FULL REMARKS: American Gaming Association’s Geoff Freeman Addresses Louisiana Riverboat Economic Development and Gaming Task Force

Freeman: Policies that guided gaming’s introduction are not the same policies that will allow it to thrive in the future and maximize benefits for states

Press Release | 01.17.2017

Washington, DCAmerican Gaming Association (AGA) President and CEO Geoff Freeman today addressed the Louisiana Riverboat Economic Development and Gaming Task Force to highlight casino gaming’s strong commitment to the state and how regulatory and policy changes could help the industry thrive – and maximize its benefits for the state and local communities – for years to come. Read Freeman’s remarks, as prepared for delivery:

AGA’s Mission & Gaming’s National Footprint

Chairman Jones and distinguished members of the Task Force: I’m Geoff Freeman and I’m excited to be here today representing the American Gaming Association.

AGA is the leading advocate for America’s gaming industry. We’re proud to represent an industry that contributes $240 billion in annual economic impact, generates over $38 billion in tax revenues and supports more than 1.7 million good-paying U.S. jobs. Our primary mission is to promote public policies at the national and state levels that promote gaming’s growth, innovation and reinvestment in the communities that host us.

In that spirit, I’d like to start by commending Louisiana’s political leadership for establishing the Louisiana Riverboat Economic Development and Gaming Task Force. This Task Force – and its high-powered roster of members – demonstrates a strong understanding of gaming’s contributions and a commitment to a thriving gaming industry that benefits all of Louisiana.

The creation of this task force is also an astute acknowledgment that the public policies that guided gaming’s expansion beyond Nevada and New Jersey are not necessarily the same policies that will empower the industry to succeed in today’s ultra-competitive environment where gaming is now viewed as a mainstream industry.

AGA is 100 percent committed to being your partner in this effort. Our goal is to work with this Task Force, Louisiana lawmakers and regulators, and the state’s gaming leaders to help gaming maximize its contribution to your economy.

Gaming is a Strong Contributor to Louisiana’s Economy

By every measure, the gaming industry has experienced enormous change over the past few decades. In the U.S., gaming has expanded from just 2 states to 40. More than 1,000 casinos now compete fiercely across the country.

Louisiana – along with a few other states – pioneered the riverboat gaming model in the early 1990s. Today, Louisiana’s 24 casinos drive $4.8 billion in economic activity, support nearly 32,000 jobs, and generate $1.3 billion in federal, state and local tax revenues.[1]

But the Gaming Environment Has Changed Dramatically

We’re extremely proud of the fact that gaming has grown into a major contributor to Louisiana’s economy. But the question this task force is asking is how do we ensure that gaming plays a central economic role for years to come? To answer that question, it’s critical that we understand today’s marketplace and what has changed since casino gaming launched in Louisiana in the early 1990s.

To start with, today’s gaming market is far more competitive. While Louisiana was an early entrant, today the state is boxed in on all sides.

  • To the east, Mississippi’s 28 casinos compete for the same customer base.[2] 
  • To the northwest, Oklahoma is home to the second largest tribal gaming market in the U.S. with more than 120 casinos.[3] And Oklahoma vigorously competes with Louisiana for the lucrative Dallas market.
  • Meanwhile, tribal leaders and some state legislators are pushing to legalize gaming in Texas, which would pose a direct challenge Louisiana.[4] Obviously, it’s not just casinos that are competing for customers; states are too.

Casinos in all states also face serious demographic challenges and technological disruption. Many of today’s customers who grew up with mobile technology, immersive video game consoles and more social, skill-based games have different expectations than previous generations.

[1] http://www.gettoknowgaming.org/by-the-book?state-data#&state=US-LA

2 http://www.gettoknowgaming.org/by-the-book?state-data#&state=US-MS

3 http://www.gettoknowgaming.org/by-the-book?state-data#&state=US-OK

4 http://www.star-telegram.com/news/politics-government/article43627107.html

Casinos today also fight for market share not just with other gaming operators, but with sporting events, concerts, restaurants, nightclubs, video games, virtual reality and dozens of other leisure opportunities.

In the face of these challenges, the simple truth is this: The Louisiana laws and regulations that got gaming this far in the first 25 years cannot get gaming where it needs to go in the next 25 years.

Emerging Consensus Over Needed Regulatory Changes in Louisiana

I don’t envy your position, Chairman Jones, because every reform that sounds simple and easy will have constituents on either side. Businesses that have invested significant capital based on the current regulatory system will understandably want to protect those investments. Nevertheless, there’s an emerging consensus around a few legislative and regulatory changes that will help make Louisiana more competitive in today’s gaming environment.    

Reform #1: Scrap regulations requiring unnecessary paddlewheels, ship captains and maritime staff on riverboats: Riverboats have no motors and are permanently docked. These and other redundant maritime regulations merely add cost, waste time, and advance no public purpose whatsoever.

