2008 Election Results Are a Mixed-Bag for "Change" in the Gaming Industry
November 12, 2008
By: Peter J. Kulick
The historic elections held on November 4, 2008 have ushered in a new political era. "Change" was the term du jour during the 2008 election cycle, and change is what voters ultimately selected on November 4. The Presidential election obviously garnered the most attention; however, there were several other federal, state and local elections on the 2008 ballot, including several ballot proposals concerning the gaming industry. Change is not only promised by a new Presidential administration, but also with the election of a new Congress and the passage of several ballot measures. As the political pundits project what agenda President-elect Barack Obama will pursue, there is a question of what the 2008 election results will mean for the gaming industry. This article identifies federal issues which may gain the attention of Congress and recaps the results of six state ballot initiatives that directly effect the gaming industry.
Federal Elections and the Impact on the Gaming Industry
The Unlawful Internet Gambling Enforcement Act ("UIGEA") was enacted in 2006. The UIGEA, and regulations subsequently issued by the Department of Treasury, had the general effect of prohibiting internet-based gambling in the United States. Congressional Republicans were largely supportive of UIGEA and similar legislation banning internet gambling. Democrats were able to increase their majorities in both congressional chambers in the 2008 elections.
During the 110th Congress, a bipartisan coalition introduced legislation to suspend regulations promulgated under the UIGEA. Congressman Barney Frank (D-MA) also introduced legislation to establish a framework to legalize internet gambling in the United States. The increased Democratic majorities in both chambers of Congress raises the prospect that the passage of legislation easing restrictions on internet gambling may be forthcoming in the 111th Congress.
Recap of State Ballot Initiatives
A September 10, 2008 article in Gaming Legal News provided an overview of six state gaming-related ballot initiatives. See Article. The initiatives were on the ballot in Arkansas, Colorado, Maine, Maryland, Missouri and Ohio. Four of the six ballot initiatives passed.
First, a recap of the successful ballot initiatives and the potential impact on the gaming industry:
1. Arkansas State Lottery Initiative
After years of failed efforts to establish a state-run lottery, Arkansas voters overwhelmingly voted in favor of removing the state constitutional prohibition against a state-run lottery. The establishment of a state-run lottery will have the immediate impact of opening up the Arkansas market to lottery equipment suppliers. In addition, it is possible that a state-run lottery could be a first step to the expansion of other commercial gaming to Arkansas.
2. Colorado Initiative 121
Colorado Initiative 121 allows local communities to authorize the expansion of limited-stakes gaming in three manners: (1) extend the hours limited-stakes gaming can be operated; (2) allow casinos to conduct craps and/or roulette games; and (3) increase the maximize bet from $5 to $100. On November 4, Colorado voters passed Initiative 121.
The passage of Initiative 121 presents several opportunities to the Colorado gaming community. Of the 12 states with legalized commercial casinos, Colorado ranked 11th in terms of gaming revenue. See American Gaming Association, 2008 State of the States: the AGA Survey of Casino Entertainment at 4 (2008). Assuming local communities adopt each of the three newly authorized measures, the Colorado gaming industry has the potential to become more competitive. Opportunities should be available to gaming-related suppliers as a result of the introduction of new games and increased betting limits.
3. Maryland Casino Measure
The November 4 elections also saw the passage of the Maryland Casino Measure by a margin of nearly 400,000 votes. Of the six state ballot initiatives, the Maryland Casino Measure was the measure that drew the most tempered support from the gaming industry. The measure provides for a unique profit distribution scheme that provides that the State of Maryland will receive between 35% to 67% of the slot machine profits over the first 15 years of the operation of racinos. The Maryland Casino Measure authorizes up to 15,000 slot machines to be placed at racetracks.
Based on the significant share of slot machine profits which will be retained by the State of Maryland - effectively imposing one of the highest tax rates on commercial casino gambling in the United States - it is uncertain to what extent casino operators will be tempted to enter the Maryland racino market. The Maryland Casino Measure should, however, open up a limited market for gaming-equipment suppliers in the event that existing race tracks expand into racinos and take hold in Maryland.
4. The Missouri School First Initiative
The final successful ballot initiative for the 2008 election cycle was the Missouri School First Initiative, properly known as the Gambling Loss Limits Initiative. The key provision of the Missouri School First Initiative was the elimination of statutory loss-limits. Supporters of the initiative argued that eliminating the loss-limits, which limited casino chip buy-ins to $500 during any two-hour period, was necessary to make Missouri an attractive and competitive gaming destination. The passage of the Missouri School First Initiative should help the existing gaming industry expand in Missouri and offer limited opportunities to gaming suppliers in connection with increased gambling activity.
The Missouri School First Initiative also limits the future expansion of commercial gaming in Missouri. Thus, the passage of the initiative in Missouri will not serve to spur the expansion in the number of casinos and gambling facilities in Missouri.
The Losers
The Maine - Casino in Oxford County Initiative and the Ohio Casino Measure were the two ballot measures defeated on November 4. The defeat of the Ohio Casino Measure came as a surprise because pre-election polling data showed the measure had relatively strong support. The Ohio defeat continues the trend of a string of political setbacks for gaming interests in Ohio. The defeat is also a blow to the State of Ohio in its efforts to compete with the lucrative gaming markets in nearby Illinois, Indiana, Michigan and Ontario.
Conclusion
The theme of the 2008 election was "change." The impact of the elections in terms of bringing change to the gaming industry is a mixed bag. Increased Democratic majorities in both chambers of Congress raises the prospect that federal restrictions on internet-based gambling may be eased in the 111th Congress. The passage of four of the six state ballot initiatives offers some limited opportunities to the gaming industry, particularly for gaming equipment suppliers.
