Thank you for that kind introduction, and thank you to Michael Pollack and Spectrum Gaming Group for inviting me to be here today. It’s a pleasure to have this opportunity to speak at the first Pennsylvania Gaming Congress. During the past decade, I have seen overwhelming growth in the gaming industry in the form of commercial casinos, Native American gaming and, most recently, the phenomenon of racetrack casinos, which Pennsylvania legalized just last summer. But the idea of expansion brings a mix of both opportunities and challenges, and it’s important for stakeholders in Pennsylvania as well as areas where gaming expansion is being debated to know what lies ahead.

While some of you already know my organization and what we do, I would like to start by sharing some background on the American Gaming Association for those of you who are unfamiliar with us. The AGA is the national trade association representing the interests of the commercial casino industry on federal legislative and regulatory issues. Most of our members are publicly held companies listed on the New York and NASDAQ stock exchanges, including operators I’m sure most of you have heard of, such as Caesars, Harrah’s, MGM MIRAGE and Penn National, whose corporate offices are located right down the road in Wyomissing and which operates 15 gaming and racing facilities in Pennsylvania alone. In the past few years, Penn National has established itself as one of the industry’s largest companies. When its acquisition of Argosy Gaming is completed later this year, Penn will be the third-largest gaming company in the country and a boon for this commonwealth.

As Pennsylvania will soon discover, gaming brings immense benefits. The commercial casino industry, which operates 443 casinos in 11 states, generated over $27 billion in gross revenues in 2003. Of that amount, we paid more than $4.3 billion in taxes to state and local governments. That tax revenue is used to improve the quality of life for residents in our gaming communities by funding education, infrastructure improvements, health care, tax relief, public safety and other projects. And the benefits go beyond taxes: We also provided more than 350,000 direct jobs with salaries and benefits of over $11.8 billion. The gaming industry also creates employment opportunities in other sectors, including casino construction. With an estimated 650,000 indirect jobs, a total of about one million employees nationwide make at least part of their living from gaming. Other benefits include boosts in tourism, capital investment and added opportunities for economic development.

Independent studies also have touted the advantages of gaming entertainment. Research prepared for the 1999 federal gambling study 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.”  In addition, studies conducted for the commission found that communities closest to casinos experienced a 12 percent to 17 percent drop in welfare payments, unemployment rates and unemployment insurance after the introduction of casino gaming. Also, an AGA study of three gaming jurisdictions – Joliet, Illinois; Bossier City/Shreveport, Louisiana; and Biloxi/Gulfport, Mississippi – found that in each jurisdiction, in addition to lowering public assistance programs, the introduction of casinos led to growth in retail sales, commercial and new housing construction and restaurants.

Racino states are seeing the benefits of gaming as well. In 2003, racinos in six states generated $2.2 billion in slot revenue alone, and distributed more than $765 million to state and local governments. Additional funds were directed to racetrack revitalization efforts, purses and track personnel, such as the jockeys and breeders. This extra money for racing allows new, modern racinos to compete with existing operators in other states, providing more options for customers and ultimately greater benefits for surrounding communities.

Increased competition can pose a real challenge for our industry. New operators in Pennsylvania will be faced with the challenge of developing and promoting facilities that can successfully compete against existing casinos in several states in the Mid-Atlantic and Northeast regions. Meanwhile, as racinos open their doors here in the next few years, gaming in neighboring states will be challenged to compete with your innovative casino designs and new amenities. As more and more areas expand into gaming, it leaves our businesses constantly asking the question: What new and unique entertainment choices can we offer our customers?

