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Gambling in America

From Sin City to Atlantic City, from high-end resorts to offshore cruises, gamblers have more choices than ever before to get their hit
Michael Kaplan
From the Print Edition:
The Best Places to Gamble, Sep/Oct 02

(continued from page 2)

Inside, the place is anything but dead. Situated on land belonging to the Mohegan Indians, a tribe that predates the American Revolution, the casino offers the kind of scene you'd never expect to find on a reservation. Decorated in a style that's more haute Southwest than pure Native American, the casino has enormously high ceilings draped with what appear to be woven rugs. The elevator walls are made of textured aluminum, giant glass sculptures hang in the lobby, and an entire wall has been done up to resemble a stone waterfall -- complete with percussively rushing currents. A neo-Four Tops act performs in the casino lounge, animatronic wolves perch on faux mountains that bookend blackjack tables, and the restaurants (including a Michael Jordan steakhouse, a Mediterranean place under the stewardship of celebrity chef Todd English, and a seafood eatery overseen by Jasper White) rival those of Las Vegas.

The casino feels comfortably crowded. Blackjack action is lively, craps tables swell with high-betting exuberance, and the poker room is SRO. Considering all of this, you might be only mildly shocked to note that Mohegan Sun is one of the most successful casinos in the world. What's truly shocking, however, is that the most successful casino in the world, Foxwoods Resort and Casino, is only 15 minutes away. Suddenly, northern Connecticut is the place to be on a Saturday night. A spokesman for the Sun -- which has just completed a $1 billion expansion to become the largest casino in North America and, it's been said, the world -- attributes the casino's success to blessed proximity and only one nearby competitor: "There are 22 million people within an hour-and-a-half drive of us [an estimated one-third of them have gambled at one of the two casinos during the last year]. And our property can compete with anything in the world."

He's not kidding. Together, Mohegan Sun and Foxwoods take in $2 billion annually in total gross revenues. And while that might be a drop in the bucket compared to the estimated $100 billion that gambling in America generated during 2000, it's a pretty good sum of mostly tax-free cash -- especially when you consider that prior to 1983, the Mashantucket Pequots, who own Foxwoods, weren't even recognized as a tribe.

In a broader sense, the figures speak volumes about what many Americans like to do with their free time and extra income: gamble. Even in the wake of 9/11, Vegas slowed down for little more than a hiccup before regaining its footing and climbing back. The American Gaming Association reports that casinos attracted 53.2 million visitors in 2000, and gaming stocks rose more than 40 percent, on average, in the past year. Forty-seven states have some kind of legalized gambling (including lotteries and bingo) and 30 states allow casinos of some sort to operate.

Even though casino gaming remains controversial, it holds a special allure for legislators during cash-sensitive times like these. Considering that commercial casinos (including riverboats) grossed an estimated $28 billion in taxable revenue during 2001 (up from $26.8 billion in 2000), the allure is downright magnetic. Steve Rittvo, president of the Innovation Group in New Orleans, a company that does feasibility studies for the casino industry, routinely articulates the appeal of gaming. "Budget deficits, border wars -- states watching dollars crossing to other states -- and the success of Native American casinos have all led lawmakers to seriously look at gaming opportunities," says Rittvo. "[When it's legalized] gaming becomes part of a city's entertainment mix. Gaming subsidizes tourist marketing. It generates more money, more jobs, more air travel. It's getting to the point where not having casino gambling can be a liability." Punctuating the point, state and federal revenues from taxation from all gambling enterprises reached $27 billion last year.

Mainstream hotel chains, not necessarily famous for gambling in the way that Bally Park Place or MGM Mirage might be, are getting in on the act as well. Hyatt Gaming Management Inc., for example, owns or manages several casinos in the United States, Canada and South America. Its casino building process is as intensely strategized as any hotel construction. "We like to be in areas that are less than competitive, where we can provide a product unique to the region," says Larry Lewin, president and chief executive officer of Hyatt Gaming, explaining why Hyatt has avoided the Las Vegas Strip and focused instead on Middle America. This approach obviously works, as the Hyatt gaming empire generated more than $600 million in adjusted gross gaming revenues last year.

