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The Future of Gambling in Iowa

posted on December 24, 2012

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Dealing another hand.  Several Iowa communities are asking to deal them into Iowa's casino revenue.  Reaction from Racing and Gaming Commission Chair Jeff Lamberti and Gaming Association President Wes Ehrecke on this edition of Iowa Press.

Borg: Iowa's commission regulating pari-mutuel betting and gaming will be 30 years old next year.  It was created after the legislature passed the Pari-Mutuel Wagering Act in May 1983 and then Governor Terry Branstad appointed the first commissioners.  Beginning as horse and dog racing, Iowa' gambling industry is now 15 casinos and 3 racetracks and Iowa also has two Native American casinos that aren't regulated by Iowa's Racing and Gaming Commission.  More Iowa communities, though, want in on the action.  But the Commission is currently operating under a self-imposed no expansion moratorium.  Former State Senator republican Jeff Lamberti chairs that Racing and Gaming Commission and Wes Ehrecke is President of the association representing Iowa's gaming industry.  Both of you have been to Iowa Press before, welcome back.

Thank you.

Good to be back.

Borg: And across the Iowa Press table, James Lynch who writes for the Gazette published in Cedar Rapids and Radio Iowa News Director Kay Henderson.

Henderson: Mr. Lamberti, the Commission has recently put the city of Sioux City's casino on notice that it's not adequate, you want something new.  You've gone through the application process.  You have four applicants, four ideas for a new casino.  Are there any other casinos in the state that are on your hit list as being inadequate and in need of upgrade?

Lamberti: Well, we've actually indicated that in a lot of places where we think we can we'd like to see the old boats move to a land-based facility.  We've indicated in Davenport over the years that we would like to see that happen.  So, we don't as a commission want to get into the business of mandating certain things or having the situation we have in Sioux City where we basically put that license up for auction.  We'd much prefer to work with the current operators to encourage them to move to land-based facilities.

Henderson: So is anybody close to being in this Sioux City situation?  You're working in a progressive way with the other license holders?

Lamberti: Yeah, we actually see Sioux City as being a very unique set of circumstances.  It came together that it is unlikely to be repeated where a license was running, the agreements were running and the two parties simply could not come to an agreement about renewing it.  And so the Commission at that point stepped in and said we're going to make something happen and at the end of the day it's going to be something very good for the Sioux City area.

Borg: Let me just interrupt for just a second, Kay.  First of all, when the law was first enacted they had to be on water.  Now you want to move them off water onto land.  Why?

Lamberti: Well, as the industry has developed, and I was part of the significant change in 2004, we kind of saw the expense and the limitations of what boats present.  We are in the gaming business in Iowa whether we like it or not and so why have artificial restrictions?  And we're competing with other states who don't have those kinds of restrictions and we think we can get better facilities, more amenities if we're not limited by the confines of a boat.  That doesn't mean we're going to shut down existing boats but where it is appropriate we do want to encourage land-based facilities.  We think it is better for the customer and we think it is certainly better for the state of Iowa.

Henderson: Mr. Ehrecke, has this situation in Sioux City made other operators nervous?

Ehrecke: I don't think it has made them nervous.  They certainly wondered what was going to happen with that unique situation I think as Mr. Lamberti has emphasized and I think he has clarified that it really probably is a unique situation.  I mean, as what has been noted here, we're really evolving at 30 years old and really 21 years since the riverboats first came on board.  We're maturing into I think a very stable and strong and significant industry here in the state, putting premier entertainment destinations so there's a lot of investment going on and there will continue to be.  But I don't think that there's the concerns, that this is a unique situation.

Lynch: So you don't think that this has harmed the reputation of the Iowa gaming industry at all, that potential investors or licensed applicants are being scared off by the action by the Commission to sort of lay down some rules and say shape up here?

Lamberti: No and actually I think just the opposite.  I think we've got a reputation of being very even handed and fair in how we deal with the operators and we want to continue that.  I think people saw Sioux City for what it was, just a very unique set of circumstances where the parties that were the non-profit and the operators simply could not get together and do what the Commission wanted in terms of moving to a land-based facility which is something that the Commission indicated even before I joined the Commission.  And so that is just a very unique situation.  We have a reputation of being very even handed and we work very hard on being even handed because integrity and trust are the things that are at the top of our list when we make decisions.

Lynch: I think a lot of Iowans sort of assumed, and maybe mistakenly, that once somebody had a license it was a lifetime license.  Is this sort of a reminder that these licenses aren't granted in perpetuity?