Reform #2: Create a more competitive tax environment: As Keith Smith of Boyd Gaming has persuasively argued, surrounding states now offer casino operators a more favorable tax environment. This draws customers away from Louisiana and makes it harder for casinos here to reinvest in their properties.

For example, Louisiana currently imposes a 21.5 percent tax on promotional credits – one of the most powerful marketing tools for attracting customers. In Mississippi, the tax is on promo credits is zero.

Indiana faced a similar tax challenge a few years ago. Gaming expansion in Ohio and Pennsylvania created an intensely competitive environment for Indiana casinos. Lawmakers responded in 2014 with legislation that modified taxes on promotional credits so the first $7 million of “free play” is untaxed. It was a step in the right direction, but today other states – like Mississippi, Nevada, Ohio, Pennsylvania, Florida, Kansas and Maine – don’t tax free play at all.

More broadly, in Oklahoma tribal casinos pay a range of 4 to 6 percent on gaming revenues, while operators in Louisiana pay between more than triple that rate, where effective state and local taxes hit 22.5 percent or higher.

Lower taxes make casinos more willing to experiment with new games and new technologies, and reinvest in their properties, making the market far more dynamic and appealing. In addition to tax changes, there are many other economic development tools to incentivize investment.  

The gaming industry constantly has to change and improve its product – just like any restaurant in Baton Rouge and every tourist attraction in New Orleans. Your goal should be keeping Louisiana one step ahead of the competition.

Reform #3: Give operators flexibility to use existing floor space: Some of today’s customers want immersive, skill-based, social gaming experiences. Games targeted to these preferences often come with a larger footprint than slots or traditional table games. Scarce casino space is being taken up in part by drink stations, cages and kiosks. These non-gaming uses should not be counted as part of the gaming floor. If Louisiana wants to control the scope and scale of gaming, it should look at gaming positions rather than square footage.

Reform #4: Get ahead of the sports betting wave: AGA has made repealing the federal prohibition on sports betting one of its top priorities. A few states, such as New York, Pennsylvania and most recently, South Carolina, are already considering legislative action to govern sports betting if and when the law is changed. Louisiana should consider acting now so it is ready to take advantage of this potentially significant new market. 

These reforms are straightforward. I know you’ve heard many of them before. Adopting them would make Louisiana more competitive over the near term – and they should be embraced.

A New Vision for Gaming Regulation

But I firmly believe that lasting progress will only be achieved if we re-imagine the way we regulate gaming – both in Louisiana and across the U.S.

What if we took a much different approach?  Rather than tweaking rules around the edges, what if we looked at gaming regulation through a new lens?  What if we saw the gaming market through the lens of our customers?   

Think about it: Gaming regulations in Louisiana look pretty much the same as they did 25 years ago. But the gaming market and gaming customers today are far different.

In 1991, when Louisiana’s riverboat regulatory model was passed, regulated gaming was entirely new in the state. Customers had limited choices. The industry was permitted a foothold, but it was met with a healthy dose of skepticism. High regulatory guardrails were established to tightly constrict operators, protect inexperienced customers, and treat gaming as a “sin industry,” not like every other business.

But that environment has completely changed.

In 1991, Louisiana was just the 9th state to legalize commercial casino gaming. Now, 40 states have some form of either commercial or tribal casinos in operation.

As gaming has grown across the U.S., public support has grown right along with it. Today, public support for gaming is at an all-time high. Nationally, nearly nine out of ten voters say casino gaming is an acceptable form of entertainment, as do 80 percent of evangelical Christians and 85 percent of weekly churchgoers.

Gaming now has a 25-year track record in Louisiana. Several of your casino operators are owned by publicly traded companies, like Pinnacle Entertainment. Their leadership reports to boards of directors. They are accountable to shareholders.

Gaming operators have proven to be strong partners in local communities; a responsible operator in host cities; and a major contributor to your state’s economy. At the same time, rising public support for gaming means voters are giving lawmakers and regulators the green light to regulate gaming just like any other business.

Customers have also changed. They have grown more experienced and sophisticated in their gaming preferences. They expect casinos to adapt to their evolving tastes – and they face a broader menu of entertainment options.

Given these new facts on the ground, what would a re-imagined regulatory environment for gaming look like?  Here are the three elements that define a progressive regulatory regime:

  1. Streamline the regulatory approval process;
  2. Empower regulators and industry to act;
  3. Treat industry as a trusted partner, not an adversary;

No single state has adopted all of these elements. But they represent a combination of effective reforms we’re seeing around the country. They’re a goal to strive for, not an endpoint. I’ll take you through them in a little more detail.

First, streamline the regulatory process.

