Added commentary by Timothy Horrigan; July 28, 2010
Even though we passed landmark gay marriage legislation in 2009, the biggest issues of the 2009-2010 biennium were the state budget and casino gambling. The latter was supposed to be the solution to the former: various out of state gaming companies purported to be eager to throw money at us if we just let them put in casinos.
The main driving force behind the pro-gaming effort was the Las Vegas-based Milennium Gaming, who own several casinos nationwide— and who also own a semi-defunct horse racing track in Salem, NH called Rockingham Park. Milennium wants to turn Rockingham Park into a "racino," although it is unclear if any actual racing will ever take place there again. The general consensus is that horse racing is never coming back to New Hampshire, although we occasionally hear about how some gambling proposal will "revive" and/or "revitalize" racing, and there is still a racing commission in place. The state has two dog tracks (although the actual dog racing was finally abolished in 2010), who also wish to put in slot machines on their premises. These sites, Seabrook Greyhound Park and The Lodge at Belmont (aka The Lakes Region Greyhound Track), both already run table games under the guise of "charitable gaming" alongside off-track betting. Various other parties have been involved in various other plans. Most of the plans involve "North Country" casinos in Grafton and Coos Counties. It is unclear who actually wanted to build the North Country facilities, and it was even less clear who would go way the hell up there just to lose money at the slot machines. The "North Country" casinos appeared to be mere window-dressing.
My former employer, SMI, who owns the Nascar track in Loudon, belatedly expressed an interest in building a hotel and casino at the track. Even though they were late to the table, they were the most skillful player: their casino was a shovel ready project. Another relatively solid proposal was the "Greenmeadow" resort casino in Hudson: this would combine a hotel with a casino and a golf course. This would supposedly be a "destination resort."
The debate was complicated by the fact that the Governor had convened a blue ribbon panel who on May 20, 2010 released a voluminous but inconclusive report. This report had no call to action in it: that is just as well because by then it was too late (although we did kill one or two final gambling proposals.)
There were three main plans:
The d'Alessandro Plan (named after Sen. Lou d'Alessandro): basically, this plan would place casinos (with or without table games) at Rockingham Park and various other sites. The casino operators would own the games and the slot machines, but they would pay a percentage of the "net machine income" to the state, to the host communities, and to various dedicated funds. In 2009, the government's percentage would be 49% of the net machine income. (The machine income is about 9% of the "coin-in," so the government would be getting about 4.5%.) This was dropped to 39% in 2010. Huge upfront fees would also be paid.
The Gatsas-Vaillancourt "Honorable Compromise" Plan (named after former Sen. Ted Gatsas, now the Mayor of Manchester, and Rep. Steve Vaillancourt): this was not too different from the d'Alessandro plan, but the state would own the game and lease the machines to the casino operators, in much the same as way as how the lottery commission currently runs "scratch ticket" and Megabucks/Powerball games. The state would get a much bigger percentage under this plan and it would have more control.
Historical Racing: this was a goofy plan which involved slot machines which use a video library of old horse races as their randomizing device. The machines' prizes would also be tied to a parimutuel pool rather than a pure lottery. (This basically means that each day's prizes from these machines would be paid out of each day's gross.) As far as I can tell, these machines currently exist at only one facility: the Oaklawn Jockey Club in Hot Springs, Arkansas.
Ironically, or maybe not so ironically, Vaillancourt was
adamantly opposed to the first and last plans. I worked fairly
closely with him on the efforts to kill those plans. I setttled for
just quietly voting against Plan #2. Here is my written testimony on
SB 489, which was one of about a dozen iterations of the d'Alessandro
Plan:
I am opposed to SB489 in its current form. I am not necessarily opposed to expanded gaming, including casinos and similar establishments. Slots are not my idea of fun, but it's fine with me if someone else wants to waste their money on them.
I said I am opposed to SB489 "in its current form" because I am a member of the House, and I am not currently a member of any of the standing committees which would work on the bill if and when the Senate passes it. I will be hearing a lot about this bill, since the chair of my committee, Election Law, happens to be a cosponsor. But, I don't get to vote on SB489 until it reaches the full House, and by that time it will likely have been amended significantly.
This bill is very similar to two measures which died last year, neither of which I actually got to vote on, and both of which which I had my doubts about. Here are my three main objections to SB489 in its current form.
The
state's share of the "net machine income" has been dropped
from 49% to 39%. The rationale behind this is that we need to stay
competitive with neighboring states, e.g., Massachusetts, who are
also thinking of putting in expanded gaming. I see how it benefits
the casino operators to keep 61%, rather than 51%, of the gamblers'
"losings." I don't see how this benefits the state of New
Hampshire. The new 39% rate works better than the old 49% for the
state only if the net machine income goes up 26%. That sounds like
an unrealistic assumption to me.
