos; 3) lotteries; 4) pari-mutuels; 5) charitable gaming; 6) Internet gambling; and 7) illegal gambling.

The commission clearly and unequivocally found that “destination type resorts,” such as casinos, offer major economic advantages over what they called “convenience-type gaming,” such as non-casino electronic devices or Internet gambling, because they offer quality jobs, economic development and capital investment in their communities. As the report states: “Research conducted on behalf of the commission confirms the testimony of … casino workers and government officials that casino gaming creates jobs and reduces the level of unemployment and government assistance in communities that have legalized it.”

The report also found that:  “… Without exception [the elected officials who testified before the commission] expressed support for gambling and recited instances of increased revenues for their cities. They also discussed community improvements made possible since the advent of gambling in their communities and reviewed the general betterment of life for the citizenry in their cities and towns.”

The research conducted for the commission backed up those statements. The National Research Council of the National Academy of Sciences (NRC) found that “[g]ambling appears to have net economic benefits for economically depressed communities.” Additional research for the commission found that “… a new casino of even limited attractiveness, placed in a market that is not already saturated, will yield positive economic benefits on net to its host economy.” And the National Opinion Research Center at the University of Chicago (NORC) determined that “[t]hose communities closest to casinos experienced a 12% to 17% drop in welfare payments, unemployment rates and unemployment insurance.”

But of course you will not hear about these benefits from industry opponents. You will hear about the so-called social costs, in spite of the facts that came out of the commission report - facts that our opponents like to forget.

Despite documentation to the contrary, opponents continue to recite their “ABCs of gambling” - addiction, bankruptcy and crime. But let me tell you what the commission found on these issues.

Starting with the A’s … On addiction, the commission concluded that “[t]he vast majority of Americans either gamble recreationally and experience no measurable side effects related to their gambling, or they choose not to gamble at all. Regrettably, some of them gamble in ways that harm themselves, their families, and their communities.” The NORC study conducted for the commission found that the prevalence of problem gambling is approximately 0.1 percent of the U.S. adult population. The NRC study estimated the number at 0.9 percent. A 1997 industry-funded study by Harvard Medical School’s Division on Addictions estimated the number at about 1.29 percent. Based on this research, there is a general agreement that approximately 1 percent, or about 2 million people, can be classified as pathological gamblers. That’s a far cry from the numbers alleged by opponents of gambling, which we see now had no basis in fact.

But the commission also found that the problem is significant enough to warrant further research. And we agree. When the American Gaming Association was founded in 1995, it was with the commitment that this industry would not repeat the mistakes made by the tobacco industry, by denying the existence of a problem. The vast majority of our customers enjoy gambling as entertainment. The research confirms that. But a small percentage doesn’t gamble responsibly. These people deserve our attention and our help, regardless of their numbers.

That’s why our segment of the industry, the commercial casino industry, has devoted significant resources to raise awareness of this issue among our employees and customers. We’ve committed approximately $7 million since 1996 to fund peer-reviewed research on pathological gambling, establishing an independent organization called the National Center for Responsible Gaming. The National Center’s organizational structure and decision-making procedures were modeled after the National Institutes of Health to ensure that the highest standards are used to evaluate research grant proposals. The National Center already has awarded more than $3 million in grants to leading researchers at some of the preeminent universities and medical research facilities in the United States and Canada to conduct research in the fields of neuroscience, behavioral social science, with an emphasis on prevention and youth gambling.

The work funded by the National Center has earned the respect of top researchers and scholars. In recognition of that, the grant-making arm of the National Center will now be housed at Harvard Medical School’s Division on Addictions, where the newly renamed Institute for Pathological Gambling & Related Disorders will continue to drive the pioneering research we began just four years ago in hopes of furthering our understanding of this disorder and minimizing its impact.