Lamberti: Licenses are privileges.  They're not a right.  Now, most of them are very lengthy and I think maybe there are, as they are renewing and getting agreements, they now have an eye to that.  I think some of it is some people maybe let time run without paying attention to when the deadline was in that particular case and that is why I think it's unlikely to be repeated.

Borg: You called just a minute ago, Mr. Ehrecke, a mature industry.  But it is still evolving.  We're moving off the water onto land and there are other signs of maturity.  But is this another side of maturity that the Racing and Gaming Commission is coming down hard on existing casinos?

Ehrecke: Well, certainly I think what he alluded to before that they want premier entertainment destinations and be able to offer much more than just gaming.  Now in many of these locations there are expectations for having a hotel, fine dining, concert and convention space, spas, a golf course alike so I think that is very exciting that you have many more offerings to have.  In the migration, the transition to land-based is something that more and more casinos will do that are still on water as the economy improves and the like.

Borg: Is maturity though synonymous with too saturation?

Ehrecke: I think that if you go back and look at where the legislature was back in 1989 when they said that they intended that this industry would be a catalyst for economic development, to generate tourism dollars and to create good jobs with great wages and benefits and I think we have exceeded that expectation in an extraordinary way when you think about we're now a one billion dollar annual economic impact to the state.

Borg: Yes but is it saturated?  Do we have all the casinos and gambling we need in Iowa or that we can support?

Ehrecke: Well, certainly that is something that the Racing and Gaming Commission would have to ultimately decide.  But I think what we applaud them being is very deliberate and very cautious.  They have had this before them in the last few years here with licenses from other counties.  Certainly the citizens have to decide whether they want a casino in their county, pass a referendum and if they do so then they bring it forth, an application, is there appropriate financing and the like.  But I think that in some of our areas, in a lot of areas that are well served now -- that's something that the legislature or the Racing and Gaming Commission determined in the last couple of years.  Again, anything going forward, any new applications we have a very good commission that will be very deliberate and cautious to determine that.

Henderson: Dean earlier mentioned moratorium.  You mentioned moratorium too.  What is the prospect of the Racing and Gaming Commission lifting its self-imposed moratorium?

Lamberti: Well, and there really isn't a moratorium.  What happened when the last licenses were issue, the Commission at that time indicated that we really don't think we'll consider this again for about a three to five year period.  We're at the three year period.  So there really is no hard and fast moratorium.

Henderson: So what do you tell people in Ottumwa and Fort Dodge and other places who want a casino?

Lamberti: We have a process and we've seen Cedar Rapids is moving forward with a referendum.  There's been discussion in Polk County.  I indicated when those came out that I suspected we'd hear from others.  So we may hear from Fort Dodge, we may hear from Ottumwa and if one of those progresses to the point where the Commission needs to consider it or act we will do what the Commission did in the past which is studies to determine what the impact is on existing facilities, is there additional market available.  Now, what I will say just from observing this for many years is I couldn't say necessarily today whether we're at the saturation point.  I can say we're pretty darn close.  And I think that is why you've seen us move with the amenities and growing in some of those areas as opposed to building new facilities.

Lynch: Jeff, one of your own studies a few years ago said Cedar Rapids, Linn County is probably the largest unserved or underserved market in the state.  At the same time that study found that it probably has the least opportunity of attracting out-of-state gamblers and if a casino was established there would probably cannibalize existing casinos.  Does that change the perspective of the Commission in terms of if that referendum passes and an application comes?  And I guess the question to you, Wes, is does that cause some heartburn in your association, the prospects of a casino in Cedar Rapids?

Borg: Mr. Ehrecke?

Ehrecke: Well, certainly our members over in that area that have invested heavily, hundreds of millions of dollars in the surrounding casinos would have a lot of concern, a lot of opposition to a casino coming in.  Is there a market saturation there already?  And would there be the cannibalization with that, with their offering premier entertainment destinations right now?  So I think certainly our members over there would have a lot of concern.

Borg: So you're saying you agree with what has just been said, that we're pretty darn close, as Mr. Lamberti said, to saturation?

Ehrecke: Well, certainly for that example I know that my members would have a lot of concern, a lot of opposition based upon their investment that they have put into their respective places is significant.  And to jeopardize that with loss of revenue -- would a new casino add more gamblers?  That is ultimately what the Racing and Gaming Commission would do a thorough research on but I know my members would have a great deal of concern over in that area.

Henderson: How do you read the tea leaves on a Cedar Rapids casino?

