Uncertainty in the gaming industry: lessons from Missouri.

Introduction: Gambling Considered

In 1992 Missouri residents voted in a statewide ballot referendum to bring riverboat gambling to their state.(1) A chronology of Missouri riverboat gaming is provided in Exhibit 1. Two neighboring states, Iowa and Illinois, had previously legalized riverboat gambling and subsequently, casino gambling was offered on the Mississippi River at various ports, including two in the St. Louis metropolitan area, East St. Louis and Alton, both located on the eastern Illinois side of the Mississippi. Indeed, the availability of Illinois-based gambling was believed by many to hasten the legalization of gambling in the state of Missouri. "Why should Illinois go unchallenged in its collection of gaming dollars spent by Missouri citizens?" was the question posed frequently by those who thought it in the state's interest to make similar allowances for riverboat gambling.

Soon after the referendum was passed, the movement to legalize gaming in Missouri met with a constitutional challenge. Illinois gambling interests first challenged the constitutionality of the gambling statute that the Missouri legislature had enacted. A partner in the Casino Queen, an East St. Louis gambling boat, argued in a lawsuit that the Missouri state constitution allowed the state to offer only games of chance, typically in the form of state-sponsored lotteries. This case was dismissed - the judge ruled that an Illinois business concern had no standing in a lawsuit concerning the Missouri constitution - but a second suit was filed by a Missouri resident under somewhat suspicious circumstances. The individual who brought the suit steadfastly refused to discuss the case or respond to press inquiries. He was represented by the Casino Queen's lawyers and used the same constitutional arguments advanced in the original suit brought by the Casino Queen representative. In the opinion of many, the Missouri citizen who brought the suit was merely a front, acting on behalf of Illinois interests.

The suit received a sympathetic hearing by the Missouri Supreme Court and in January 1994, the Court ruled the law unconstitutional. Interpretations of the opinion quickly focused on the distinction between games of chance and games of skill within the larger gaming industry. Games of chance were disallowed on constitutional grounds, while games of skill were given approval. However, the distinction between games of chance and skill was hardly clear. Poker and blackjack were presumably games of skill, while other games such as slot machines, roulette and craps were more problematic, likely falling into the category of games of chance.

Exhibit 1. Chronology of Missouri Riverboat Gaming

July 1991          Missouri legislature passes House Bill 149
                   approving riverboat gambling and placing a
                   referendum on the state general ballot on
                   November 1992.

August 1992        Article III, Section 39(d) states that any future
                   gaming revenues must be appropriated solely for
                   education. Revenues are not included within the
                   definition of "total state revenue."

November 1992      Riverboat gambling referendum is approved by
                   voters statewide.

December 1992      A lawsuit is filed challenging the
                   constitutionality of the riverboat gaming law.

April 1993         The Missouri General Assembly amends House Bill
                   149 with Senate Bills 10 and 11, which Governor
                   Mel Carnahan signs into law. The Missouri Gaming
                   Commission is created to oversee riverboat
                   gambling in the state.

November 1993      The Missouri Gaming Commission announces four
                   companies will be processed for gaming licenses.

January 1994       The Missouri Supreme Court invalidates key
                   sections of Senate Bills 10 and 11 and raises
                   legal questions concerning other sections.
                   Specifically, the ruling disallows games of
                   chance, approves games of skill such as poker and
                   black-jack and questions the legality of other
                   games including slot machines, roulette and
                   craps.

April 1994         Amendment 3 to authorize slot machines and other
                   games of chance fails by a small margin in a
                   statewide election.

May 1994           First two riverboat casinos open with games of
                   skill.

                   The Missouri Gaming Commission issues its first
                   licenses to riverboats to operate on the Missouri
                   and Mississippi Rivers with games of skill.

                   SB. 740 that defines games of skill, including
                   mechanical games such as video poker, is passed
                   by the legislature.

July 1994          S.B. 380, partially funded by riverboat casino
                   revenue, begins funneling monies to public
                   schools.

August 1994        Signature petitions to place a constitutional
                   amendment authorizing reel slot machines and
                   other games of chance on Missouri's riverboats
                   are submitted to the Secretary of State and
                   verified.

September 1994     Vote Yes On Amendment 6 Committee forms to
                   educate and inform Missouri citizens about the
                   benefits of Amendment 6.