Still on the subject of addictions, opponents will argue that increased availability of gambling, access to funds and expanded hours of operation has led to an increase in pathological gambling. While this might seem like a logical assumption to some, it is not valid. The first federal gambling commission during the 1970s found that the number of “probable compulsive gamblers” was 0.77 percent of the U.S. adult population, virtually identical to the findings of the more recent federal commission, despite the growth of gambling opportunities during that time. In addition, research conducted for the 1999 federal commission stated, “The availability of casinos within driving distance does not appear to affect prevalence rates.” Similar government-sponsored research in Minnesota, South Dakota and Texas all showed statistically stable rates of pathological gambling in those states, despite increases in the availability of gaming.

Another accusation opponents will make about the industry is that the more people gamble, the more likely they are to become pathological gamblers. Again, all you need to do is look at the commission’s research. The NORC report found that while many more people have gambled at least once in their lifetimes (68 percent in 1975, compared to 86 percent in 1999), the number of people who have gambled in the past year has remained relatively unchanged (61 percent in 1975, versus 63 percent in 1999). As Lance deHaven-Smith, executive director of the Public Sector Gaming Study Commission, pointed out in his analysis of the National Gambling Impact Study Commission’s final report: “[T]hese findings mean that Americans have become much more likely to have experimented with gambling, but this experimentation has not turned them into people who gamble regularly or routinely.”

Gambling opponents also will assert that half of our revenues come from problem and pathological gamblers. In contrast, the NORC report’s survey data suggested that between 5 percent and 15 percent of gaming revenues come from problem and pathological gamblers. Despite this lower percentage, it’s important to point out that the industry does not want those with gambling disorders as customers.

Now on to the B’s. There is absolutely no credible evidence establishing a link between bankruptcy and gambling, although that is one of the industry’s opponents’ favorite stories. To counter them, you need only look to two independent government studies that failed to find any connection between bankruptcy and gambling. NORC’s analysis for the federal commission found that “the casino effect is not statistically significant for … bankruptcy … .” On top of that, the U.S. Treasury Department investigated this issue and released a report, also in 1999, finding “no connection between state bankruptcy rates and either the extent of or introduction of casino gambling.” In preparing its analysis, the Treasury Department examined existing literature on gambling and bankruptcy and conducted new empirical research. According to the study: “Much of the earlier increase in the national bankruptcy rate has been attributed to the changes in the bankruptcy law of 1978. Other economic and social factors cited by researchers as contributing to more recent increases include higher levels of debt relative to income, increasing availability of consumer credit through general purpose credit cards and the reduced social stigma of declaring bankruptcy.” This particular study was requested by a leading opponent of gaming in the U.S. Congress after he discovered that the commission’s findings were not what he had hoped, costing taxpayers an additional $250,000.

Opponents contend that the economic losses incurred by gambling cause people to commit suicide. As has been demonstrated through recent research by the NRC and Harvard Medical School, individuals who are pathological gamblers often suffer from other disorders; a simplistic approach linking gambling with suicide cannot explain away a decision this complex. While opponents of gambling use anecdotal evidence to attempt to prove a link, recent studies contradict their assumptions. A 1997 report from the Centers for Disease Control (CDC) found that suicide rates are a regional phenomenon and do not mirror the availability of legalized gambling. The CDC study pointed out that suicide levels in the West are 70 percent higher than in the Northeast. A study written for the AGA by a team of researchers from the University of California-Irvine compared actual suicide rates and found that gaming communities have “no higher risk” of suicide than non-gaming communities.

And finally, the C’s: opponents’ attempts to associate gambling with crime and corruption. Let’s start with their contentions about crime. The federal commission found no link between the two, stating in its research, “… the casino effect is not statistically significant for any of the … crime outcome measures. …” The federal commission’s final report also cited a study in which a comprehensive review of publicly available information on gaming and crime found no documentation of a causal relationship between the two.