Lamberti: Well, one of the first things we would do is update the market studies that were done before and until I saw those I really wouldn't make any kind of indication about what I thought because times change, market conditions change.  But what I will say is one of the specific criteria we do use is the impact on existing facilities.  This is a regulated industry.  It not one where people can just put a casino on every corner.  We in Iowa, the legislature and the Governor have said this is going to be a regulated industry and we've had people invest in these facilities and we can't expect them to be non-profit operations and so the impact on existing facilities is a significant component.  But those tests or those market studies were several years ago.  So if a referendum is approved we will update our market studies.

Borg: How do you rate though whether or not a community is going to get one as you look at the economic development component?  Iowa's unemployment rate we just heard today is down to 4.9% now, the lowest since 2008, under 5%.  Do you look at things like that and say, well we don't need to expand gambling right now because we don't need this form of economic development?

Lamberti: No, not so much.  I think we'll look -- if an application gets to us we're going to deal with it.  We're going to address it through market studies and so forth.  And certainly the overall economic impact is important once something gets to us but I wouldn't ever rule out a potential new license simply because I think the economy in general is doing well because I don't think that's what our job is.  It is to fairly consider any application that comes to us.

Henderson: Are you comfortable with what is happening in Davenport where city leaders are making some decisions about a casino there?

Lamberti: Watching all of those developments very closely.  What I will say is it would be a significant policy shift from what we've seen before.  We do have a couple of casinos where local government is the owner or the landlord.  This would be a shift because at least for a period of time the effective operator will be controlled by the city of Davenport.  I am kind of reserving judgment until I see what they actually propose to us.  But I do struggle at times as to whether or not that should be a decision for the legislature and the Governor as opposed to the Racing and Gaming Commission about whether we want local governments to be in the business of operating a casino.  With that said, there's a lot of other things about location, economic impact that we'll consider down there as well.  My hope is we get a new land-based facility in Davenport that is going to help us grow this industry.

Borg: Let's talk about Ankeny.  It's your hometown isn't it?

Lamberti: It is.

Borg: And you've had some controversy up there about locating, the possibility of locating a casino there.  People said that we weren't brought into the conversation early enough on this.  Does that jeopardize the prospect of a casino in north Polk County?

Lamberti: Well, much like in Cedar Rapids they've got to go through the process.  If we ever get an application we'll consider it.  But certainly one of the elements that a commission would consider would be the support of the community and at this point whether there would ever be an application submitted for Ankeny is really up to the citizens and their city council.  And so I've kind of let it at that and the fact that I live in Ankeny can't have any impact on my decision.  But it really just hasn't progressed to the point that the Commission would have to do anything.

Lynch: Mr. Ehrecke, when you look at these prospects in Polk County, Linn County, other places around the state, what should the role of the Commission be in making its decisions?  Should it protect the existing license holders and those operations and their investments?  Or should they be protecting sort of that revenue stream that feeds the state coffers?  Should that be the upper most factor they consider?

Ehrecke: I think the citizens certainly should appreciate that the Racing and Gaming Commission has always, their primary role is to uphold the integrity of gaming, set the proper standards and rules that we adhere to.  And I think in these situations, again, they have always been very deliberate and very cautious, very thorough and I think certainly the existing investments of the casinos that they have asked to become premier entertainment destinations expanding beyond just the gaming with many more amenities, that those aren't jeopardized.  And so that is a key, key factor of that and certainly as it ties in with whether you can grow an industry in a particular area, that is why if they are thorough they'll determine whether that is indeed the case or not.

Henderson: Mr. Lamberti, some legislators have begun talking about the end of greyhound racing in Iowa.  Will the Commission ever weigh in on that or just allow legislators to make that decision?

Lamberti: That's going to be one for them to decide.

Henderson: Why?

Lamberti: Well, because it is -- the legislature and the Governor established racing whether it is dogs or horses in Iowa.  It is really their decision.  We'll implement whatever the law is as a commission but we won't make those kind of decisions.  And we try to respect where those boundaries need to be drawn between the Commission and the lawmakers.

Henderson: Mr. Ehrecke, as someone who goes up to the statehouse and represents the casinos, what is the lobbying position of the casinos in regards to the greyhound issue?

Ehrecke: Well, certainly for a couple of my members it is a very important issue as they look at they're offering that greyhound racing and really is this an entertainment option anymore?  Some states have completely closed down all racing.  The attendance is probably maybe 50 people at best sometimes for a race day.  There's no handles.  So it's not really -- you think about we're collectively Iowa's largest tourism attraction is our casinos, 23 million visitors nearly come so that is a vibrant entertainment option.  With greyhound it is just, it has waned significantly and so the important question that needs to be asked is, is the kind of subsidies that are being put in, millions of dollars, could that be used in more beneficial ways?  Economic development and developing this land in better ways is certainly what is being raised at the legislature.