November 1994      Amendment 6 to authorize reel slot machines and
                   other games of chance was voted on in a general
                   election.

The gambling industry argued that the so-called games of chance, in particular slot machines, were essential for the success of its Missouri boats, capable of producing some 70 percent of total casino revenues [3]. Many political figures associated with the St. Louis city government as well as officials connected with other affected municipalities were also dismayed by this decision, which effectively stalled several economic development proposals connected with the anticipated gaming boom. These projects were in various stages of planning and implementation, with two boats being prepared to open in the spring of 1994.(2)

Gambling Reconsidered

In response to the Supreme Court ruling, political and industry groups worked together to place a proposed constitutional amendment on the April 5, 1994 ballot. If passed, Amendment 3 would allow games of chance on Missouri riverboat casinos. In spite of the casino companies spending some $2.8 million on this campaign, the riverboat gambling amendment was narrowly defeated by just over 1,200 votes.(3) The vote was especially remarkable in that the outcome represented the first example of a statewide rejection of a gambling referendum.(4) Prior to this vote in Missouri, five states had approved riverboat gambling: Illinois, Iowa, Mississippi, Louisiana and Indiana [9].

The opposition endorsed the notion that the vote rejecting Amendment 3 was a decisive repudiation of gambling in Missouri and perhaps pivotal as well on a national level. "The people here feel like David, who slew Goliath," said one volunteer, who worked to defeat Amendment 3. "This shows the trend is moving against gambling. People just don't want it" [9:14A].

Freeman Bosley Jr., the mayor of St. Louis, pointed to the effectiveness of the opposition in raising significant moral questions about the dangers of gambling. Other political experts made similar observations about the role of the opposition and its effectiveness in framing the issue. Ed Finkelstein, a political consultant, noted that "there was a much bigger level of skepticism, questions of the number of jobs that actually would be created and whether the revenue from gaming would go to education" [9:14A].

Other, more technical election considerations were also thought by many to have favored those opposed to gambling. The election held in April was largely for minor local races; this combined with poor weather resulted in relatively low voter turnout. Many experts speculated that this favored the more highly motivated anti-gambling voters, who presumably would be more likely to make the extra effort to vote. This was also consistent with the very strong anti-gambling vote of rural Missouri areas as compared to urban areas such as St. Louis, which backed the amendment by a better than 2-to-1 margin.

One More Tune: Amendment 6 Campaign

Despite this serious setback, the gambling industry and its supporters were determined to have the gambling issue submitted to Missouri voters yet again. Before a July 8, 1994 deadline, gambling proponents successfully gathered the 130,000 signatures required by law to place the amendment on the November 8, 1994 general state ballot.(5) Amendment 6, as it was referred to on the ballot, asked voters to vote "yes" or "no" on the following question:

Shall the General Assembly be authorized to permit only upon the Mississippi River and the Missouri River lotteries, gift enterprises and games of chance to be conducted on excursion boats and floating facilities? This proposal would increase state revenues from existing gaming boats approximately $30,000,000 per year. Impact on local governments is unknown.

Once again opposition to the constitutional amendment had gathered; indeed, two opposition groups emerged - one largely religious in character, the other secular. Churches vs. Casinos was a largely ecumenical movement organized by Tom Grey, a United Methodist minister who also headed the National Coalition Against Legalized Gambling. Lycurgus "Curg" Starkey, the Missouri campaign director for Churches vs. Casinos and himself a retired clergyman, explained that the message would not be biblical in its tenor, but instead what he called "experiential." Problem gamblers, politicians, community leaders and law enforcement officers, largely from other areas that had legalized gambling, would talk about the problems that they believed casinos had brought to their communities. Message of economic growth and development would be countered by the experiences of other communities now allowing gaming. This message would be delivered to church audiences from the pulpit, in sermons, in religious education classes and at other church meetings and settings. "This time, we're prepared," said Starkey in October, about one month before the election. "We've had all summer to organize, and I really think we stand a chance of beating them" [6:6E].