Moreover, at some point,
it's no longer worthwhile for the state to even have these gaming
establishments on its soil: as you can see from the 61 pages of fine
print in this bill, the costs to state and local governments are
enormous. At some point, we should give up and let Massachusetts win
the race to the bottom. I don't know if 39% is close to that point,
but I know it's closer than 49% was.
The definition of "net machine income" is vague and I am concerned it may be incorrect. Casinos give away a lot of in-kind prizes, including some promotional items which they may be getting for free. As I read the bill, they can debit an inflated retail value from the gross machine income before determining the net machine income. It would make more sense to value them at actual cost to the gaming operator. I am also not quite sure what a "non-cashable promotional credit" is and I am unsure how they should be accounted for: it seems to me that by definition all gaming credits are ultimately cashable, albeit at much less than face value.
The only people, aside from the state government, who make money off slots are the owners of the machines. We shouldn't give one or two out of state companies a monopoly on this business. We have thousands of small businesses across the state who sell scratch tickets. Those businesses' owners and managers have already been vetted by the lottery commission: these local entrepreneurs should be able to put up slot machines if they think that's a good business to expand into.
Testimony Against SB489 (before House Local & Regulated Revenues Committee)
I am opposed to SB489 in its current form. I was opposed to it when it came before the Senate Finance Committee four weeks ago. I am still opposed to it, even though the LLC and campground taxes both went down the tubes, and even though the state's budget situation has been getting worse every week.
I am not necessarily opposed to building casinos and similar establishments. If someone else wants to waste their money at a casino, that's fine with me. I would certainly like the state to get more tax revenue from gambling. SB 489 is, by the way, very much a tax bill: it allows casinos into our state on condition that the submit to heavy taxation. Those who say we should bring in gambling "instead of raising taxes" are missing the whole point of the bill: SB 489 creates huge new taxes.
This bill is very similar to two measures which died last year, although this bill adds table games to the mix. Table games would be a fairly small part of the casinos' business.
Here are nine specific concerns which I have about SB489 in its current form.
This bill unfairly— and unconstitutionally— favors a handful of mostly out of state corporations. There is no good reason why the three recently closed race tracks should have a monopoly on the gaming business. There is no good reason why a destination resort facility should be built in Hillsborough County and not some other county— other than the fact that there is a group of investors who have already made a deal to build such a facility at a golf course in Hudson.
The
state's share of the "net machine income" (as well as "net
table game income") is currently going to be 39%, down from 49%
in the 2009 proposal. The main rationale behind this10% drop is that
we need to stay competitive with neighboring states, e.g.,
Massachusetts, who are also thinking of putting in expanded gaming.
A secondary rationale is that the casinos would be able to put more
effort into marketing if the state's share is reduced. I see how it
benefits the casino operators to keep 61%, rather than 51%, of the
gamblers' "losings." I don't see how this benefits the
state of New Hampshire. The new 39% rate works better than the old
49% for the state only if the net game income goes up 26%. That
sounds like an unrealistic assumption to me.
At some point,
if the percentage goes down low enough, it is no longer be
worthwhile for us to even have these gaming establishments in our
state. The costs to casinos' host communities are enormous. We need
to be willing to let Massachusetts win a race to the bottom.
The definition of "net machine income" is vague and I am concerned it may be incorrect. Casinos give away a lot of in-kind prizes, including some promotional items which they may be getting for free. As I read the bill, they can debit an inflated retail value from the gross machine income before determining the net machine income. It would make more sense to value them at actual cost to the gaming operator. I am also not quite sure what "non-cashable promotional credits" are and it is unclear how they should be accounted for.
I
mentioned the casinos' marketing efforts earlier. These consist in
large part of the rewards programs which are attached to the debit
cards which gamblers use at the casinos. There is a lot of money
flowing in through those cards, some of which doesn't end up in the
slot machines: the cards can be used to purchase goods and services
at the casinos. There is also some money which gets put on the cards
and never gets spent at all. There are a lot of prizes associated
with the cards: players get free plays, cash back and a variety of
in-kind prizes from the rewards programs. The legislation doesn't
address this part of the casino business at all, as far as I can
tell.
The Concord Monitor editorial board recently stated (March 19, 2010) that the rewards cards are used to rig the odds on slot machines. Allegedly two players playing the same machine will have different odds, depending on who they are and how much they have been playing. I was unable to verify the Monitor's claim, but I am still concerned. The legislation does nothing to prevent such abuses.
The only people, aside from the state government, who make money off slots are the owners of the machines. We shouldn't give one or two out of state companies a monopoly on this business. We have thousands of small businesses across the state who sell Powerball, Megabucks, and scratch tickets. Those businesses' owners and managers have already been vetted by the lottery commission: these local entrepreneurs should be able to put up slot machines if they think that's a good business to expand into. Currently, this bill cannibalizes our existing state lottery.