Henderson: In listening to this debate among legislators, Mr. Lamberti, the greyhound industry complains that the casinos aren't promoting greyhound racing and boosting the industry.  As a person who regulates how that contractual relationship exists does the contract need to be changed to have the casinos do more to promote the industry?

Lamberti: We've worked with the facilities that have the dog racing and with Prairie Meadows where we have horse racing and monitoring and trying new things on marketing.  So we do have some responsibility in that area and if the people on both sides want to talk about that we'd be happy to talk about that.  I have not had anybody come to me and raise that issue.  But, again, I think the future of that industry is really going to be determined by the legislature.

Borg: Mr. Ehrecke, what we're really getting at here and you representing the gaming industry is the pie, entertainment pie is only so big.  You have X amount of shares in that pie right now.  What is your biggest competition to that pie and your revenue of the people you represent right now?  Is there a leakage to other states?  Is that a competition?  Is the lottery competition?

Ehrecke: Well, certainly up to 65% of our business, our revenue is estimated to come from out of state.  So people have other choices of even other casinos that they could go to.  So we have to pride ourselves on even during these maybe challenging economic times that the casinos are still looking to upgrade their properties, new hotel rooms or various renovations to provide that entertainment, that we can continue to attract people and I think a lot of it is just good, quality customer service that we provide in Iowa so that we can -- but we're having to be competitive certainly not only with other casinos but people's discretionary dollars earmarked for entertainment goes a lot of different directions and we think that we have a premier entertainment product that we would like to be able to attract people and we will continue to do whatever we can for that.

Borg: I understand you would talk that way.  But is the lottery a competitor of yours?

Ehrecke: Well, I think that they are trying to attract people for buying tickets for the dream.  You know, you win a $500 million jackpot.  That's different than going in to take some dollars earmarked for entertainment to go in more in the social setting to enjoy games, card games, table games or even the slots.

Borg: I see your members advertising a dream too.

Ehrecke: Well, I think we're trying to market really that people can have a great evening out, the vast majority of people that can go to a casino can do so for the fun entertainment it is intended to be and so if that is a dream to go and spend time with their friends at a casino we welcome that.

Lynch: Mr. Ehrecke, you talked earlier about this being a vibrant industry here in Iowa and that has attracted the attention of the Governor, in 2011 he suggested raising the gaming taxes as a way to raise revenue for the state.  You were successful in squashing that idea at the time.  Do you expect that idea to come up again and are gaming interests ready to defend their current tax rates as opposed to seeing that go up as the industry continues to grow?

Ehrecke: Well, we don't expect it to come up again and certainly I think there was a lot of education that needed to take place that we're paying a very fair and competitive tax.  After the winnings on wagers we pay at 22% on adjusted gross revenue before lights, labor or anything like that plus what we pay to the non-profits for charitable contributions.  No industry can thrive versus just survive by raising their taxes and I think that if you're going to expect this industry to continue to be strong and stable and significant that we would vigorously oppose any tax, changes to our tax base but we'll also then try to provide the revenue that is a part of that $1 billion annual economic impact is $392 million in taxes come into the state along with the charitable contributions, along with purchasing our Iowa based products and services and what goes for wages and benefits.  Had that tax increase gone through that would have shut down five of our casinos and significantly hampered the others, a very counterproductive move and that is why we'll continue to advocate keeping the tax base where it's at.

Henderson: Mr. Ehrecke's clients have been asking legislators to create the prospect of Internet gambling run by the state licensed casinos here.  Mr. Lamberti, is that something your commission is prepared to regulate or be involved in running?

Lamberti: Yeah, we are because I think we have to be.  That is really where the next step in gaming is moving.  We've seen some states approve it and are moving in that direction.  Actually our administrator is very knowledgeable and did a paper regarding Internet poker specifically and that is where this industry is moving.  And so if the legislature tells us that they're going to authorize that and we need to move forward, we want to do like we do with our current facilities is have a high level of integrity, regulate it so that people who engage in that can trust the product.  So if that is what the legislature decides we will regulate it and hopefully regulate it well.

Henderson: Do you need more people to regulate it?

Lamberti: Well, it kind of depends on what happens in that industry.  We might but I don't think we know what the model is going to exactly look like.  Is it going to be a centralized model?  Is it going to be in several of the casinos?  Until we know the model I don't think we know the answer to that but I am confident that if it becomes a significant piece of this industry, the state and the industry will agree that if we need bodies to regulate it we will have those resources to make sure that we're doing it right because integrity has always been the most important thing.