Missouri Citizens for Life and Liberty was the parallel secular campaign opposed to Amendment 6. The message developed by this group also focused on the economic and social fallout of legalized gambling. This group argued that gambling profits largely accrued to out-of-state boat owners. Gambling jobs offered poor pay and turned over frequently, while state and local politicians and institutions, especially schools, became beholden to gambling tax revenues. All this, they claimed, plus social costs in the form of addictive gambling and crimes like theft made gambling a bad idea. This message was to be delivered only by volunteers, through telephone, radio talk shows and local speaking opportunities. Modest direct mail efforts were envisioned, but once again only to the extent that volunteers could provide both labor and postage. No budget existed for radio or television advertising [6].

While opponents of the amendment had very little money (substantially less than $200,000), supporters, organized as the Vote Yes On Amendment 6 Committee, were expected to spend approximately $5 million, provided by gaming concerns either operating or developing Missouri casinos in a statewide campaign. A key element in the communications strategy by the gaming proponents was to avoid defining the issue as legalization of casinos or gambling. The existence and operation of riverboat gambling was to be established as a given, previously established by law and voter referendum. Amendment 6 was to be framed only as a "small change," one that would allow Missouri riverboats to add games of chance, such as slot machines and roulette, and thus compete more effectively with Illinois-based boats. Once this central premise was established, many correlative benefits such as $30 million for education, more jobs for Missourians and increased tourism revenues could be stated as flowing from this more competitive gaming industry.

Casino and gaming interests publicly announced economic development plans in advance of the election for the river front areas of St. Louis, St. Charles and Kansas City. These plans envisioned new hotels, retail shops and entertainment centers, but voters were told that such developments would be in jeopardy if Amendment 6 was not passed.

Supporters announced their intention to communicate their message to all Missouri voters, both urban and rural. The previous campaign had depended largely on support from the state's two major urban areas most likely to benefit directly from riverboat gambling, St. Louis and Kansas City. But the rural vote figured prominently in the failure of Amendment 3. As a result, the Vote Yes On Amendment 6 Committee directed its campaign from seven strategically placed offices. The clear intent of the campaign was to convey a grassroots effort largely perceived as absent in the previous campaign. That campaign had been criticized by some political consultants as relying too much on large media buys and neglecting the retail politics commonly practiced at civic clubs, public meetings and social gatherings.

A new approach to advertising was also developed for this campaign. The expensively produced ads for the April 1994 were thought by some to be too polished, provoking a backlash and fueling voter suspicion of manipulation by outside gambling interests. So in this election, on the advice of campaign consultants, "slick" was declared out and "sincere" was in. Although most of the advertising budget for the campaign would go to television and radio spots, the ads would feature Missouri school teachers and community leaders speaking in a straightforward way about the benefits from the "small change" in the gambling laws of Missouri.

A Setback

Campaign operations for Vote Yes were moving ahead on schedule until Sunday, October 23, 1994, just a little over two weeks before the election. On that day, the Amendment 6 supporters ran a statewide advertisement in the Sunday papers misrepresenting dozens of prominent citizens as supporters of the amendment. The full-page ad was entitled "Now more than 25,000 strong and still growing. Missourians support Amendment 6." Surrounding this caption was a list of supporters in small print Although the ad was intended to provide Missouri voters with powerful evidence that many fellow Missourians already supported gambling, the plan back-fired when it was discovered that the list was a curious assortment of politicians, members of the clergy and other professionals. Not only were many of those identified opponents of the gambling initiative, but some names on the list were those of people who were dead, while others appeared more than once in the ad and at least one, Gidget, was fictitious [7].

An explanation was quickly issued, attributing the mistake to human error. According to Don Poston, the press secretary for Yes on Amendment 6, the original list sent to the advertising agency was correct; however, it had been improperly formatted and could not be used. When the agency requested a new list, another unrelated mailing list had been sent in error. Opponents of Amendment 6 were skeptical of the explanation. Their view was that this provided yet another example of how casino money had corrupted the political process and offered evidence that pro-gambling forces were capable of using deception as a means to winning the election.

Post Election Results

Amendment 6 was passed by the Missouri voters on Tuesday, November 8, 1994 by a margin of 54 to 46 percent. The victory cost the pro-casino forces more than $8 million. It was characterized by Scott Intagliata, the campaign's deputy manager, as "one of the largest and all-encompassing field organizations of all-time" [8:7A]. The pro-casino forces quickly focused their concern on how fast they could get slot machines on the riverboats. According to Tom Irwin, executive director of the state Gaming Commission, "slot machines could be operating on some of Missouri's five riverboat casinos on December 9 [1994]" [4:6A].