Right now, it can take almost a year for an operator in Louisiana to get approval for a new game. But customers don’t want to wait that long to see new games on the casino floor. That’s why several states are taking action to help operators give customers the games they want as quickly as possible. 

New Jersey has rolled out a reform called “New Jersey First.” Under this approach, the state Division of Gaming Enforcement guarantees that new gaming products submitted to New Jersey before or simultaneously with any other state will be tested and put on the gaming floor in no more than 14 days.

On the other side of the country, the Nevada Gaming Commission recently introduced fast-track testing for new games. Under the old rules, new games had to meet all of Nevada’s regulatory standards before field trials could start. Now, games can go into the field right away, allowing manufacturers to test new technology and new concepts to see how players respond.

By streamlining the regulatory process, both New Jersey and Nevada are creating powerful incentives for innovation and experimentation that allow casinos to respond to the shifting demands of customers. This helps casinos adapt more rapidly to changing technology and compete more effectively against other entertainment options.

If you want to get even more radical, here’s an idea: What if you said any game that has been approved in five other regulatory jurisdictions will automatically be approved in Louisiana?  I know this involves all kinds of challenges and complexities. But imagine the time and energy that would be saved. And while we’re streamlining the regulatory process for games, let’s bring the same kind of efficiency to casino licensing. Isn’t this something we should aspire to? 

Second, empower regulators and industry to act.

The goal here should be to establish principles, not prescriptions. Legislators should define the broad principles for gaming regulation, not heap mandates on regulators that tie their hands, ignore their expertise and act as barriers to change.

Massachusetts Gaming Commission Chairman Stephen Crosby has proposed just such an approach in his state so that regulators can adapt more quickly as new types of gaming enter the market – like e-sports and daily fantasy sports. Under this proposal, the legislature would outline fundamental values and regulatory priorities. Regulators would then be given wide latitude to apply these principles to new games, rather than waiting for legislators to craft entirely new bills with detailed new rules every time a new game or technology comes along.

Other states are finding that a principles-based approach allows high regulatory standards to be achieved, while giving the industry the freedom to choose the path that’s best for it.

Nevada has institutionalized an innovative regulatory approach that treats gaming operators like any other business. Rather than handing down strict, prescriptive mandates that allow operators little flexibility, Nevada regulators define broad “minimum standards” in areas like business probity, competence, experience and financing. Casino operators review the standards and then develop their own set of internal controls to achieve them. There are few restrictions on testing new approaches and ideas so long as the casino meets the minimum standards. This is one reason Nevada’s gaming environment has been able to constantly evolve and adapt to changing consumer tastes and the market conditions.

Third, treat industry as a trusted partner, not an adversary.

Louisiana already does a great job of this, but I believe we should always look for opportunities to build an even stronger working relationship. Examples in other states might be worth considering.

Maryland regulators, for example, have established a formal Annual Comment process. State casino operators are invited to identify regulatory reforms or fixes that can have an immediate impact on improving the gaming environment. Regulators have told us that this process builds trust and helps regulators gain perspective on day-to-day challenges running casinos. Regulators don’t implement every suggestion, but they have adopted many.

It’s turned into a win-win solution that helps the industry operate more efficiently and sustains the flow of much-needed tax revenue for Maryland communities. Many of these are very focused and technical. But taken together, they create a constant drive for greater operational and business efficiency as well as more flexibility on the casino floor.

The Bottom Line

AGA and the Louisiana Riverboat Economic Development Task Force share a common goal. We both want a vibrant gaming industry that can reach its full potential when it comes to generating economic growth, providing jobs and contributing tax revenue.

AGA stands ready to work with you to create a regulatory environment that meets those goals. As you work toward delivering your recommendations, I hope you’ll keep in mind the two overarching points I’ve made today:

  • Adopt reforms that make Louisiana competitive in the near term by scrapping outdated regulations; making the tax environment more competitive; giving operators flexibility on the floor; and preparing for sports betting.
  • At the same time, use this opportunity to re-imagine Louisiana’s regulatory approach – one that takes the customer’s perspective.

This Task Force can make Louisiana a model for the rest of the U.S. The best legacy you can leave is to create a regulatory environment that is flexible enough, nimble enough, and adaptable enough that, 25 years from now, Louisiana will not need another task force to update the work we are doing today.

Thank you again for inviting me to share AGA’s perspective. I look forward to your questions.

About AGA: The American Gaming Association is the premier national trade group representing the $240 billion U.S. casino industry, which supports 1.7 million jobs in 40 states. AGA members include commercial and tribal casino operators, suppliers and other entities affiliated with the gaming industry. It is the mission of the AGA to be the single most effective champion of the industry, relentlessly protecting against harmful and often misinformed public policies, and paving a path for growth, innovation and reinvestment. 

 
AmerGamingAssn @AmerGamingAssn

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August 17, 2018

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