'Limited gambling proposal' not so small-timeLegislature battle continues over licensing of slots
By Ken Herman, Austin American-Statesman
Saturday, May 1, 2004
Down at the state Capitol, they are talking about what they're calling a limited expansion of legal gambling.
Here's what they are talking about limiting it to: up to 40,000 slot machines, running all day, every day, clustered in as many as 11 casinos, including several that would have more machines than any Las Vegas casino.
For now, state Rep. Jim Pitts, R-Waxahachie, is driving the issue in the form of a 177-page amendment to the school finance measure under debate at the special legislative session. Pitts' plan would allow "video lottery terminals" (slot machines) at state-licensed racetracks and American Indian property.
Pitts told a House committee that the concept of putting the machines at limited locations is "consistent with public policy that strictly limits expansion of gambling in Texas." To some, the phrase "video lottery terminals at racetracks" conjures up images of a few machines tucked away in a corner.
Rep. Ron Wilson, D-Houston and casino supporter, wants to erase that image. "You need to be well-advised that this is probably the largest gaming expansion that this state has seen since the lottery," he said at a House committee hearing.
What's on the table is nothing less than slot-machine parlors that will be marketed as casinos, only without the card games, roulette wheels and other games (unless casino firms have their way and get those approved).
Texans, in the name of dollars for schools, could soon be ka-chinging their way into step with other states that have increased their reliance on gambling.
The proposal, backed by Gov. Rick Perry, a proponent of gambling expansion, would be a significant step for a state that until 24 years ago banned even charity bingo. Since then, voters also have approved horse and dog race betting and a state lottery.
Texas could be moving toward having every form of legal gambling known in America save for jai-alai, sports books and snowmobile racing.
Predictably, it is a titanic lobby struggle. And, perhaps more significantly, it is a lobbying war among competing interests looking for a piece of the financial action. One of the biggest battles is the debate over how the state would award licenses to determine who would control the lucrative casinos. Estimates show some of the facilities could have as many as 8,000 machines. The MGM Grand, Las Vegas' largest casino, has 3,600 slot machines (although it also has tables games such as roulette and craps).
"I don't know that folks understand the numbers," said Tom McPherson of Boyd Gaming Corp., owner of 11 casinos. "Four thousand to 5,000 slot machines is a huge number of slot machines."
Though legislative parlance refers to the machines as video lottery terminals, folks involved in the fight do not shy from what a video lottery terminal really is.
"It is a slot machine," said former state Rep. Stan Schlueter, now lobbying for Harrah's, which wants to own a Texas casino.
"Our first position is we want full-blown casinos," Schlueter said.
Texas lawmakers, he said after working the Capitol this week, "are more open to it than people believe."
Harrah's and Boyd Gaming are, however, battling the current plan for the licenses to be sold to track owners.
It is part of a battle deep with moral overtones and deeper with the business vs. business warfare that breaks out when government opens the floodgates on potentially huge profits.
Who gets the license?
Under Pitts' proposal, tracks would pay $25,000 per machine and $100,000 for a five-year license. In return, the tracks would funnel 60 percent of the net profits (after as much as 90 percent of the gross is paid to winners) to the state, and another 13.5 percent to pump up purses at the tracks.
Wilson sides with those who say the licenses should go to the current track owners.
"We know for now with certainty that those folks are operating obviously way above board," he told a House committee. "It is easier for us to go with a proven entity."
But Rep. Fred Hill, R-Richardson, noted that other states auctioned similar licenses "and have obtained a pretty high price."
The tracks are represented by a lobby team coordinated by Elton Bomer, former lawmaker and secretary of state, who said the tracks should get the licenses.
"We are requesting they consider putting them there because it is a gaming facility and it's not an enhancement of gaming or an expansion of gaming but gaming in a location that already has gaming," he said.
Harrah's and Boyd Gaming are pro-auction.
"McDonald's doesn't give away franchises," Schlueter said. "Nobody gives away franchises. Why should the state?"
As owner of Delta Downs in Vinton, La., a track with slots, Boyd Gaming is in both industries. And as owner of a Louisiana gambling operation, Boyd Gaming knows that a good night is when the parking lot is packed with Texas plates.
"If Texas did nothing, that would be fine with us," McPherson said. "But if Texas is looking at approving casino gambling, which is what they seem to be talking about doing -- and this is large-scale casino gambling being considered here -- we would like an opportunity to compete for a license or more than one license."
Delta Downs could be Exhibit A in what happens when a racetrack becomes a racetrack and a casino, or "racino."
In 1999, Shawn Scott paid $10 million for the track. In 2001, after Scott helped persuade Louisiana lawmakers to OK slots at the track, he sold it to Boyd for $135 million.
"It made sense," McPherson said of the price.
Is Delta Downs, with 1,500 slot machines, a track with a casino or a casino with a track? Boyd Gaming answers that by billing it as "the bets of both worlds."
Exhibit B in how lucrative a casino license can be is found in Illinois, where a March auction of a bankrupt casino's license drew a high bid of $526 million. McPherson notes that license was for 1,200 "gaming positions," or total seats at gambling machines or tables, in a market with eight other casinos.
"If you are talking about the only casino license in Dallas, how much is that worth? I don't know; we haven't run the numbers," he said.
Might the answer include the word "billion"?
"It might," McPherson said. "That's open for speculation. The question is how do you find out. You have a competitive process."
Maryland investment banker Jeff Hooke agrees, and he talked to lawmakers about it last week.
Hooke, an expert in the value of slot-machine licenses, brought a presentation entitled "Texas' Quest for School Funding Need Not Result in $4 Billion Giveaway to Wealthy Track Owners."
Hooke extolled the bottom-line virtues of auctioning the licenses. His math told him the state could get $4 billion for them, including $500 million for the one in Austin. (Manor Downs officials could not be reached to discuss their plans for the track if the slot-machinemeasure is approved by lawmakers and voters.)
"Instead of essentially giving away these gambling licenses for a fraction of their true value, Texas lawmakers should put them up for bid," Hooke said. "Sadly, it appears the track owners' dictates regarding the process have been swallowed whole by lawmakers who should know better."
What racetrack owners do have is political involvement. Statistics compiled by casino-related interests show that people with links to tracks or the state's three American Indian tribes have given Perry $440,000 since 2000. Lt. Gov. David Dewhurst received $265,000 from those interests, and Comptroller Carole Keeton Strayhorn got $259,000.
For now, the only sure thing in this battle is what is always the only sure thing in high-stakes lawmaking: Lobbyists are cashing in.
According to Texans for Public Justice, a watchdog group, interests on one side or another in the slots fight have signed up 62 lobbyists at a cost of up to $2.3 million. Such are the wages of sin-tax lobbying.
It makes lobbyists such as Schlueter, a former House Ways and Means chairman from Killeen, step back and wonder. His company's contract with Harrah's is worth between $20,000 and $50,000.
"I voted against horse racing, the lottery and bingo," he said, "and now I'm working for sin."