The proponents attributed their success to the way the message was stated and delivered. The same message was repeated in newspaper ads, on radio and television, through telephone calls, by home mailings and by more than 100,000 face-to-face contacts with voters. The message was simple and direct; the discipline exercised in delivering the message avoided voter confusion. The benefits linked with gambling's expansion were similarly basic and such that voters could easily identify with them.

By segmenting the state, the proponents were able to concentrate on a targeted marketing approach and strategy for each area. In areas of the state where opposition was stiff, themes of education and economic development were used effectively to reduce the negative vote and shift attention from the issue of gambling. Where gambling support was already high, that support was deepened and broadened. According to Intagliata, "The campaign succeeded because of our accurate polling that targeted voters most likely to support the amendment. More than one million pieces of mail went out to those voters" [8:5B]. Jim Bergfalk, publisher of Central States Gaming, stated, "The issue was better defined this time ... More emphasis was placed on informing voters as if it were a statewide election" [4:6A].

For its part, the opposition attributed its loss to an overwhelming resource disadvantage. Mark Andrews, President of Missourians for Life and Liberty, felt his group had fallen victim to the power of money. "In the corporate word, this would have been called a hostile takeover" [8:1A]. While pro-gaming forces ultimately spent $8 million on the campaign, the opposition spent only $180,000. In all, over $15 million was spent by pro-casino forces in a two-year period. "If we had their kind of money, it would have made a difference," stated Andrews [8:1B].

Epilogue

Although the gambling industry has grown dramatically in the 1990s, the expansion has been a troubled one. The Missouri experience recapitulates much of the national ambivalence surrounding this industry. In the battle over the legalization of games of chance, enthusiastic support was matched by heartfelt opposition, and great expectations were countered by dire warnings.

The previous case study provides the basis for the following observations about the debate over gambling: A reassessment of the economic and social impact of gambling is now underway. The Missouri debate over gaming was one of the first occasions for such a re-examination. Subsequent to the passage of Amendment 6, no other state in the U.S. has permitted commercial gaming. The number of states that have gambling currently stands at ten, not including those that allow Native American casinos, despite recent serious initiatives in Connecticut, Florida and Maryland. This state of affairs is all the more remarkable given the bullish scenarios frequently offered by gaming analysts just a few years ago. At that time, some offered the opinion that legalized gambling would be offered in most of the 50 states by the year 2000.

The relative healthy U.S. economy is frequently cited as one factor slowing the advance of casino gambling, but moral issues have also come to the fore as a popular backlash has become increasingly evident. Here again, the Missouri experience is instructive. Because of the constitutional difficulties encountered by Missouri's gambling statute, voters were afforded a chance to express their second thoughts at the ballot box. In the opinion of many, the expansive promises of economic development that were effective in garnering public support for the first referendum on gambling were subsequently attenuated by the appearance of corruption and the conflicts of interest that surrounded gambling's entry into the state.

There is little doubt that opposition to gambling was effectively galvanized by the presence of limited gambling, the possibility of its expansion, as well as the prospect of putting the proverbial genie back in the bottle. Such a reassessment of gambling at the state or local level is rare, yet the collective experience of many individual communities and states seems to be driving a national debate on gambling's role in our economy and society - a debate with a clear moral dimension.

The Public Perception of Gambling

The debate on gambling and its uncertain outcome reflect an intense effort underway to shape volatile public perceptions of gambling. America's ambivalence over gambling has deep mots. The strongly religious character of our society underlies much of the opposition to gambling. Yet, the powerful engine of economic growth that has driven American prosperity was stoked by extraordinary risk-taking and lofty material aspirations. This quintessential American character was noted by Alexander de Tocqueville, who wrote after his 1830s visit that the citizens of the young republic "end by liking all undertakings in which chance plays a part." While critics of our modern economy, seeing in American capitalism a certain winner-take-all dimension, have labeled it the "casino economy," they might not fully appreciate how well the image resonates with popular dreams of "winning big" or "hitting the jackpot."