Not only are Americans gambling more than ever, they are doing it in increasingly varied ways: on Indian reservations, aboard riverboats, inside state-monitored casinos, at the track, on the Internet and over the telephone. We're betting on sports, horses, dogs and table games that range from classic (blackjack) to newfangled (Caribbean stud) to, let's be honest here, just plain dumb (casino war). What we're not yet doing is regularly watching gaming on TV, though that may change in the near future. Poker star and casino consultant Lyle Berman is taking gambling to the next level by turning it into a spectator sport. This past Memorial Day, Berman launched the first leg of what's been dubbed the World Poker Tour.

His plan is to videotape 13 poker tournaments around the world (employing a technique that allows viewers to see players' cards), boil the matches down to 60 or 120 minutes of compelling television, and broadcast the events every week. He maintains that there has already been interest from four media outlets. Berman is so bullish on the concept that he vows to broadcast the show himself if he does not have a deal by mid-January. "In a few years we will have this running four hours a week, just like the PGA," predicts Berman, speaking by telephone from his debut tournament at the Bellagio. "TV studios don't want one event" -- like the World Series of Poker -- "they want continuity. They want 13 weeks. My company has put up the money for this [somewhere in the vicinity of $3 million], and now is the perfect time. Poker is legal in many states. We estimate something like 50 million people play the game. It won't be long before we broadcast live or with a 10-minute tape delay. Almost every tournament will be open to outside players -- anybody with the entry fee. I see this as being like bowling or tennis. We're trying to elevate poker to a sport. It's not gambling, per se. It's a sport with big prize money."

Regardless of what Berman wants to call it, the boom in casino gambling -- including poker and blackjack and everything in between -- can be largely attributed to Native Americans. In 2000, Indian casinos accounted for an estimated $10.4 billion slice of the U.S. gambling pie and they likely represent the fastest growing segment. They owe much of their success to the tax breaks accorded them. For instance, while the slot machine revenues at Foxwoods and Mohegan Sun are taxed at 25 percent -- accounting for around $333 million in state revenues annually -- table game proceeds are exempt from taxation.

In the wake of laws recently passed in New York, Indian-owned casinos have been proposed for the Catskills, Niagara Falls and Buffalo. Berman himself, who partially lives off the management of Indian casinos, is working on five separate projects.

But if the explosion of Indian casinos has helped people like Berman, it's created a hardship for other entrepreneurs, such as the guys behind California's 113 card rooms, who must compete with nearly 50 Indian-owned casinos in the state. The card rooms, seemingly quaint operations that foreshadowed Indian gaming by decades, grossed a total of $949.3 million in 2000 (compared to around $5 billion raked in by California's Indian operations), and are only permitted, by state law, to offer games where players do not go up against the house. It's led to the invention of No Bust Blackjack and a retooled version of Pai Gow Poker, both of which are designed to stay within the law. Despite those counterintuitive innovations, however, poker remains what the card games are best known for, and when you consider that poker ranks among the least profitable games in any Vegas casino, that can be a problem for the bottom line in a region where Indian-owned casinos seem ubiquitous.

Some of the California card rooms are lobbying for the same games of chance that make casinos so profitable. "We hope to go in the direction where we can have slot machines and Vegas-style blackjack games in the card rooms," says Al Underwood, a spokesman for Hustler Casino, the California card room owned by Larry Flynt, a notorious sucker at poker who's known to spread the biggest games, even when he is the worst player at the table. "If the Indian gaming establishments have them, we should have them as well. Our position is that this is reverse discrimination. There have been so many opportunities created for the Indian reservations that they now have an unfair business advantage. We are a viable, growing product line. People drive 300 miles to enjoy this kind of gaming in Las Vegas. The state ought to want its money to stay in California and be taxed at the full rate."

