State of the Gaming Industry

It’s always a pleasure to participate in this event and to have the privilege every year of providing you with a status report on the gaming industry from a national public policy and political perspective.

Every year, I’ve stood before this group and talked about the industry’s extraordinary success - business success, political success, legislative success and success on other fronts. I can tell you that, in many ways, this year has been no different. And yet, as we all know, 2001 has been anything but typical.
 
The gaming industry, like every other industry, has been profoundly affected by the September 11 attacks, the ensuing war against terrorism, as well as our domestic security concerns.

While the industry as a whole remains strong, these events have had a ripple effect on tourism that has hurt Nevada as well as other commercial casino states. These events haven’t only affected tourism. They’ve essentially turned the entire federal legislative agenda on its head. Instead of campaign finance reform, a patient’s bill of rights, education reform and stem cell research, Congress is tackling airport security, homeland security and an economic stimulus package.

Through this economic stimulus package the AGA has been working to find ways to help the hospitality industry get back on its feet. While details are still being ironed out and fought over, as things stand today, the provisions affecting the industry that are being pursued include an increase in the deductibility of business meals from 50 percent to 100 percent, which has been championed by Sen. Reid; some form of acceleration in depreciation for equipment purchased in the next year or two, which would include slot machines; the issuance of travel vouchers; as well as various tax-related incentives. We also have been working with the Culinary union to try to extend COBRA payments for laid-off workers.

Because of this new focus, most of the front-burner issues affecting the commercial casino industry - the NCAA betting ban and federal ATM prohibition - did not receive the attention we expected this past fall.

One notable exception has been Internet gambling.

In the midst of debates over war, terrorism and anthrax, Congressman Bob Goodlatte of Virginia, the annual sponsor of anti-Internet gambling legislation in the House, submitted a new and re-designed bill in the closing weeks of the first session of the 107th Congress. A hearing on the bill (H.R. 3215), considered along with a measure by Congressman Jim Leach of Iowa (H.R. 556) that would ban the use of credit cards for Internet gambling, was held last month by the House Judiciary Committee’s Subcommittee on Crime.

The hearing brought the first public comments on this subject from the Bush Justice Department. In prepared testimony, Justice was generally supportive of congressional efforts to update the Wire Act to account for the advent of the Internet and expressed technical and other concerns with the Goodlatte bill.

The AGA’s official position for the past five years has been to oppose Internet gambling because we don’t believe the technology exists to allow sufficient regulatory and law enforcement involvement. But that doesn’t mean we’ll support any bill that bans Internet gambling. We look at every piece of legislation individually from a number of perspectives.

First, we want to make sure the proposed legislation does not intentionally or unintentionally make something that’s legal today illegal in the future, and the bill in its current form raises some serious questions concerning common pool wagering.

Second, it has always been our position that the five forms of legal gambling, i.e., the commercial casino industry, Native American gaming, state lotteries, charitable gaming, and the pari-mutuel industry, which includes horse racing, dog racing and jai alai, need to be treated equally. Our analysis of the Goodlatte bill, which the congressman doesn’t disagree with, in our view, affords the horse racing industry a competitive advantage in the use of the Internet. Although the bill’s title, “Combating Illegal Gambling Reform and Modernization Act,” refers to illegal Internet gambling, it would prohibit Internet transactions between states, even if Internet gambling was legal in each of the those states and adequate procedures were in place to prevent underage gambling or people in other states from participating. This sort of inequity is now being reviewed by our attorneys, and I expect the board of directors of the AGA to reach a decision concerning the legislation quite soon.

One of the first pieces of legislation passed by Congress after the September 11 attacks was dubbed the USA-Patriot Act. Most of you know it as the “anti-terrorism act.” The bill had numerous provisions to curb money laundering by terrorists, and the Leach bill, which would ban the use of credit cards for illegal Internet gambling, was attached to that bill in committee on that basis. However, it was removed by leadership before reaching the floor for a final vote. Action on both the Leach and Goodlatte Internet gambling bills is expected to continue into 2002.