One thumbnail synopsis of the Missouri case study is that gambling first gained voter approval in 1992 on the strength of economic arguments. It was later turned back, in the form of Amendment 3, based on moral concerns, and it then finally allowed a permanent and expanded presence on Missouri rivers, because the proponents were successful in flaming the debate as an economic one, not a moral one. "This is not a vote on gaming. We have gaming."

This battle to control the terms of the debate is of course part of a highly charged political struggle. It comes, therefore, as little surprise that gambling interests have become an important source of funds for political parties and candidates. U.S. News & World Report found that the industry had $3.1 million in political contributions in 1994, only slightly less than those of the National Rifle Association collected [14]. In the Missouri case, the intersection of gambling money and the political process was of great concern to many. It provoked many hard questions: Has gambling money worked to erode trust in public officials? Did the imbalance of financial resources in the campaign unfairly favor the gambling forces? Were the money and the marketing campaign it funded used to clarify or obscure the issues in the debate? Did the large expenditures on advertising effectively drown out alternative perspectives or, even worse, manipulate or deceive large segments of the electorate?

While money and politics have long been joined at the hip, the Missouri experience did reveal that this important advantage is not necessarily decisive. The democratic process did slow the advance of gambling in Missouri. In the aftermath of the Amendment 3 defeat, many politicians backed away from their previous endorsements; similar political swings have been noted in other states where gambling is under consideration. One gaming analyst viewing prospects for the industry glumly noted:

We'll be lucky if we get one or two more new jurisdictions by the end of the decade. I just don't believe there is enough support at the legislative level, and certainly not at the popular level, for a meaningful expansion of gaming [11:B1].

Congress has recently considered the formation of a national commission to study the impact of gambling on communities. Such a commission may help focus the public debate that so far has been muddled by the paucity of reliable information on the social and economic impact of gambling. Nevertheless, gambling remains, even in good times, an attractive source of tax revenue for hard pressed government budgets. It may also appeal to those voters who want government to reduce or limit taxes without similarly cutting those programs and benefits they expect.

Gambling Industry Growth

The gambling industry will continue to grow, albeit in a more limited, focused and incremental fashion. The challenge now facing the gambling industry will be to consolidate its past gains. In marketing terms, its strategic intention will now focus more on market penetration than on pioneering new markets. This strategy of incremental penetration and expansion was of course effectively used in the campaign to gain voter approval of Amendment 6. The recurrent theme in that campaign was that if the existing industry were to compete effectively and prosper and thereby benefit the Missouri taxpayers, then the industry needed to be freed from unnecessary constraints, e.g., no slot machines.

The gaming industry and its various venues exhibit relatively short product life cycles. "It's a unit expansion business," explains one gaming executive, "You build a casino, get to its upper level of earnings, and then those earnings will only grow, if you're lucky, at about the rate of inflation. To get real growth in your company, you have to continue to add units" [12:A10].

This approach to doing business, combined with a trend toward increasing state and local dependence on gaming revenues, leads to an inexorable expansion of gaming activities deeper and deeper into the surrounding community. One common tactic used by the industry is to pursue a liberalization of gaming regulation. In Iowa, Illinois and Mississippi, limited losses and betting regulations have been relaxed. Tax concessions have been granted to horse track operators or other betting operations who were negatively impacted by the entry of casino gambling into the gaming industry. New distribution opportunities for the industry such as simulcasting and on-site gambling machines (video poker) have been permitted.

In Missouri, a similar trend is being played out. Slowly but surely, gaming operations are moving onshore with the approval of "permanently moored" riverboats and the drive toward "dockside" facilities. A recent analysis of the gaming industry in Missouri by the St. Louis Post-Dispatch reports that since the legalization of gaming in the state 36 applications have been filed with the Missouri Gaming Commission.(6) As of June 1996, seven casinos were operating, and four have received preliminary approval to open. Three of the 36 applications have been withdrawn, and one was thrown out. This leaves 21 projects "waiting their turn at the gambling pie" [5:4D].

Many of these undertakings are quite breath-taking in their size and scope. A joint project between Harrah's International, Inc. and Players International, Inc., which has preliminary approval to open in Maryland Heights, a St. Louis suburb and is nearing completion, will cost an estimated $280 million. It will include four casinos built on barges, a 277-room hotel, a 1,500-seat entertainment lounge and child care service. The complex stands on a 255-acre site, of which 80 acres are available for future development [2,5].