There are more than 200 Indian-owned casinos in the United States and the number is regularly growing as tribes recognize something beautiful in the bottomless profits. "Indian gaming continues to proliferate around the country," says Jason Ader, a senior managing director at Bear Stearns and the leader of the firm's gaming, lodging and leisure team. "It's difficult to stop." Berman acknowledges that there are good reasons for the boom: "It takes fewer dollars to open an Indian casino [than one in more competitive markets], and the Indian casinos are prospering. They are adding hotel rooms and becoming full-blown resorts. And if your Indian casino happens to be a monopoly or a pseudo monopoly" -- because there's no other legalized gambling in the area -- "well, then it's the easiest business in the world to run."

The same can be said for riverboats, novel gambling venues that began to spring up in the 1990s. City fathers, strapped for cash, figured that tax-generating gambling wouldn't be so objectionable if it took place on a vessel that needed to be boarded at a specific time and floated along a predetermined waterway. The idea was that this would prevent people from simply wandering on board and treating the boat in the same impulsive way that they might treat a bricks-and-mortar casino.

That worked, at the beginning. Slowly, however, those rules loosened to the point where the boats and barges now stay put, in the manner of any casino that you might find in Vegas or Atlantic City. "Riverboats are one more way of making people comfortable with the idea of gambling," says Steve Rittvo, pointing out that Pennsylvania seems likely to set sail within the next couple years. "Nationally, riverboats generated $9.3 billion" in 2001. Though the money is largely derived from locals, some of the more elaborate operations attract folks from out of state. "Mississippi is somewhat of a destination resort; people fly in from Atlanta," says Rittvo. "Shreveport [Louisiana] draws from Dallas. The riverboats started out local and are becoming increasingly regional."

The longer standing forms of gambling on water are cruise ships and the so-called cruises to nowhere -- boat trips that head into international seas for the sole purpose of firing up casino games. Neither of these operations are the terrific moneymakers you'd imagine. According to Ader, gaming accounts for less than 5 percent of mainstream cruise-line revenues -- even though the audience is completely captive. It seems that the Carnivals and Crystal Cruises of the world simply don't push gaming.

As for cruises to nowhere -- which nationally generated an estimated $318.8 million in 1999 -- they have other problems. The first issue, for all but the most patient among us, is the very concept: you motor three miles from the shoreline to international waters, where gaming is unregulated. "Traveling to that point is a slow process," says Rittvo, who sounds impatient even as he discusses this. "It takes an hour to reach international waters. So you go on a five-hour cruise and spend only three hours gambling. But that's not the worst part of it. The worst part of it is when you are in the middle of a hot run at the craps table and they say they're going back." On top of that, the cruise-to-nowhere lines charge admissions (unlike casinos) and bad weather can cancel a cruise or make it miserable. Even in Florida, where it more or less works because of the plethora of retirees, net gaming revenues are only $150 million, Rittvo estimates, and last year a major cruise operator, Renaissance Cruises, filed for Chapter 11.

When people think of gambling, they usually don't think of being on a boat. Given their druthers, they don't even think of being on an Indian reservation. They think of Nevada in general and Las Vegas in particular. With its $10 billion in action each year, the state accounts for some 10 percent of the entire nation's gambling.

By all accounts Vegas is going through another transformation, having shifted from a naughty place to a family place and back again (see "Las Vegas Update," page 85). Newspaper headlines scream Sin Is In and visitors see that kids are gone. The greatest example of Vegas excess can be found at the MGM Grand's three-year-old Mansion, a $210 million, 29-suite edifice that caters only to the highest rollers.

Originally built to compete with the Bellagio's luxe villas (back when the hotel was run by Steve Wynn), the Mansion's design was partially inspired by a visit that now­MGM Mirage chairman J. Terrence Lanni made to Tuscany. This is reflected in the Italian tiles that cover some of the floors here and an ancient-looking fountain in the parking lot where MGM limos idle in wait of guests' whims.

Step out of your limo, clear the gates, and you come across a large courtyard filled with the kinds of flowers that you don't usually see growing in Las Vegas -- tulips, orchids and lemon trees. Mozart plays in the background, and, miracle of miracles, you are not perspiring even though the outdoor temperature is nearly 100 degrees. Though you feel as if you're outside, the Mansion's courtyard is actually a big room, bubbled inside glass, and perfectly climate controlled.