Henderson: Mr. Ehrecke, what sort of model of Internet gaming will your industry recommend that legislators adapt?

Ehrecke: Well, certainly taking off of what we already are currently doing I think really well with the high integrity and standards is offering table games.  People come to expect when they play them they'll be regulated by the Racing and Gaming Commission -- we'd like to have offered through the portals, like website portals of the casinos on a platform regulated by the Racing and Gaming Commission so that you're assured that when you play that we can keep the minors out, we have ways of doing that now.  There's also advanced technology with kind of geo-fencing where you know that you're playing outside of the state's borders potentially having reciprocity with other states that Jeff alluded to, Nevada, now New Jersey just passed and other states might to so there would be that reciprocity to play.  The best example -- there's probably at least 150,000 people in Iowa that are estimated to be playing on sites that are based out of the U.S. and if you're playing on one of those, if you had a straight flush and won $5000 and didn't get paid, who do you go complain to if the site is in Antigua?  That wouldn't happen if it is regulated by the Racing and Gaming Commission and offered through our casino platform and with our casinos so that's what we're advocating.

Henderson: What do you say to skeptics who look at all of these Internet scams that go on and sort of scoff at the idea that A, you can regulate that you don't have minors playing and B, you can regulate that it is Iowans who are playing these games?

Ehrecke: Well, the fact that there has been those problems, those scams with these operations that are not based in the U.S., really illegally here and so that if we can have the high integrity and the standards that have been put into place for the last 30 years that Dean alluded to and do this with the Internet that we think that will, we can alleviate all of those problems, that you would have to be, know that you're 21 and know that you're playing on games that you will get paid.  That is going to be very important and that is where the next movement is going to, as Jeff said, major convergence going on and I think it's important to get it done and get it done right.

Borg: Both of you are interested in keeping Iowa's racing and gaming industry healthy.  Speaking of health, the Iowa legislature deemed it necessary to exempt casinos from smoking.  Would you like to see that continue, Mr. Lamberti?

Lamberti: Well, I'm not sure it's really that I have an opinion one way or the other.

Borg: You don't?

Lamberti: No, well I have a personal opinion but I'm not sure in my role as a commissioner I necessarily should have an opinion because I do think that's another one of those issues that needs to be resolved by the Governor and the legislature.  I will say that in a lot of the states that have made that change it has significantly hurt their gaming revenue and their tax revenue.  But I think that, again, is a decision for the legislature and the Governor to make. We regulate, we don't necessarily set those kind of policies, they do.

Henderson: Mr. Ehrecke, when legislators passed this exemption in 2008 one of the arguments was that we have to be competitive along the eastern border with Illinois because people will just go over to Illinois casinos and smoke.  Illinois now banned smoking in casinos.  What is the competitiveness issue now?

Ehrecke: Well, when the legislature passed this smoking ban and allowed for an exemption on the gaming floor for the casinos, one of the factors that they realized was that there would be a significant disadvantage with the tribal casinos.  Their sovereign nation status and their rules would allow them to keep this exemption in place.  And that 25% drop in revenue that happened in Illinois when they had the smoking ban would occur here.  That's loss of taxes, loss of charitable contributions and the like.  So we'll continue to advocate that they keep that smoking exemption in place.  But one of the other factors that they realized is that we are being very proactive in accommodating both smokers and non-smokers in acceptable indoor air quality environment.  It's amazing with the technology that we are putting in place with filtration and ventilation systems that put fresh air through a couple of times an hour so that we have that ability for accommodating everyone in enjoying the entertainment experience.

Henderson: And 100 years from now, Mr. Lamberti, when people look back at this era of gambling in Iowa, will this be a boom or a bust for Iowa's history?

Lamberti: Well, I think it has been pretty successful.  We started very small with riverboats and limits.  But it has grown into a significant industry in Iowa.  It employs a lot of people.  It now has developed from these riverboats where basically you went to go on the river and to gamble to premier destination points where there's entertainment, where there's fine restaurants and so I think it would be hard pressed for anybody to look back and say it hasn't been successful.  I think it has been.

Borg: Talking about maturity, we've matured to the end of this program.  Thanks for being here.  And we'll be back with another edition of Iowa Press next weekend, same times, 7:30 Friday night and again at noon on Sunday.  And from all of us here at Iowa Public Television, Happy Holidays and for those of you celebrating Christmas, Merry Christmas.


Tags: gambling Iowa Iowa Gaming Association Iowa State Racing and Gaming Commission Jeff Lamberti racing Wes Ehrecke