Before the terrorist attacks, 2001 already had been a year of great change in Washington and significant developments for the industry.

In light of September 11, it’s hard to stand up and celebrate the year’s achievements. But each of us has a job to do. Your job is to ensure that Nevada’s tourism industry remains strong. The AGA’s work in Washington supports you in that effort. Our success brings jobs and a healthier economy, so we needn’t be ashamed of celebrating that success, even during these uncertain times.

Certainly, the most significant legislative achievement was the near-defeat in committee of the proposal to ban college sports betting here in Nevada. Now, some of you might wonder why I would be up here crowing about how we almost defeated this bill - because, the bottom line, after all, is that it was still approved in committee, and it’s therefore still a threat to our state’s economy.

I’ll tell you why this was so significant. When this bill was first introduced about two years ago, we were able to squeak by because it was an election year, and time was short. But this time, with a full two-year session in front of us, we knew the challenge would be much more difficult.

The AGA met with countless senators, congressmen and congressional staff, explaining our position. We also brought in the industry’s top executives to Washington to share their views on this issue. And Nevada’s one-two punch in the Senate - Senator Reid and Senator Ensign - and in the House - Congressman Gibbons and Congresswoman Berkley - met with their fellow members to get them on board.

The combined effort has made a difference. On the House side, an alternative bill that we support has 98 cosponsors, far more than our opponents’ bill. No hearings have been held in the House of Representatives. And a year after suffering a 16-2 defeat at the hands of the Senate Commerce Committee, an amendment from Senator Ensign that would have essentially killed the bill was defeated in that same committee in a 10-10 tie. Half of the senators voting for us were Republicans, half were Democrats. In fact, if another member of the committee hadn’t been tied up in a meeting with Secretary of State Colin Powell, I might have been up here saying the battle was over, since he had promised Senator Ensign his vote on the amendment.

Now I know that moral victories don’t count for much, but to us this represented a real sea change on this issue. Importantly, it sent a strong message to Senate leadership that the bill to ban college sports betting in Nevada does not have the unanimous support claimed by its proponents. That kind of split makes leaders much less likely to put the measure on the Senate calendar for floor debate. More than anything else, this tie vote slowed the opposition’s momentum.

And so did another extraordinary event in Washington: the defection of Vermont Senator Jim Jeffords from the Republican Party. This change put the Democrats in control of the Senate, with Nevada’s own Senator Harry Reid in the No. 2 leadership position. While this doesn’t guarantee the bill won’t be brought up, it makes it much more difficult for the bill’s proponents to schedule debate on this bill as a stand-alone measure.

But that doesn’t mean we’re out of the woods yet. When Congress reconvenes next month, the re-constituted NCAA Washington lobbying effort will certainly look to its champions, U.S. Sens. John McCain (R-Ariz.) and Sam Brownback (R-Kan.), to engineer a vote in the Senate on their proposal to ban betting in Nevada on college athletics. Given the difficulties in bringing the measure up as a stand-alone bill, they are likely to try and attach the NCAA bill to a larger appropriations bill, and the AGA and the Nevada congressional delegation are continuing to monitor developments on that front very closely.

As an indication of the NCAA’s continued interest in banning college sports betting in Nevada, the organization’s leadership recently convened its coaches and college presidents to set new rules to outlaw exhibition and tournament basketball in hotels with casinos that take wagers on college athletics.

On other legislative fronts, a bill that would ban ATMs from gaming areas was introduced by Congressman John LaFalce of New York, but no hearings have been held. His proposal would negatively impact those who enjoy casino entertainment, as well as the person who uses an ATM for the purchase of a lottery ticket at a neighborhood outlet.

