By Christopher W. Hinckley (@CHinckley_HB)
Industry (Casino and Manufacturer) Growth and Resulting Contributions
Gaming has become a critical component of the U.S. economy. The American Gaming Association’s (AGA) annual State of the States report from 2013 showed nearly 1,000 casinos operating in 39 states. As total casino gaming revenue reached historic levels, so have the number of casino jobs (1.7 million), wages paid to casino employees ($73.5 billion), and tax revenues paid to local, state and federal governments ($38 billion). The same year American gaming equipment manufacturers, which build the table games, slot machines, and other casino related products, produced nearly $6 billion in total revenues while employing 31,200 workers whose salaries and wages amounted to $2.3 billion.
Complexity of Regulations
Along with this tremendous growth across a growing number of jurisdictions comes the expectation that casinos and manufacturers adhere to the rules and regulations of each jurisdiction in which they operate, regardless of necessity, redundancy and inconsistent enforcement. The result is an overly complicated business environment requiring disproportionate compliance staffing, inflated travel costs, unnecessary delays in getting product to market and hampered competitive practices. Adherence is nevertheless a given as gaming companies are well aware of the connection between absolute obedience and maintaining their gaming licenses.
Due to the fractious nature of America’s gaming landscape, it’s unrealistic to believe that jurisdictional regulations and practices will ever be uniform. Understanding the insurmountable nature of the problem, industry participants have given up on seeking wholesale changes and instead encouraged modest reforms aimed at lessening their operational burdens while maintaining the integrity of the industry.
AGA’s Regulatory Practice White Paper – 10 Recommendations for Reform
In October 2011, the AGA, with the assistance of a cross section of gaming industry representatives, published a white paper entitled Improving Gaming Regulation: 10 Recommendations for Streamlining Processes while Maintaining Integrity. (David O. Stewart, Ropes & Gray, LLP). The white paper called for 10 reforms perceived to be necessary and within the power of regulators to put into place. They were:
- License Terms Should Be Indeterminate, or Extended for at Least Five Years
Renewals are unnecessary due to regulators’ ongoing investigation and companies’ duty to report changes on the application. Longer or no renewal deadlines would provide relief to owners.
- Extend the Use of Uniform License Applications
This reduces cost of doing business and speeds up license approvals.
- Allow Waiver from Licensing or Registration Requirements for Those Institutional Investors Holding Less Than a 25 Percent Ownership of a Licensee
Since most institutional investors are not a concern to regulators, this ultimately improves the opportunity for licensees to access capital investment.
- Extend the Use of “Shelf Approvals” for Debt Transactions and Public Offerings
Allows better credit opportunities based on timing.
- Require No More Than Registration of Outside Directors
Increases pool of talent for gaming companies.
- Eliminate Unnecessary Regulatory Filings
Reduces compliance costs.
- Update Licensing Procedures and Practices
Reduces costs and burdens for regulators and license applicants.
- Eliminate Prescribed Minimum Internal Control Standards (MICS)
Costly and burdensome current practices may also be obsolete.
- Eliminate Prior-Notice or Pre-Approval of the Shipment of Electronic Gaming Machines
Costly procedures are not justified; could be replaced by simple delivery logs.
- Reduce the Number of Pre-Approvals for Electronic Gaming Machines
Reduction of costs and ease of esthetic modifications by manufacturers.
New York’s Regulatory Practice White Paper – Suggested Reforms
In response to problems caused by outdated regulations and the differing requirements of a large number of jurisdictions that rule casino operations, gaming machine manufacturing and shipping, the New York State Gaming Commission has suggested several regulatory reforms and earlier this year published its own Regulatory Practice White Paper recognizing several of the AGA suggested reforms.
Reforms suggested in the Commission’s White Paper include:
- Term of License Renewal – Proposed to be no less than 10 years.
- Standardization of Applications - Additional efforts to reduce costs of doing business in New York state.
- Compatibility of Service Industry Licenses – Reduce duplication through a single occupational license applicable for working in multiple industries.
- Institutional Investor Waivers – Many institutional investors in the gaming industry are passive, owning less than a controlling interest.
- Pre-Approval for Debt Transactions – Allows licensee to take advantage of best credit opportunities that may arise at a future time.
Win in New York State
The gaming industry is important to New York and other states, as it creates tax revenues and thousands of high-paying jobs. Regulations also govern this marketplace in the areas of investments, ownership and costs, all of which help casino industries to continue growing. Changes in regulations are designed to free up resources and eliminate processes that are very expensive, but no longer needed.
The need for regulatory reform is ongoing, and New York obviously wants to be a leader in helping casino industry participants continue to enjoy a thriving and profitable industry. Success for business owners also means success for employees and patrons, as well as generating excellent returns to New York in the form of taxes. Keeping current business and drawing in new business to the state is a win-win for everyone.
New York has already shown movement on most of the AGA’s suggested reforms, but still needs to deal with shipping and approvals concerns, specifically mentioned in points 9 and 10. Shipping regulations currently generate tens of thousands of filings from hundreds of jurisdictions. Suggested shipping reforms will greatly reduce this glut of expensive, unnecessary and redundant paperwork.
A follow-up blog, Regulatory Reform – Part II will address AGA’s suggestions on the topic of shipping reforms.