Gaming Law "In the News"

A Catania Gaming Consultants Client Newsletter July 21 , 2008

Integrity, Leadership, Experience

Frank Catania, Esq. President… former Assistant Attorney General, Director NJ Division of Gaming Enforcement, VP Compliance Players International. frank@cataniaconsulting.com

Gary Ehrlich, Esq. VP… former Assistant Attorney General, Deputy Director NJ Division of Gaming Enforcement. gary@cataniaconsulting.com

Keith Furlong, VP… former public information officer & legislative liaison NJ Division of Gaming Enforcement. keith@cataniaconsulting.com

Joseph Kelly, Esq. Associate… Professor of Business Law, SUNY Buffalo.

jkelly@cataniaconsulting.com

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Shame on you Congressman Bachus; Get your facts straight before quoting a McGill Study

Congressman Spencer Bachus, testifying before the House Financial Services Committee last month, quoted a purported McGill University study finding that nearly one-third of teenage compulsive gamblers attempt suicide. Dr. Jeffrey L. Derevensky, a leading professor at McGill University, contends that Rep. Spencer Bachus (R-Ala.) incorrectly cited the university’s research on gambling addiction in arguing for the continued prohibition on Internet gambling. Derevensky in fact believes that the regulation of online gambling is an opportunity to put in place safeguards to combat problem and underage gambling. The following response was posted by Professor Derevensky on July 6, 2008:

“Dear colleagues,
It has recently been brought to my attention that Spencer Bachus, a Ranking member of the House Committee on Financial Services in the United States was referencing research at McGill which suggested that we had reported that nearly one-third of teenage compulsive gamblers attempted suicide. I have subsequently gotten a transcript of this testimony.
This assertion is completely ludicrous and certainly not based upon any fact, especially from research emanating from our Centre. No specific references to our work had been cited. Congressman Bachus seemed to make an impassioned plea citing that his comments were not based upon "anyone's opinion or moral beliefs about gambling." but rather based upon research. In his statement he also points to research noting that harmful effects of illegal Internet gambling have been confirmed by study after study, done by such prestigious institutions as the Harvard Medical School, the University of Connecticut Health Center, the University of Pennsylvania, the University of South Florida and the American Psychiatric Association. While we would contend that youth gambling problems remains a serious issue, and that Internet wagering may be particularly problematic to youth because of its ease of accessibility, its potential relief from boredom, and the lack of monitoring of many international Internet gaming sites, the assertions based upon McGill research by Congressman Bachus are inaccurate and without substantiation.

Unfortunately, this is not the first time erroneous findings have been attributed to our research or that we have been misquoted in the press. I want to ensure my colleagues that we have never reported or published such findings by our team, that I have never spoken to Congressman Bachus, and that I shall notify him, his staff, and Chairman Frank of these inaccurate assertions. I fully intend on providing Congressman Frank and Bachus and their staff with our published findings and recommendations for an increased budget for problem gambling.
Having just returned from the European Association for the Study of Gambling conference in Slovenia, this topic remains a high priority for empirical research, with significant public policy implications.
It is nice when legislators use research to influence public policy. But, legislators have an obligation to present accurate information. They should not misrepresent, misquote or make inaccurate assertions. Rather, it would have been nice had Congressman Bachus sponsored legislation for increased funding for research, prevention and treatment of gambling problems. Maybe next time they will ask us to testify to get the record straight as we have done in other jurisdictions.
Jeff Derevensky
McGill University”

Anti-Gaming groups still using non-existent American Insurance Institute to support their position

Anti-gambling advocates insist that there is a causal relationship between casinos and an increase in crime. Undoubtedly there is, but the increase is due to an increased number of visitors. Once the statistics are adjusted for tourists, the crime rate would be no different from that of any other commercial enterprise. Anti-gambling advocates often also claim that according to the American Insurance Institute, 40% of white-collar crime is caused by compulsive gamblers. In "White Collar Crime and Casino Gambling: Looking for Empirical Links to Forgery, Embezzlement, and Fraud" (Crime Law Soc. Change, June 2008, 333-347), Prof Jay Albanese investigates the alleged link between casinos and arrests for embezzlement, forgery and fraud. After an exhaustive analysis, his conclusion is that an examination of arrests "in the largest US casino markets shows most jurisdictions report decreases than increases in arrests after the introduction of casinos". Albanese cites the Gaming Law Review article of Prof. Joseph Kelly of Catania Gaming Consultants ("The American Insurance Institute like that Duracell Bunny, Keeps Going and Going and Going"), which demonstrates that anti-gambling advocates keep citing this non-existent entity as authority for the alleged connection between compulsive gambling and 40% of white-collar crime. Incidentally, Alaskan anti-gaming advocates are presently using the following as their main reason for an amendment to the Alaskan constitution that would prohibit prohibit gambling without voter approval: "According to the American Insurance Institute, gambling is the main cause of white collar crime and is the third leading cause of individual bankruptcy in America". Although Kelly’s article was written in 1997, the Harvard Mental Health Letter since 2004 continues to quote the American Insurance Institute study concerning gambling. Predictably, the Harvard quote on the AII was used by "the Pilot" in a 2007 editorial opposing casino gambling in Massachusetts.