Some in Missouri are beginning to see the path of incremental expansion in the southwest corner of the state and the thriving entertainment and tourist industry centered there at Branson. Branson is a popular tourist destination with over five million visitors last year.(7) Many of the same arguments used to gain voter support for Amendment 6 are being applied within the Branson context, namely that gaming can drive further economic development, it will be a boon to the tourist industry, the additional tax revenue will underwrite badly needed infrastructure improvement, and finally the widespread availability of gambling nearby is already siphoning off dollars that would otherwise be spent in Branson. This portion of the state has consistently been strongly opposed to gambling, and few public figures in the area have lent support to gambling, but the tide may be turning. "At first everybody was no, no, no," says one Branson resident, herself an opponent of gambling. "Now more people seem to be going yes, yes, yes" [13:6D].

Endnotes

1. Previously in July 1991, the Missouri legislature passed House Bill 149 approving riverboat gambling and placing a referendum on the November 1992 general ballot. Approximately 62 percent of those voting approved the riverboat referendum. Subsequently in April 1993, the Missouri General Assembly amended House Bill 149, and Governor Mel Carnahan signed it into law.

2. One boat, the Admiral, was located on the Mississippi River at the St. Louis riverfront. The other boat, Casino St. Charles, was based on the Missouri River at St. Charles, a municipality within the St. Louis suburban fringe.

3. The amendment failed with 526,811 voting "yes" and 528,072 voting "no." In 1992, approximately 1.4 million voters supported the gambling referendum, while 840,000 voted against it.

4. Some communities had rejected similar proposals; however, the Missouri vote was the first statewide rejection of a gambling referendum [9].

5. General state elections are held in November of even numbered years; the previous election in April, in which Amendment 3 had failed to muster passage, was a special election.

6. Missouri has an open-ended regulation procedure, allowing the Commission to license as many casinos as it deems best. This contrasts with Illinois, where its Gaming Board can license a maximum of ten casinos, which it has in fact done [5].

7. Branson located in the Ozark Mountains offers many theaters and live performers, mostly featuring country music. The area has cultivated its wholesome values as well as its folksy, even "hillbilly" charm. Its moderate prices and middle-class values have given it wide popular appeal, especially to older market segments.

References

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2. -----. "Maryland Heights Gambit." St. Louis Post-Dispatch, March 8, 1997, pp. 1 and 14-15.

3. Ganey, T. "Stakes Still High In Casino Gambling." St. Louis Post-Dispatch, April 10, 1994, p. 6B.

4. -----, and M. Schlinkmann. "G.O.P Tidal Wave: Hancock II Out; Slot Games In." St. Louis Post-Dispatch, November 9, 1994, pp. 1A and 6A.

5. Lhotka W.C. "Casino Numbers Game." St. Louis Post-Dispatch, June 16, 1996, pp. 1D and 4D.

6. Linsalata, P. "Going for the Jackpot." St. Louis Post-Dispatch, October 2, 1994, pp. 1E and 6E.

7. -----. "Pro-Gambling last Proves To Be Error." St. Louis Post-Dispatch, October 25, 1994, pp. 1A and 5A.

8. -----. "Casinos, Slots Gain A Reel Deal." St. Louis Post-Dispatch, November 9, 1994, pp. 1A-7A.

9. Mannies, J. and J. Holleman. "Gambling Goes Bust: Amendment 3 Loses." St. Louis Post-Dispatch, April 6, 1994, p. 1A and 14A.

10. McClellan, B. "Roofing Against Both Sides in Gambling Issue." St. Louis Post-Dispatch, February 4, 1994, p. 1B.

11. Orwall, B. "Casino Companies Find States Less Willing to Play." Wall Street Journal, November 28, 1995, pp. B1 and B12.

12. -----. "Gambling Industry Hopes to Hit Jackpot Through Consolidation." Wall Street Journal, June 10,1996, pp. A1 and A10.

13. Rinaldi, R.M. "Few Support Gambling For Branson." St. Louis Post-Dispatch, September 17, 1996, pp. 1D and 5D-6D.

14. Shapiro, J.P. "America's Gambling Fever." U.S. News and World Report, January 15, 1996, pp. 53-61.