For guests who might brave a trip to the outdoor pool, strategically placed misters prevent elite players from getting too sweaty. Guests are assigned butlers and chefs, selected to correspond with precisely the kind of food that may be desired. For instance, when a Japanese gambler announced that he'd like a plate of fugu sashimi upon arriving, a chef was recruited who is licensed to prepare the potentially lethal blowfish. The Mansion comes equipped with fine old wines such as a 1966 Chateau Latour and an '86 Chateau Margaux, the humidors are stocked with Cohibas and Montecristos, beds are made with Frette linens, the robes are silk, and the bathroom floors are heated. A screening room, furnished with plush club chairs, is available for guests' use, and private rooms can be reserved for workouts and spa treatments.

Finally, lest anyone forget what they're really here for, there is a casino attached to the Mansion, situated far from the clanging of slot machines, decorated in soothing earth tones, and populated by people who are just like you.

There are those, however, who complain that Las Vegas has gotten too big, too corporate, and strayed too far from the Benny Binion ideal of "good whiskey and a good gamble." For them, Reno and neighboring Sparks -- the former is billed as the "biggest little city in the world" -- resemble a bastion of cozy sanity. You won't find Bellagio-style sophistication or a trace of The Venetian's faux gilding in Reno, but you will find a resolutely western town with 25 casinos, 15,965 hotel rooms, more cowboys than you can shake a six-shooter at, and a sense of low-rise intimacy that has long ago been skyscrapered out of Vegas. Top hotels there include the El Dorado, run by the family of Don Carano. This past February, Reno's gambling revenues topped $67 million, an increase of more than 10 percent over January (and a 4.4 percent rise from February 2001, the first such increase in nearly a year).

Still recovering from a 9/11 drop-off, Reno is repositioning itself as more than just a gambling hub. "We are trying to change the image of Reno from a small, cowboy hick town, with a few casinos, to America's adventure center," says Gordon Forrester, the accounting supervisor for Reno Sparks Convention and Visitors Authority. Expressing hope that a newly expanded convention center (it's gone from 240,000 square feet to a half million) will bring business travelers who can spread the word, Forrester adds, "We have skiing, hiking, mountain biking and lots of golf courses" -- not to mention a cool climate that makes it a pleasure to play those links from May through September.

In Las Vegas, casino hosts like Steve Cyr, who works primarily for the Hard Rock, outhustle one another to land the big whales -- guys like Larry Flynt, Kerry Packer and game-show magnate Roger King, all of whom bet more than $1 million per trip.

Cyr estimates that the whales get 7 percent coddling (meaning if you're a million-dollar player, the casino will give you $70,000 in perks and freebies). "We give out Rolexes like they're candy bars," brags Cyr, whose hosting exploits will be collected in the forthcoming book Whale Hunting in the Desert by Deke Castleman and Dave Berns. "I'll eat 10 or 15 percent of a guy's losses and might give him $50,000 just to walk through the door. But I know that his first bet with us is going to be $10,000 and that he is at a disadvantage from the second he enters the casino. Nobody has an advantage over the house. Yet you get these smart guys, playing games with the percentages against them, and they think they are above the game." How far does Cyr go to land a big player? "I'll cancel people's reservations and set them up at my hotel. I'll give them Super Bowl seats on the 50-yard line, send them cars [not limos, cars, to keep, as gifts], hijack them from other casinos and take them across the street to Club Paradise. It's host wars out there."

Whether you're a whale or a minnow, one thing that makes Vegas the gambler's Mecca is its sport betting. Las Vegas ranks as the only place in America where you can legally lay down money on the team of your choice, make wild proposition bets, and watch Charles Barkley place $600,000 in Super Bowl wagers without so much as a marker. However, despite its popularity, sports betting accounts for less than 2 percent of the total take in Nevada. Joe Lupo, a veteran sports book manager at the Stardust, says, "There is a lot more competition out there, with the Internet and offshore wagering. Individuals are feeling more comfortable wagering from home. They are finding it less necessary to make trips here for sport betting."