NJ Appeals Court Upholds License Denial to Tropicana

On July 1, 2008, a New Jersey appeals court issued an opinion upholding the decision of the Casino Control Commission to deny renewal of the casino license of Tropicana Casino & Resort in Atlantic City. In November 2007, the Commission ruled that Tropicana’s parent company, headed by William J. Yung III, had failed to establish its qualifications as a casino owner and operator. It also imposed a civil penalty of $750,000 for the casino’s failure to constitute and utilize an independent audit committee, as required by regulation. Tropicana was put into the hands of a conservator, whose function is to operate the casino until a buyer can be found. The license denial later resulted in a Chapter 11 bankruptcy filing by Tropicana’s parent company.

The appeals court held that the Commission had ample evidence to find that Tropicana and its parent company had failed to establish: their financial stability, integrity and responsibility; their good character, honesty and integrity; and their business ability and casino experience. Rejecting Tropicana’s argument that the Commission had applied standards to its conduct that were unclear or not previously articulated, the court found all standards to have been clearly set forth in statutes, regulations or previous adjudicatory rulings of the Commission. Regarding the independent audit committee issue, the court found: “[T]he record strongly supports a finding that Tropicana’s conduct was purposeful and characterized by a philosophy or desire to do things its way rather than in the manner required by the New Jersey regulatory scheme.”

The court also found the findings made by the Commission that Tropicana lacked financial integrity and responsibility, good character, honesty and integrity, as well as business ability, to be amply supported by the record. As the court concluded: “The massive staff layoffs, the turnover of senior executives accompanied by their replacement with personnel with less extensive casino management experience, the cleanliness crisis experienced in late winter-spring 2007, the regulatory violations directly related to inadequate staffing, and the failure to recognize the immediate need for a conforming independent audit committee and the intransigence in adopting a conforming committee, all attest to the ultimate conclusion that the Tropicana AC license should not have been renewed …”

Tropicana’s parent company issued a statement indicating that it was considering a further appeal to the New Jersey Supreme Court. However, the Supreme Court would not be required to accept such an appeal and, even if it did, challenges to factually based determinations of state administrative agencies are rarely successful. As to the ongoing sale process for Tropicana, in June the Commission granted the conservator’s request for an additional 120 days to seek a buyer for the casino.

Congressman James McDermott (D-Wash.) Introduces Internet Gaming $40 Million Spending Bill

On July 16, 2008, Rep. Jim McDermott, who previously introduced a bill which would tax legalized Internet gambling in the United States, introduced legislation that directs a potential $40 billion over the next 10 years to be spent on job training for those in the declining sectors of the economy and educational assistance for foster care youth. The legislation, Investing in our Human Resources Act of 2008 (H.R. 6501), would be funded through new revenue generated by regulated Internet gambling activities.

“We have an ideal opportunity to invest billions of dollars in American workers and our struggling economy without increasing the federal deficit,” said Rep. McDermott in speaking about the Investing in our Human Resources Act (IHRA). “IHRA would utilize a funding stream that would become available should Congress decide to legalize and regulate internet gambling, which would protect consumers and collect tax revenue that is currently offshore.”

Executive Director of the National Council on Problem Gambling Keith Whyte stated, “I believe that the McDermott bill could be a positive step to help raise awareness about the dangers of unsafe gambling practices and the availability of addiction treatment.”

In a sign that the legislation has support from key members of the Democratic Congressional leadership, Reps. George Miller (D-Calif.) and John B. Larson (D-Conn.) are original co-sponsors of the legislation. Rep. Miller is a member of the Democratic Leadership and chairman of the House Democratic Policy Committee. Rep. Larson serves as vice chair of the Democratic Caucus and assists in organizing and running the Democratic Caucus. Introduction of IHRA demonstrates the growing support in Congress to regulate Internet gambling. H.R. 6501 has been assigned to the House Ways and Means Committee, as well as the House Labor and Education Committee.

Revenues from regulated Internet gambling are estimated to be between $8.7 billion and $42.8 billion over 10 years, according to a recent tax revenue analysis prepared by PricewaterhouseCoopers. Through IHRA, these revenues would be allocated annually to each state through a new Transitional Assistance Trust Fund. A state would be entitled to receive its allotment based on its percentage of the total population.

To generate additional support for IHRA, Rep. McDermott circulated a letter to all members of Congress. It includes a chart indicating projected allocations of funding by state. A copy of the letter is available at www.safeandsecureig.org/media/mcdermottdearcolleague-IHRA.pdf .

Opposition to IHRA has reportedly come from two Nevada lawmakers, Democrat Shelley Berkley and Republican John Porter. Porter characterized McDermott’s bill as “a frivolous attack on the gaming community to pay for services that local governments, states and the federal government should already be providing.” Berkley commented that H.R. 6501 is “a classic case of putting the cart before the horse.” Last June, Berkley introduced the Internet Gambling Study Bill, which calls for a one-year study to determine the feasibility of regulating Internet gambling in the United States.

The 2008 Congressional session is quickly drawing to a close. In fact, Congress will be out of session during the entire month of August. Further adjournment will occur for the general elections in the United States, making it unlikely that any Internet gambling legislation will be passed, or even discussed, until 2009.

University Study Recommends Regulate Online Gaming

A joint study conducted jointly by the University of Nevada Las Vegas and the University of Western Ontario in Canada concluded that online gambling is readily accessible even though attempts have been made to prohibit it in the United States. The study estimated spending on online gaming to be more than $10billion a year. The study also suggested government sponsors might enter the market and regulate it with measures like more effective age checks when signing up, setting limits on bets and implementing mandatory "cooling-off" periods that force gamblers to stop betting for a set amount of time.