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Pennington Shareholder Marc Dunbar featured columnist in December’s Casino Enterprise Management magazine

(12/27/2011 )

 Casino Enterprise Management  (12/1/11) - [Download Full Original Article

FLORIDA: GAMBLING’S NEXT BIG MARKET?

By Marc Dunbar

Lately,all eyes in the casino industry seem to be focusing their gaze longingly in the direction of the Sunshine State.With Las Vegas Sands in the midst of a three¬year push to convince the Florida Legislature that destination casinos are salve for the state’s economic malaise,the policymakers in the state capitol will begin their official consideration of gaming proposals soon. 

Every 10 years,the Florida Constitution moves up the regular legislative session to January in order to redraw the electoral lines for legislative and congressional districts.As a result,Florida will begin its official 2012 legislative session on Jan.10,and it will run for 60 consecutive days.It will be during this time that Florida will decide whether it wants to continue to be an also¬ran when it comes to true gambling industries or if it wants to vie for elite status alongside marquis destinations such as Macau and Las Vegas. 

Despite boasting a total gaming economy estimated as the fourth largest in the United States,Florida has,without question,the worst gaming regulatory structure.No fewer than five state agencies are involved in the regulation and tax collection of Florida’s incumbent gaming operations.Florida’s pari¬mutuel race tracks enjoy roughly 24 effective tax rates,depending on their location and pari¬mutuel permit classification.Add to that every local government in the state,numbering near 400,which are in charge of Florida’s bingo,slot arcade and Internet sweepstakes café industries.Finally,Florida’s port authorities oversee the gaming activity for Florida’s“cruise¬to¬nowhere”industry.Considering this hodgepodge of regulation and taxation,it’s easy to see the current system is incapable of handling a move to the upper echelon of the world’s gambling markets. 

As a result of,or in spite of,depending on your point of view,the size of Florida’s incumbent gambling industry is staggering.It currently boasts the nation’s largest pari¬mutuel industry,one of the largest lotteries,one of the premiere tribal casinos and worldwide gambling brands,at one point the largest“cruise¬to¬nowhere”industry,and now the dubious honor as the top gray market slot machine industry.Few of Florida’s elected policymakers,in part due to the eight¬year term limits on their service,have yet to fully grasp that,like it or not,Florida is a very large gambling state.Clinging to the anti¬gambling zeitgeist of former Gov.Jeb Bush,the Republican super majority that controls the state capitol has been slow to accept the responsibility of managing and regulating Florida’s multi¬billion dollar gambling economy. 

Staying true to the history of gambling legislation in Florida since the legalization of pari¬mutuel wagering in 1931,which passed after a hurricane devastated the state and revenue was sorely needed,Florida’s policymakers move only when they have to in the area of gambling.For the first time,it would appear that the state is closing in on the moment of truth where policymakers will be forced to act.Recent shootings and robberies at unregulated gray market slot machine operations,known as “Internet sweepstakes cafés,”recent regulatory approvals of pari¬mutuel barrel racing and new jai alai permits,and a number of Florida counties scheduling votes to allow their pari¬mutuels to operate slot machines are prompting otherwise anti¬gambling conservatives to step forward and ask the basic question,“Is this really what we want for our state?”In addition,speculation exists that any one of these factors could prompt the SeminoleTribe of Florida to call the state in breach of its fledgling 20¬year gaming compact with the tribe,which was approved less than 18 months ago. 

Two legislative leaders,Rep.Erik Fresen (R¬Miami) and Sen.Ellyn Bogdanoff (R¬Ft.Lauderdale),have started the dialogue and are pushing a measure to recruit some of the biggest global names in the gambling industry.Gambling behemoths Wynn,MGM,Ceasars,Penn National Gaming,Station Casinos and others have joined Genting Malaysia in providing suggestions to these legislators on how Florida can become a credible force in the worldwide gambling marketplace.Big investments have been made in advance of possible gambling legislation,as Genting has made two investments in Miami totaling nearly $400 million.While this still trails the investments of thoroughbred magnate Frank Stronach, whose investments in Gulfstream Park Racetrack and Casino and its related properties is estimated at nearly $800 million,Genting is making big promises:in excess of $3 billion in development,should the Florida Legislature allow full¬scale casino gambling to come to the Sunshine State. 

