Critics decry ‘laundering’ of casino licenses

Nicole Ziegler Dizon

Monday, July 30, 2001 | 10:55 a.m.

CHICAGO -- Illinois gambling regulators found Horseshoe Gaming mogul Jack Binion of Las Vegas unfit to run a riverboat casino in their state, so he left -- after selling his suburban Chicago casino for $465 million.

Players International Inc., tainted in a scandal involving ex-Gov. Edwin Edwards in Louisiana, got out of its jam with a $425 million sale to Harrah's Entertainment.

Station Casinos Inc. of Las Vegas, in hot water with Missouri regulators over allegations against a former company lawyer, left the state after selling to Ameristar Casinos Inc. of Las Vegas for $488 million.

Hilton Hotels Corp., which spun off its casino business into Park Place Entertainment Corp. of Las Vegas, sold its Kansas City riverboat, the Flamingo Hilton, after accusations surfaced that it had funneled $250,000 in questionable payments to the chairman of the Kansas City Port Authority.

The official's role in Hilton's selection as a Kansas City casino operator triggered a federal investigation that led to an agreement in which Hilton paid $655,000 in fines to avoid a criminal trial for its behavior.

The Missouri Gaming Commission approved a deal in which Hilton would not be fined by that agency, but would give up its Missouri gaming license and sell the riverboat.

Across the country, riverboat casino owners in trouble with state regulators have found profit in their problems. Faced with heavy fines or the loss of their licenses, they've sold their operations to less-troubled companies -- a practice gambling critics blast as license laundering.

"It's a pattern that is disturbing," said the Rev. Tom Grey, executive director of the National Coalition Against Legalized Gambling. "Now we've got regulatory bodies that are acting as Laundromats."

Grey has been fighting Emerald Casino Inc.'s attempt to build a riverboat casino in Rosemont, a suburb near O'Hare International Airport. Illinois regulators refused to OK Emerald's casino plans in part because they said top executives Donald and Kevin Flynn had lied to investigators.

Now the Flynns are negotiating with Las Vegas casino giant MGM MIRAGE to sell their shares in the state's only idle casino license. The Illinois Gaming Board condemned the discussions, and Grey has vowed to fight any deal that lets the Flynns profit.

But while Grey and other gambling critics cite approved buyouts as examples of lax casino regulation, industry representatives say they're evidence of just the opposite.

Frank Fahrenkopf, president and CEO of the American Gaming Association, said it's easier for some gambling companies to sell than jump through the hoops put up by various state regulators.

"You've got a tough regulatory regime, and some companies just don't want the hassle," Fahrenkopf said.

The cases involving Players, Stations and Horseshoe are the exception rather than the rule, Fahrenkopf said. He also said it's only fair for casino companies to recoup their investment in a state if they're forced out.

"We still live in a country where government cannot take away people's property without due process," he said.

In the Horseshoe case in Illinois, regulators already had approved the company's move into the state before they rejected Binion as an owner of the Joliet Empress.

The board alleged Binion used shell minority vendors in Louisiana to fulfill minority participation goals and said he had once posted a $2 million bond for a jailed high-stakes gambler in Nevada. Horseshoe appealed the decision.

Horseshoe spokesman Guy Chipparoni said Argosy Gaming's buyout of the Joliet boat, approved Tuesday by the Illinois Gaming Board, recognizes the investment Horseshoe made in Illinois. Horseshoe moved its headquarters to the state as part of the original agreement to purchase the boat.

"Profit's not a bad word," Chipparoni said. "With respect to this industry as with every other industry, they're in it to make a profit."

Riverboat profits also help out the states and municipalities that play host to the casinos, making it hard for regulators to threaten the most drastic penalty: closure.

"It becomes a lot more difficult to wield that hammer when you're talking about an operating casino," said Michael Pollock, publisher of the newsletter Gaming Industry Observer.

Michael Fanning, a Montana gambling regulator and president of the North American Gaming Regulators Association, said gambling boards must consider the effects their decisions may have on innocent third parties, such as casino workers.

Fanning stressed that each case is different. But he ticked off reasons for allowing buyouts, such as the cost and time spent on lawsuits and whether an offense is serious enough to merit a shutdown.

"There are a lot of sensible and defensible reasons for removing the bad apples from the barrel," Fanning said.

The trend toward consolidation in the casino industry makes it easy for companies to find willing buyers, Pollock said. Players International, for example, would likely have been bought out even if it had not been involved in the Edwards scandal, he said.

Federal prosecutors claimed that Players executives funneled money to Edwards and his son, Stephen, to get a Louisiana gambling license. The former governor was found guilty of extorting applicants for casino licenses but remains free while his case is on appeal.

Players, though not indicted in the case, agreed to leave the state and pay a $10.2 million fine. In return, regulators approved the Harrah's buyout.

In Missouri, Station Casinos paid a $1 million fine and sold its riverboats in Kansas City and St. Charles after a one-time Station lawyer was accused of trying to influence the regulatory board's former chairman.

Station and Horseshoe still own casinos outside the states where they ran into trouble.

Grey, the anti-gambling activist, said settlements that let casino operators sell their problems away send a dangerous message.

"It says you can screw up, sell at a profit and keep in the gambling business," Grey said. "Once they're in, they're protected."

The Las Vegas Sun contributed to this story.

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