On the other “C” claim, again, there is no credible evidence other than innuendo suggesting any link between corruption and gambling. But the federal commission did make two very important findings related to this. First, they put to rest any notion that there is continued organized crime involvement in the modern casino industry. According to the final report, “All of the evidence presented to the commission indicate that effective state regulation, coupled with the corporate takeover of much of the industry, has eliminated organized crime from the ownership and operation of casinos.” The commission also found that “[c]asino gambling, in fact, is the most highly regulated component of the industry.” In fact, our industry is one of the most highly regulated in the entire country. Because most of our companies are publicly traded, they come under the stringent scrutiny of the Securities and Exchange Commission (SEC). More than 1,500 regulators and control board members oversee the industry at a total cost of more than $135 million, helping to ensure that only legitimate interests are involved in casino entertainment.

It is amidst this contentious social debate over gambling that we battle a litany of legislative and regulatory issues that face our industry. As we look ahead to this year’s challenges, the saying “the more things change, the more they remain the same” is right on target. While there is a new president in the White House, a new administration in executive agencies, and new players in key positions on Capitol Hill, the issues this year will largely be the same as those we battled last year.

There is no doubt that the question of whether Nevada will continue to be able to offer legal wagering on college sports will be the most difficult issue we face.

Last year, all of those associated with Nevada’s gaming industry and regulatory system, led by the congressional delegation, worked together to block the NCAA’s attempt to repeal the federal grandfather that allows Nevada to operate legal sports books for college games. AGA coordinated an extensive research, public relations and lobbying campaign to assist the Nevada delegation and other congressional allies in arguing against the NCAA’s draconian proposal. These efforts included preparing for two major congressional hearings on the issue. We have already begun to mobilize similar efforts this year.

While the NCAA’s legislation was adopted in the last Congress by the Senate Commerce Committee with only two dissenting votes, the delegation and industry effort paid off in the House Judiciary Committee, which belatedly passed the NCAA bill late in the session by a much narrower margin. The congressional leadership played an important role in this strategy. Repeated efforts by the bill’s sponsors to bring the bill to a vote in the Senate were blocked by Nevada’s senators.

As this debate unfolded last year, more and more independent observers spoke up on our behalf, from sports columnists, sports radio, and individual fans, to former coaches like Georgetown’s John Thompson and the legendary Pete Newell. Even members of the problem gambling treatment community - which don’t often side with the industry on any issue - agree that this is not a realistic solution to the problem. The facts are clearly on our side, as independent commentators from George F. Will to Sports Illustrated’s Frank DeFord have acknowledged. Meanwhile, the NCAA recruited big-name college coaches to make up in marquee value what their proposal lacked in logic or substance.

In addition to support from independent experts, there were two other critical turning points last year that helped our cause. One was when the Newspaper Association of America stepped forward and publicly contradicted the NCAA’s absurd assertion that enacting a federal ban on Nevada would prevent newspapers from publishing point spreads on college games. The other turning point came in the House Judiciary Committee, when non-Nevada members led by ranking Democrat John Conyers came to appreciate that there is no basis to blame only one state, the state of Nevada, for the national problem of illegal sports wagering nationwide.

This year will bring the added challenge of time, since the NCAA will have a full two-year congressional cycle to push its agenda. I am encouraged by the progress we’ve made so far. Last month, members of the Nevada congressional delegation introduced the National Collegiate and Amateur Athletic Protection Act of 2001. This bill would establish a Justice Department task force to enforce existing federal laws, increase penalties for crimes - including a 10-year sentence for each offense - provide for studies of illegal college sports gambling by minors and nationwide, and require colleges and universities to implement programs to curtail illegal gambling and maintain zero tolerance policies. Nearly every provision of this bill came directly from recommendations made by the NCAA or the National Gambling Impact Study Commission.

The response from members of Congress on both sides of the aisle - including many in leadership positions - has been extremely positive. The bill already has 36 cosponsors in the House and growing support in the Senate.