While heightened competition can be challenging at first, it presents new opportunities for our industry to grow and improve. Examples of this can be seen first hand in some of the largest gaming jurisdictions, where having a competitive edge is crucial. The opening of The Mirage in Las Vegas in 1990 – what many in the business consider a turning point in the history of the Las Vegas strip – provided customers with an entirely new type of casino – one that focused on entertainment, attractions and amenities. This new resort-style of gaming, however, gave pause to other operators, who were forced to make considerable upgrades to their properties to compete with the new trend. And you need only drive down the Las Vegas Strip to see how the industry responded to that challenge. To stay competitive in Atlantic City, casinos there have more to consider that simply local development, such as the Borgata opening in 2003. The legalization of racinos here in Pennsylvania as well as several proposals to expand gaming in nearby states has Atlantic City operators motivated to protect their businesses. The challenge is to keep customers – especially those who drive from neighboring gaming states, such as Pennsylvania – and attract new ones – a challenge more operators will have to confront as our industry continues to expand.

With racinos in Pennsylvania, the public no longer has to leave the commonwealth to gamble. There will be more opportunities for residents to spend their money locally and invest their money back into Pennsylvania communities. What’s more, is that they won’t just spend their money on gaming entertainment; they also will go to restaurants, movie theaters and shopping malls. And the money spent at these businesses will further encourage economic growth and help local communities to thrive.

I’ve been talking a lot about the opportunities that accompany gaming expansion, but it’s also important to make you aware of the challenges as well. And the main challenge for us today is the overtaxing of our industry. While we’ve never tried to avoid paying our fair share, excessive taxation has had serious effects not just on our business but also on the communities where we operate.

In Illinois, where the state’s top gross gaming tax rate increased from 35 percent to 70 percent, the governor has discovered what is meant by the phrase “killing the golden goose.” Saddled by an unfair tax burden, the industry has been forced to cut back to stay profitable. Faced with declining cash flow, operators had to cut 700 jobs, with another 600 jobs going unfilled. Hundreds of millions of dollars in planned construction projects were either put on hold or canceled altogether. Revenues in FY2004 were down $88 million, with casinos in neighboring states reaping the benefits. Ultimately, the tax hike brought in less than half of what was projected — and payments to local governments actually went down by more than $8 million from 2002 to 2003. Just a few weeks ago, the Chicago Tribune reported what industry analysts have been predicting since the tax increase – that the governor is “back where he started facing a budget hole as high as $2 billion by some estimates.”

The experience in Illinois should serve as a cautionary tale for states looking to solve their economic woes with gaming tax revenue. Pennsylvania has already set the effective gaming tax rate for its largest racinos at 55 percent – one of the highest rates of all the racino states. By setting the tax at this level, the commonwealth has made a choice to address its budget issues, but at the cost of jobs and capital investment. Should a lower rate be established, there is less immediate revenue for budget shortfalls but there is a greater opportunity for overall growth. This means that with more capital available, casinos would have the opportunity to build better facilities and provide customers with added amenities, including shops, spas, restaurants, theaters and golf courses. With more opportunities available to customers, operators will see increases in tourism and, consequently, revenue. More revenue for the operator means more jobs as well as – legislators listen closely – more tax revenue for the state. I understand that this is frequent challenge for governors and legislators that may feel pressure from taxpayers to address budget deficits without raising income, sales or property taxes. While gaming tax increases may be a politically expedient measure, states would see a greater, long-term return with more reasonable tax rates.

I’m not proposing that governments should treat gaming like other industries. The fact is our businesses are very different from others. Unlike most industries, it is a privilege for us to operate, and strict regulatory oversight affects how we run our business, who runs them and where. Here in Pennsylvania, companies from across the country are competing for the 14 gaming licenses – seven for racetracks, five for stand-alone facilities and two for existing resort-hotels. Pennsylvania Gaming Control Board Chairman Tad Decker, who you will hear from later today, and the other members of the control board are building from the ground up the agency that will be responsible for issuing those licenses. The board is in the process of determining how the racinos will operate, from the location of the slot parlors on the racetrack site to how governments will use the new tax revenue to benefit the commonwealth.

We went through similar exercises when gaming was introduced in riverboat markets about a decade ago and in Atlantic City when casinos opened there 25 years ago. States wary of gambling usually impose a host of restrictions, most of which disappear over the years as policy-makers realize they are not only unnecessary but also counterproductive.  To give you an idea of how far these restrictions went, regulators in New Jersey not only controlled things like hours of operation, but also hotel room furnishings. They also required casinos to use smoked glass so you couldn’t actually see in from the outside.