The filing of the initial legislation was stalled for weeks by rumored squabbling inside the casino lobby;however,the first public draft was released in late October.The high points of the released legislation are:

The creation of a new agency in charge of regulating gaming in Florida, patterned after the Nevada and New Jersey gaming regulators. 

The issuance by the new gaming commission of up to three destination casino licenses, which would: 

¬be part of a mixed¬campus of retail, lodging, convention and other non¬gaming space (no more than 10 percent of the total square footage of the facility could be dedicated to gaming); 

¬be required to provide a development plan with a projected investment of at least $2 billion; 

¬allow all types of gaming other than sportsbooks; 

¬pay an initial license fee of $50 million and a 10 percent tax on gross gaming revenues; and ¬operate casinos and offer liquor sales 24 hours per day, 365 days per year. 

• Applicantsforthe “limitedgaming” licensewouldbejudged based on their ability to “increase tourism,generate jobs, provide revenue to the local economy and provide revenue to the General Revenue Fund.” (A more thorough analysis of the bill can be found at www.floridagamingwatch.com) 

These initial bills were roundly criticized for numerous technical deficiencies and devastating adverse impacts on incumbent pari¬mutuel operations.It is also no surprise that faith¬based groups such as the 

Florida Catholic Conference,the Florida Baptist Convention and Florida Family Action have promised retribution against any member of the legislature supporting the proposals.However,other groups that typically ignore gambling debates have also rallied against the proposals.The Florida Chamber of Commerce,the Florida Attractions Association,and the Florida Restaurant and Lodging Association also have announced their opposition to the legislation,citing concerns of cannibalization of incumbent Florida businesses by destination casinos on the grand scale proposed by Genting and Las Vegas Sands.Along with the opposition by Disney,whose Florida operations account for more than 2.5 percent of Florida’s entire gross domestic product,the fate of the initial legislation appears all but certain. 

As of the writing of this article,the sponsors of the legislation and the leadership in the Florida House of Representatives and Florida Senate are embarking on a wholesale rewrite of the proposal in an effort to address some of the criticisms to the initial bills.Legislative workshops are scheduled to take public comments prior to the commencement of the 60-day session in the hopes of forging a bill centered first on the regulatory structure governing Florida’s gambling industry and second on possible gambling expansion proposals that could capture the large investments promised by out¬of¬state gambling interests. 

Florida’s governor has said little about the proposals other than reiterating his feeling that Florida’s economy and state coffers should not be reliant on gambling revenues,that any proposal must not threaten incumbent revenue streams,such as the compact with the Seminole Tribe of Florida,and that any proposal must have a local approval component to ensure that communities support any gambling expansion in their area.It is expected that his attention will increase should a proposal begin to move in earnest through committees in the Florida Legislature. 

In the meantime,observers from afar,dreaming of potential revenues from a robust Florida gambling market,should watch warily.Despite all of the pundits and industry groups sounding the death knell for this destination casino bill,I believe it is too early to say the issue is gone for good.The Florida Legislature has its back against the wall in many respects and needs to respond to the calls for meaningful regulatory reform to Florida’s gambling industry.In addition,concerns over the potential loss of revenues from the compact with the SeminoleTribe of Florida also may force anti¬gambling Republican leaders to take a hard look at the industry.While it is certainly no time to deploy the sales forces and construction teams into the state,it is also not time to look elsewhere,because if the planets continue to align,Florida may just become the next big market in the global gaming industry.

Marc Dunbar’s practice focuses on gaming and governmental law. An IMGL member,Dunbar also teaches Gambling and Pari¬mutuel Law at Florida State University College of Law, has been an expert witness in gaming cases, and is regularly cited as a “gaming expert” by numerous publications. His firm provides up¬to¬the¬minute news and updates relating to gaming and pari¬mutuel law in Florida at www.floridagamingwatch.com. 

www.CasinoEnterpriseManagement.com DECEMBER 2011 Casino Enterprise Management 

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