1999 may have been a standoff between gaming supporters, foes

David Strow

Tuesday, Dec. 7, 1999 | 11:31 a.m.

It seems everyone with an interest in gaming -- friends and foes alike -- found something to like during the legislative sessions of 1999.

That applied to the biggest issue of the year, the release of the report of the National Gambling Impact Study Commission. Proponents and opponents of gaming both claimed victory with its release, and each lifted excerpts from the report to support their causes.

Industry proponents said the report hammered home one issue -- that gaming is an issue for the states, not the federal government. That will be their rallying cry as they move to protect the industry in 2000.

"As an industry (casinos), we came out of that report quite well, compared to other parts of the gaming industry," said Frank Fahrenkopf, president of the American Gaming Association, the industry's chief lobbyist in Washington, D.C. "Except for Internet gaming, the commission voted that the regulation of gambling lies at the state level."

But that hasn't stopped gaming opponents from moving aggressively on recommendations in the report, such as a complete ban on wagering on all forms of amateur athletics, particularly collegiate athletics.

"The vote was 9-0 against convenience gambling and lotteries ... I'm real happy with that report," said Tom Grey, executive director of the National Coalition Against Legalized Gambling. "In poker parlance, I can play this hand."

The national commission's report topped a busy year for gaming law in 1999.

In Fahrenkopf's opinion, the single biggest win was the victory scored by the industry over the Internal Revenue Service on the so-called "meal tax" issue. For three years, the IRS insisted that meals to employees constituted taxable income. Casinos replied that many employees could not reasonably leave the property for meal breaks, making employee-provided meals a necessity.

According to the industry, the meal tax raised employees' withholding taxes an average of $10 per two-week period, and employer taxes by $90 per year. Casinos were further hurt by the law because it barred them from deducting the meals from corporate income.

But the industry prevailed in May, when a federal appeals court upheld the casinos' position. In July, the IRS announced it would not appeal.

"That issue is finally behind us," Fahrenkopf said. "That was very important for the companies and our employees."

Fahrenkopf also found victory in the bankruptcy reform legislation passed during the 1999 session. In 1998, Rep. Jerrold Nadler, D-N.Y., had attempted to add amendments to this legislation that would have banned ATMs from casinos, and would have automatically wiped out debts to casinos with a bankruptcy filing. Nadler made no move to insert these amendments this year, and the bill easily passed the House.

In Nevada, the casinos found something to like after a big battle with slot manufacturers over the spread of "revenue participation" slots. Rather than being sold outright to casinos, participation slots are leased by properties, and the slot maker gets a percentage of revenues.

At the session's opening, the Nevada Resort Association introduced legislation that would bar slot makers from offering slots on a participation basis. This provision was struck out of the final bill, but casinos won a smaller victory with a provision that slot manufacturers pay their share of state taxes on the revenues generated by the machines. Still, the new law is a substantial improvement for casinos, because of the rapid spread of participation slots, such as International Game Technology's "Megabucks."

"That was a compromise between casinos and the manufacturing industry," said Bill Bible, president of the NRA. "But I think it was a positive for the casino industry, because it shifted the burden of taxation back to manufacturers, and created an environment where the regulation could be processed."

But in other states, voters took steps to roll back gambling's spread, something that has Grey optimistic going into 2000.

In October, Alabama voters rejected a state lottery by a 55 percent to 45 percent margin. The bill had been considered destined for victory until church officials across Alabama launched a full-court press against the referendum, sending it to defeat.

One week later, the South Carolina Supreme Court dealt another blow to gambling in the South when it struck down the state's 13-year-old video poker industry. With the decision, all of South Carolina's 33,000 machines will have to be shut down by July 1, 2000.

"We have two states that just did what the national commission called for (placing checks on the spread of legalized gaming)," Grey said. "We will be taking our victories this year and betting the pot."

In 2000, Grey vowed that anti-gambling forces will launch a nationwide offensive against the gaming industry, keyed by the presidential race.

Grey said his organization is working with organizers in South Dakota, Oregon and Montana in an attempt to shut down gaming machines operated by those states' lotteries. In South Carolina, gambling opponents are planning to fight a November referendum to introduce a lottery to that state.

But Grey isn't optimistic his forces will be able to claim victory in the largest gaming fight of them all in 2000 -- an expected referendum in California to approve a widespread expansion of Indian casinos in that state. As Proposition 5, the measure won by a significant margin in 1998.