I don’t anticipate regulators in Pennsylvania to use these examples as a model for their regulatory policies, but what I do expect is the future racinos here to live up to the strict regulatory standards found in other states. Every jurisdiction with legalized casino gaming has in place an extensive regulatory regime to ensure fairness of the games, prevent criminal activities and determine the scope of the industry. I also believe adequate regulatory controls are important to ensure public confidence in the integrity of this industry. And the success and growth of our industry relies substantially on the public’s acceptance of our business. So while government oversight can pose a challenge for some gaming companies – especially in emerging jurisdictions – the overall result is beneficial for the entire industry.

Despite this regulatory oversight and myriad benefits I mentioned earlier, there are still those who oppose our industry. With their constant stream of myths and misinformation about so-called social and economic costs of gaming, we often find ourselves responding to their unfounded claims. Fortunately, we are backed by peer-reviewed, independent research from such reputable sources such as the U.S. Treasury Department, the General Accounting Office, the National Research Council of the National Academy of Sciences and Harvard Medical School, which have provided evidence that the introduction of gaming won’t increase crime, corruption or bankruptcy, as well as other findings that run contrary to the claims of our opponents.

However, we understand that a small percentage of the population opposes gambling on moral grounds, and we don’t expect them to change their minds. The reality is that the vast majority of Americans approve of casino gambling. And overall acceptability of our industry has remained consistently high. According to polling conducted for the AGA, more than eight out of ten people view casino gambling as acceptable for themselves or others. Year after year, Americans overwhelmingly say that they recognize the benefits of gaming and feel strongly about preserving their right to gamble without interference from others, including the government.

While public acceptance of our industry has served us well, it’s important that we conduct our business in an honest manner and present ourselves as good corporate citizens to keep public approval ratings high. In order to be in good standing with the communities where we work and with our customers and employees, we need to emphasize responsible gaming at our casinos. Although the vast majority of our customers enjoy casino gaming without adverse effects, the National Research Council of the National Academy of Sciences and Harvard Medical School’s Division on Addictions have concluded that about one percent of Americans can’t gamble responsibly and meet the criteria of the American Psychiatric Association as pathological gamblers.

So as you add slot machines to your racetracks, you need to recognize that responsible gaming is an issue that will require your attention. One way for operators to show that they are serious about this issue is by adopting a set of business standards focusing on a comprehensive commitment to responsible gaming. The AGA has already developed such a program – the Code of Conduct for Responsible Gaming, which all of our member companies implemented last year. The code does what its name implies – it “codifies” a broad range of practices throughout our industry, from employee assistance and training to alcohol service, advertising and marketing. The code also covers our commitment to supporting research initiatives and public awareness surrounding responsible gaming and underage gambling. For some companies, it simply reinforces existing practices. Others will need to bring their practices up to the standards spelled out in the code.

By adhering to a universal set of guidelines, the industry as a whole benefits because it not only standardizes our practices but also sets the bar high. Just as this applies among commercial casinos, it also applies to every other segment of the gaming industry. If even one company fails to maintain high standards, it can have a negative impact on our entire industry. In the public mind there is not much of a distinction between a commercial casino, a racino, an Indian casino or sometimes even an online casino. I think the “Arthur Andersen” example is a good analogy — although other accounting firms were not implicated in the Enron scandal, all accounting firms got a black eye for their general practices as a result of that incident.

I’ve spoken a lot this morning about the general benefits and opportunities associated with gaming. As an emerging jurisdiction, Pennsylvania should also take advantage of another opportunity: To examine the history of our industry. As Winston Churchill said: “Learn all you can about the history of the past, for how else can one even guess what is going to happen in the future?” Taking a historical perspective and understanding the implications of our past actions will serve us well and will have a universal effect on our growing industry. This tactic will only become more valuable as we expand, allowing us to take advantage of our best practices and learn from our mistakes. The obstacles we overcome today present us with more opportunities for the future.