While we feel good about where we are today, we know it’s just a matter of time before the NCAA bills are introduced. With college sports betting in the spotlight this month, the debate has already begun to heat up again. While we face an uphill battle, we must continue to fight hard - and prevail - to protect state decision-making on gaming, the tourist and economic benefits of legal sports wagering to our state, AND to make sure that something positive and effective is actually done to address the serious problem of illegal sports gambling among college students.
While the NCAA issue will likely dominate our lobbying efforts, there are other issues, chief among them Internet gambling, on this year’s agenda as well. Since 1995, U.S. Sen. Jon Kyl, later joined by House members, has tried to amend the Wire Communications Act of 1961 to make it clear that federal law prohibits all forms of Internet gambling, whether sports or casino games, and whether over the wires (as prohibited by current law) or through use of newer, wireless technology.

While it appeared for much of the last Congress that this effort would be successful, it ultimately fell short. The Senate unanimously passed a bill in November 1999 and while a majority of the House did so in July of this year, the bill needed two-thirds of the House to support it without taking up amendments. The two-thirds mark was missed by only a handful of votes. Strenuous efforts to bring it back to life ultimately failed.

It remains to be seen whether the congressional sponsors will have as much vigor in the new Congress. However, during the course of the debate over the past five years, there have been both technological and marketplace developments that bear watching. It is important to stress that what we and others oppose is Internet gambling, or any other gambling for that matter, that is not subject to the same strict regulatory standards as commercial casinos, including taxation, money laundering, problem gambling and access by minors.

We have emphasized that any federal legislation that seeks to block unregulated, foreign-based sites should not interfere with the traditional right of each State to prohibit or, in the alternative authorize and regulate, gaming transactions. This also holds true for the use of technology by state-licensed operators.

One of the reasons why Internet gambling legislation has experienced “legislative turbulence” is that while the Justice Department supports the concept of updating the Wire Act, it has had differences with Congress on how to do so.

The effort to prohibit Internet gambling that began in 1995 failed to come to fruition.  The Senate unanimously passed a bill in November 1999. However, a bill passed the House Judiciary Committee only after it was amended to deny the ability of state lotteries to offer tickets on-line.  This added state and other lottery interests to an already intense lobbying effort to oppose the bill.  The House Banking Committee adopted a bill to ban the use of credit cards in Internet gambling, but the House did not consider the bill.

In July 2000, a majority of the House voted in favor of the Judiciary Committee bill, but failed to pass it by the two-thirds margin needed to do so under a procedure that blocked amendments. Repeated attempts by the bill’s sponsors to secure a second vote this year proved unsuccessful

The ranking Democrat on the House Banking Committee, John LaFalce of New York, is expected to reintroduce his legislation to impose federal regulation of ATMs on casinos, including restrictions on where they can be located. His bill would place them away from the immediate area where gaming takes place, but not ban them from gaming complexes entirely. This issue has also come up in several states, where we have worked with the banking industry to defeat these ill-advised proposals.

While Rep. LaFalce introduced similar legislation two years ago, the House took no further action on the legislation. AGA successfully opposed his efforts to attach the bill to legislation that would have prohibited the use of credit cards to facilitate Internet gambling

Two new committee chairmen in the House are expected to play significant roles in legislation affecting our industry. On the House Judiciary Committee, which handles the NCAA betting ban issue and Internet gambling legislation, Rep. Jim Sensenbrenner of Wisconsin has taken over from Rep. Henry Hyde as a result of term limit rules on chairmen. Rep. Mike Oxley is chairman of the newly named House Financial Services Committee, the panel that considers bills on the location of ATMs in casinos and credit card use in Internet gambling.

As these issues are debated on Capitol Hill and in state legislatures and communities across the country, it will be up to the industry and its representatives to bring the facts about these issues to policy-makers and the public. Working with the gaming industry requires an understanding of the unique circumstances surrounding this business. If you are knowledgeable about these issues, you can provide the value-added service that your clients in this industry demand.

Thank you.