Grey said former California Lt. Gov. Leo McCarthy, a member of the national commission, will assist in the fight against the California referendum. And Grey is busy lobbying the Walt Disney Co., which threw its weight behind the fight against legalized gambling in Florida.

"We're going to get into that fight, but there's no chance unless we have financial backing to get our message out," Grey said. "If we could get Disney to put money in, we could run a credible campaign in California."

Though their opponents are focusing on the states in 2000, the gaming industry will focus most of its attention on the national level next year.

The biggest piece of federal legislation expected in 2000, so far, appears to be the long-awaited bill that would ban all gambling on the Internet.

The first half of the bill passed in late November, when legislation introduced by Sen. Jon Kyl, R-Ariz., easily passed the Senate. The House version of the bill was introduced in October, and hearings on the bill are expected soon after Congress reconvenes in February. Fahrenkopf believes support for the bill is strong in the House, and expects the bill to become law by next summer.

Internet gaming proponents claim casinos are simply trying to quash competition by backing the Kyl bill. But Fahrenkopf says that's not the case.

"Anytime there's a scandal in any part of the gaming industry, everyone gets splashed," Fahrenkopf said. "We are firmly in favor of the position that the only type of gambling that should be legalized is that which can be tightly controlled."

Another plus for the casino industry are loopholes in the bill that will protect the industry from any major changes. Casinos will be permitted to continue advertising on the Internet, and "closed loop" systems -- the linkage of gaming devices through computer lines -- will be allowed to stay in operation. Parimutuel betting pools and lotteries also receive exemption in the Kyl bill.

Another bill in the House's hopper was introduced by Rep. John LaFalce, D-N.Y., in September. This bill would ban all ATMs from casino floors, a measure LaFalce said is necessary to help control compulsive gambling. Gambling opponents are trying to introduce similar legislation on the state level in Illinois and Iowa.

So far, Fahrenkopf said, no other congressman has stepped forward to co-sponsor LaFalce's bill, but that doesn't mean the industry is being complacent.

"Right now, the way the bill reads, it would remove ATMs ... from every 7-Eleven and convenience store in America where lottery tickets are sold," Fahrenkopf said. "That's one we're watching very closely."

A more immediate threat is expected from the National Collegiate Athletic Association. At the NCAA's urging, Sen. Sam Brownback, R-Kan., and Sen. Patrick Leahy, D-Vt., are expected to introduce legislation next year that would ban all betting on collegiate sporting events.

Contrary to some press reports, the NCAA and anti-gambling forces insist they're still moving forward on the proposed bill.

"We don't have the opportunity to introduce legislation, but if such legislation is introduced, we'll support it 100 percent," said Doris Dixon, lobbyist for the NCAA. "The (gaming industry's political contributions) are tough to combat in an election year, but we think we've got a very good message, and we're hopeful we can be heard."

Grey said his organization will be heavily lobbying lawmakers over the Christmas break to drum up support for the bill.

"We're going to work on our senators while they're at home," Grey said. "The NCAA bill is very important to us."

But gaming interests insist that the bill won't do anything about the much larger problem of stopping illegal betting activity, particularly on college campuses. And they're vowing the NCAA will have a war on its hands if it moves forward.

"The problem is 99.9 percent of the wagering activity on any given sports even is not occurring in Nevada, it's occurring illegally throughout the United States," Bible said. "It is grossly unfair to prohibit an activity that's taxed and policed. This is almost a punitive type of legislation.

"This causes us great concern. Because it only effects Nevada, other gaming jurisdictions may not oppose the legislation. Some may support it, because (sports wagering) gives Nevada an additional feature they're not allowed to offer."

Despite the presence of so many outstanding federal issues, federal lawmaking will be limited in 2000 because of the presidential and congressional elections. But with that comes heightened political awareness across the country, and gaming opponents intend to use that awareness to press their attack on Nevada's biggest industry.

"If we are able to introduce gambling into the presidential campaign, if there's talk about gambling, if it's an issue America cares about, (anti-gambling) bills will have an increasing chance," Grey said. "If America is not concerned about the pain of gambling, and the gambling people are able to keep a lid on it, the bills will be that much harder to pass.

"We'll be at caucuses, town hall meetings, asking these questions, and we hope the press will start asking these questions."

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