The major threat to casino-backed sports betting -- and a smaller threat to casino gambling in general -- is the Internet. With offshore locations willing to take more action than the casinos and asking none of those pesky tax-related questions when wagers exceed $10,000, no wonder Bear Stearns expects online gaming to grow into a $5 billion industry by 2003. And that thinking is resonating on the Strip. MGM and Harrah's have hedged their bets by dipping toes into Internet wagering with recent launchings of play-for-fun sites.

However, do not take that to mean that Internet gambling has cleared all its hurdles. Legislators are doing what they can to make offshore gaming unpopular in the United States. One potentially effective way is to stymie methods of payment. "Legislation [being debated] in the House of Representatives says that debt to a credit card company that is the result of an illegal Internet wager is unrecoverable to the company," states Frank Fahrenkopf, the president and chief executive officer of the American Gaming Association.

Considering that he heads a trade organization for the commercial hotel-casino industry, it is no surprise that Fahrenkopf does not sound especially bummed while relaying the above information, pointing out that American Express and Discover have stopped taking charges from the offshore operations, and adding that Citibank is prepared to follow suit. "Prohibition never works," Fahrenkopf continues. "But if you force the credit card companies to police the Internet, they will not want to be involved." Asked for his take on the Internet-betting boom, Fahrenkopf replies, "Officially we are opposed to Internet gambling because we don't believe the technology exists today to regulate and control it with law enforcement oversight. You have these places in third world countries with no regulations. You need regulatory control or you cannot have legitimate gaming."

If it is not 100 percent legal to gamble online in the United States, it's also unlikely that you'll go to jail for doing it. While the risk of being ripped off by some fly-by-night operator is always there, the discounts and anonymity are too much for some gamblers to turn away from. One big advantage of betting online is that not only can you bet higher than some of the casinos will allow -- even if it means clicking from site to site to get down your wagers (particularly on sports) -- but you can also bet a lot lower. Ultimatebet.com, for example, offers inexpensive poker games that casinos could never afford to put on. "Sport betting came on the Internet before poker," marvels Greg Pierson, CEO of ieLogic, the company that writes software for Ultimatebet. "Now the online sport books have created so much interest, there's got to be hundreds of millions of dollars bet on the Web. For the future of online, I see a continual addition of games and variety."

Lupo, the Stardust manager, considers online consequences and acknowledges an upside for Vegas. "Offshore has taken a lot of professional business away from Vegas. However, that's not the worst business to lose. Our handle has gone down to 1993 levels, but the revenues have not decreased. Right there that tells you the money we are losing to online operators is smart money [from professional bettors]."

Indeed, sport-betting handle for the 2001 fiscal year in Nevada was $2.1 billion, down $400 million from the previous 12 months. "The last time handle dipped below 2.2 billion was in 1993," says Lupo, adding that if motions to do away with NCAA betting come to fruition, sports betting will deteriorate further. "And this year will be even lower than $2.1 billion, but that will be because of 9/11. On the other hand we set a revenue record from 1999­2000 with $117 million. In 2000­2001 it dipped down to $112 million, which is the second best ever. I fear that our handle will continue to drop" -- and then it might not be the pros who are fleeing to online bookies. In a what-can-you-do tone of voice, Lupo adds, "From an operational standpoint we've tried everything to stimulate business. We put up more prop bets and are more aggressive with our betting menu. But you can only give away so much and take bets on so many things."

On the opposite side of the country, Atlantic City hangs in there as Las Vegas's younger, dumber, uglier brother (albeit, a brother who's still got plenty of dough and has not yet been written out of the will). At least that is the way it's been so far. Tim Wilmott, the eastern division president of Harrah's and president of Casino Association of New Jersey, sees important changes coming to Atlantic City, which he hopes will dress the place up and brighten its future. He says that 4,000 new rooms will bolster the perpetually overbooked seaside resort, which last year drew 33 million visitors who generated $4.3 billion in gambling revenue.


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