The regulatory arena also has been busy for the AGA. Various tax-related issues ranging from the deductibility of complimentary meals and entertainment to the depreciation of slot machines and a proposed increase in hourly tip rates have been on the IRS’s agenda - and therefore on ours - this past year. In addition, the AGA, with the assistance of Nevadan Bob Faiss, who sits on the Treasury Department’s advisory committee on bank secrecy, has continued to monitor developments relating to new rules on suspicious activity reporting.

And finally, you may recall that after the National Gambling Impact Study Commission came out with its final report in 1999, which put to rest much of the misinformation from gambling opponents, there was a series of additional reports from the federal government also refuting their claims. Research from the commission did not find a link between gambling and bankruptcy or gambling and crime, two of the most common allegations. That same year, the Treasury Department confirmed the commission research, finding no link between gambling and bankruptcy.

This year, the federal government has released yet another report that failed to find a link between gambling and one of many purported evils. This time, it was the U.S. Department of Defense, issuing a report last month into the impact of slot machines on U.S. military bases overseas. The report found that the vast majority of servicemen use slot machines for recreation, and that servicemen overseas do not have greater financial problems than their counterparts in the United States as a result of the slot machines. While we doubt that the mounting evidence will sway opponents from their ongoing crusade against gambling, we hope it will convince the federal government to spend taxpayer money on more worthwhile and urgent needs.

Despite this Congress’ new focus on domestic and international security issues, we fully expect the industry’s major issues to resurface in 2002.

In addition to the NCAA bill, Congressman LaFalce will almost certainly attempt to re-invigorate his ATM proposal. When the House Financial Services Committee held oversight hearings last September on a proposal to ban the use of credit cards and other financial devices to pay Internet gambling debts, Congressman LaFalce warned that his ATM ban would be next on the agenda in 2002.

Importantly, next year’s fights over federal gaming policies will be waged against a backdrop of election-year politics. Democrats control the Senate by a super slim one-vote margin; Republicans in the House enjoy only a six-vote majority. Gaming issues in state legislatures and local referenda will bleed into all levels of electoral debate, and the heated anti-gaming rhetoric voiced at home will echo in the halls of the Capitol when gaming’s opponents in Congress resume their efforts in 2002.

Another major accomplishment of the year was the successful launch of the AGA’s first annual trade show and conference, Global Gaming Expo.

In an ordinary year, I would say that launching an industry trade show would be a great feat. This year, I would say it was nothing short of miraculous. Just a few weeks after September 11, thousands of people involved in gaming from around the world gathered here in Las Vegas for the first annual Global Gaming Expo, or G2E. They saw the widest array of products and services available for the industry. They attended some of the 100 conference sessions. And they networked with their colleagues at meetings, receptions and other events.

Although we, like everyone else planning trade shows shortly after September 11, had second thoughts about moving forward with our plans, we recognized that if those of us involved in the gaming industry hesitated to come to Las Vegas, why would we think our customers would come? We wanted to set an example, to say it’s OK to travel again and to have fun again in the entertainment capital of the United States.

I’m very proud to say that we made a big statement. We exceeded our goals for exhibit space and attendance. And, importantly, we brought thousands of visitors to Las Vegas.

The show has a bright future. Next year, we will be back at the Las Vegas Convention Center from September 17 through 19. We plan to double our exhibit space, expand our conference offerings and significantly increase our attendance - bringing in even more visitors to fill our hotel rooms and take advantage of all that Las Vegas has to offer.

There is certainly no simple way of summing up the year’s developments. While the theme of your conference was developed long before September 11, it seems to fit our times in an unintended way. You see, when it comes to Washington, there’s no such thing as getting it now. At least it doesn’t happen very often. And yet, this year we saw our citizens and our political leaders pull together to break through what is typically a legislative impasse - or at the very least a morass - to focus on issues that are of critical importance to our country today and make necessary changes. Those that might have been part of the “Want-It-Now” generation, I think, may have developed an appreciation for the things that really matter.