The historic elections held on November 4, 2008 have ushered in a new political era. "Change" was the term du jour during the 2008 election cycle, and change is what voters ultimately selected on November 4. The Presidential election obviously garnered the most attention; however, there were several other federal, state and local elections on the 2008 ballot, including several ballot proposals concerning the gaming industry. Change is not only promised by a new Presidential administration, but also with the election of a new Congress and the passage of several ballot measures. As the political pundits project what agenda President-elect Barack Obama will pursue, there is a question of what the 2008 election results will mean for the gaming industry. This article identifies federal issues which may gain the attention of Congress and recaps the results of six state ballot initiatives that directly effect the gaming industry.
Federal Elections and the Impact on the Gaming Industry
The Unlawful Internet Gambling Enforcement Act ("UIGEA") was enacted in 2006. The UIGEA, and regulations subsequently issued by the Department of Treasury, had the general effect of prohibiting internet-based gambling in the United States. Congressional Republicans were largely supportive of UIGEA and similar legislation banning internet gambling. Democrats were able to increase their majorities in both congressional chambers in the 2008 elections.
During the 110th Congress, a bipartisan coalition introduced legislation to suspend regulations promulgated under the UIGEA. Congressman Barney Frank (D-MA) also introduced legislation to establish a framework to legalize internet gambling in the United States. The increased Democratic majorities in both chambers of Congress raises the prospect that the passage of legislation easing restrictions on internet gambling may be forthcoming in the 111th Congress.
Recap of State Ballot Initiatives
A September 10, 2008 article in Gaming Legal News provided an overview of six state gaming-related ballot initiatives. See Article. The initiatives were on the ballot in Arkansas, Colorado, Maine, Maryland, Missouri and Ohio. Four of the six ballot initiatives passed.
First, a recap of the successful ballot initiatives and the potential impact on the gaming industry:
1. Arkansas State Lottery Initiative
After years of failed efforts to establish a state-run lottery, Arkansas voters overwhelmingly voted in favor of removing the state constitutional prohibition against a state-run lottery. The establishment of a state-run lottery will have the immediate impact of opening up the Arkansas market to lottery equipment suppliers. In addition, it is possible that a state-run lottery could be a first step to the expansion of other commercial gaming to Arkansas.
2. Colorado Initiative 121
Colorado Initiative 121 allows local communities to authorize the expansion of limited-stakes gaming in three manners: (1) extend the hours limited-stakes gaming can be operated; (2) allow casinos to conduct craps and/or roulette games; and (3) increase the maximize bet from $5 to $100. On November 4, Colorado voters passed Initiative 121.
The passage of Initiative 121 presents several opportunities to the Colorado gaming community. Of the 12 states with legalized commercial casinos, Colorado ranked 11th in terms of gaming revenue. See American Gaming Association, 2008 State of the States: the AGA Survey of Casino Entertainment at 4 (2008). Assuming local communities adopt each of the three newly authorized measures, the Colorado gaming industry has the potential to become more competitive. Opportunities should be available to gaming-related suppliers as a result of the introduction of new games and increased betting limits.
3. Maryland Casino Measure
The November 4 elections also saw the passage of the Maryland Casino Measure by a margin of nearly 400,000 votes. Of the six state ballot initiatives, the Maryland Casino Measure was the measure that drew the most tempered support from the gaming industry. The measure provides for a unique profit distribution scheme that provides that the State of Maryland will receive between 35% to 67% of the slot machine profits over the first 15 years of the operation of racinos. The Maryland Casino Measure authorizes up to 15,000 slot machines to be placed at racetracks.
Based on the significant share of slot machine profits which will be retained by the State of Maryland - effectively imposing one of the highest tax rates on commercial casino gambling in the United States - it is uncertain to what extent casino operators will be tempted to enter the Maryland racino market. The Maryland Casino Measure should, however, open up a limited market for gaming-equipment suppliers in the event that existing race tracks expand into racinos and take hold in Maryland.
4. The Missouri School First Initiative
The final successful ballot initiative for the 2008 election cycle was the Missouri School First Initiative, properly known as the Gambling Loss Limits Initiative. The key provision of the Missouri School First Initiative was the elimination of statutory loss-limits. Supporters of the initiative argued that eliminating the loss-limits, which limited casino chip buy-ins to $500 during any two-hour period, was necessary to make Missouri an attractive and competitive gaming destination. The passage of the Missouri School First Initiative should help the existing gaming industry expand in Missouri and offer limited opportunities to gaming suppliers in connection with increased gambling activity.
The Missouri School First Initiative also limits the future expansion of commercial gaming in Missouri. Thus, the passage of the initiative in Missouri will not serve to spur the expansion in the number of casinos and gambling facilities in Missouri.
The Losers
The Maine - Casino in Oxford County Initiative and the Ohio Casino Measure were the two ballot measures defeated on November 4. The defeat of the Ohio Casino Measure came as a surprise because pre-election polling data showed the measure had relatively strong support. The Ohio defeat continues the trend of a string of political setbacks for gaming interests in Ohio. The defeat is also a blow to the State of Ohio in its efforts to compete with the lucrative gaming markets in nearby Illinois, Indiana, Michigan and Ontario.
Conclusion
The theme of the 2008 election was "change." The impact of the elections in terms of bringing change to the gaming industry is a mixed bag. Increased Democratic majorities in both chambers of Congress raises the prospect that federal restrictions on internet-based gambling may be eased in the 111th Congress. The passage of four of the six state ballot initiatives offers some limited opportunities to the gaming industry, particularly for gaming equipment suppliers.