The SB 489 plan would also cannibalizes New Hampshire's existing table games. Rockingham, Seabrook and Belmont have low-profile but lively poker rooms going already, under the guise of "charitable gaming." Churches and other local charities also run the occasional bingo game and the like.
The
slot machines are called "video lottery terminals" in the
text of SB 489. This makes it sound like the slots are being
operated by the state lottery commission. They are not— but, they
could be. It would be feasible to let the state run the game, with
the casinos merely acting as hosts who get a cut of the action. This
would be a less desirable business model for the casino, but it
would be more profitable for the state. This model has worked well
in the past for the state lottery commission and the local
businesses who sell lottery tickets.
The percentages would
have be adjusted for casino-type lotteries. The state lottery's
current games,where the host stores essentially just put in
terminals next to their cash registers, pay back about 5.5% in
retailer commissions and another 2.5% in vendor fees. (Also, 59%
goes to prizes, 4.5% to the cost of running the lottery, and 28.5%
to the state education fund.) 8% of the gross would not be enough
money to run a casino on— but a higher percentage would work fine.
Finally, I think the tollbooth is at the wrong place on the turnpike, as it were: the collection point should be moved further upstream. The state should be collecting a share of the "coin-in," not the net income. Typically casinos allow players to win back about 40 cents on the dollar. A 15% tax on the coin-in would be roughly equivalent to a 39% tax on the net income, and would be much simpler to collect.
Finally, here is the prepared text of the floor speech I gave on April 21st against SB490. I left out the part about quacking ducks when I gave the actual speech. We had had a long and tiresome morning session (during which SB 489 was killed), and SB490 was the first floor fight after a delayed lunch. I figured my colleagues were in no mood for a rhetorical flourish, especially a cliched flourish with no direct relevance to the subject at hand. (I thought of doing something with horses, but horses don't use their voices very often.) Steve Vaillancourt, who is a very theatrical and very eloquent speaker, came up after me and began by hamming it up shamelessly and declaiming, "In the immortal words of the Bard of Avon..." (I forget what the Shakespearean quote was, but I think it had something to do with horses, and I remember I had a hard time not bursting out in laughter.)
Thank you Madame Speaker.
I will open with a folksy saying. Don't worry, this will be the only folksy saying in my speech: "If it walks like a duck and quacks like a duck, it probably is a duck." Historical racing machines walk like slots and quack like slots. For all practical purposes, they are slots.
We recently turned down an offer to put in slots for 39% of the "net machine income." Slots— and historical racing terminals— typically take out about 8% to 9% of the handle. 39% of the net machine income would have multiplied out to about 3.5% of the total coin-in.
SB 490 basically offered us just 1.25% of the handle, although a track which has dog racing without any live or simulcast horse racing would have to pay 1.5%. If 3.5% of the slot handle was a bad deal, and I think it was then 1.5% is a really bad deal and 1.25% is a really, really bad deal.
Please vote green to ITL SB 490. Please kill this ridiculous bill. And even if we do approve it today, please don't vote for it a second time unless Ways & Means sends it back to us with a much higher percentage.
Timothy Horrigan: SB 490; April 21, 2010
Sometime
after April 16, 2010, I made the following comment about SB489 in the
comments section of a Union Leader
article entitled: "Lynch plans gambling bill veto":
Massachusetts and
New Hampshire are all scrambling to grab some of those bucks (as well
as Rhode Island and Maine who already have smallish casinos in
place.) Yes, there will be some new gambling losses created because
there are potential gamblers who for whatever reason don't make the
trip to eastern Connecticut but might make the trip to someplace
closer to home. But, basically the NH and Mass legislatures are both
trying to grab their share of the money which is now being lost by
those legendary busloads of bored and foolish old ladies who are
supposedly going down I-495 to "FoxSun" every day and
losing all those millions of bucks. Most of the remaining old ladies
who currently aren't on the busses are too smart to ever get on them
at all: they won't ever ride the bus no matter how short the trip
becomes. The $1.6 billion in current losings is probably a pretty
high fraction of what the regional market can bear.
—
Timothy Horrigan, Durham, NH
We
politicians often like to use the euphemism "investing"
when what we mean is "spending." I have noticed that
the gaming industry (whose executives and lobbyists hang out wuth us
a lot) have started using "sports investing" as a euphemism
for "betting on sports." Check out, for example, this
mini-banner ad from a "sports forecasting" service called
AccuScore:
Warning: Unless you are an elite athlete or a head coach, the only way to make big money from investing in sports is to own the team— or better yet, to own a company which sells sports equipment.
See Also:
The governor's May 2010 gaming study commission report (large PDF file)
NH Lottery Commission (unbeknownst to the legislature, the lottery was sneakily working on an online-gaming program called PlayItNowNH, which will debut sometime soon)
My 2009 testimony and letter to the editor in favor of mandatory seatbelts