The Sands of (Our) Time: Casinos, Regulations & Elections

 

Cambridge, Mass.: Mt. Auburn Cemetery, Nathaniel Bowditch, Pioneering Ocean Navigator, Actuary and Investment Advisor 5/7/10

          Of the business visionaries of the 20th century, none was greater than Meyer Lansky (1902-83).  Crime writer and poker expert, James McManus, described him a decade ago in the New York Times Book Review:

…Meyer Lansky, whose working assumption was that Wall Street firms, banks, industrial giants, labor unions and political parties were ”de facto gangs” from which he should learn; the term ”Lansky operation” soon came to define a blending of criminal with legitimate business practices. He bankrolled Bugsy Siegel’s vision of Las Vegas, seeing the Mojave Desert as a critical asset. Once tourists ate and drank all they could, only two choices remained: sex and gambling.[1]

           Driving into Foxwoods and Mohegan Sun, two adjacent tribal casino resorts in Connecticut, I was struck by their remoteness and the absence of nearby enterprises. Mohegan Sun’s lack of outdoor recreation or even a place to take a walk only makes sense in this context.

           For many social investors of my stripe, the vice of gambling troubles them much less than the ‘Lansky operation’ that seems to characterise the private (as opposed to state-run) gaming industry.

          A Reuters report by Joseph Menn, ‘Nevada struggles with dark side of Macau casinos’ growth’ (Oct. 24, 2012) reveals the persistence of the model 30 years after Lansky’s death.  It also shows new twists (with old results) that globalisation has brought on.

           Most importantly, however, the new developments raise the question of whether any American state can effectively regulate private gaming today.  Put differently, is the main argument underpinning vice legalisation valid, that state regulation can check the role of organised crime.

           The answer today seems, ‘clearly not.’  But the reasons that answer is clear aren’t intuitively for an American.  (Menn does not help matters by burying key definitions deep in a long article.)

          Junket operators based in China have signaled the problem.  They are, says Menn, ‘middlemen that organize trips to the casinos, largely from Hong Kong and the Chinese mainland.’  He does not suggest what role the Chinese government might play in licensing or regulating them.

           ‘Collectively,’ Menn reports, junket operators are ‘responsible for some 70 percent of the Macau gambling trade.’

           Evan Osnos reported in The New Yorker earlier this year, ‘In 2010, high rollers in Macau wagered about six hundred billion dollars, roughly the amount of cash withdrawn from all the A.T.M.s in America in a year.’[2]

           Menn had earlier noted, ‘Macau is on track to produce $62 billion in gambling revenue overall by 2015, according to PricewaterhouseCoopers, while Nevada’s contribution will remain flat at $13 billion.’  Seventy percent of $62 billion gives junket operators real power.

           Aspects of the junket operators’ business model seem to echo a ‘Lansky operation’.  Says Menn:

Mainland residents legally can move only $50,000 per year out of China, but the junkets advance credit well above that level to their clients. They also collect payments due within China’s old borders, where casinos can’t advertise or use the legal system to recover debts.

The U.S. State Department has repeatedly identified Macau as a jurisdiction of “primary concern” for money-laundering, largely because of the junkets.

           The reasons for concern include the connections of the junket operators to Chinese OC, the triads.  The only publicly traded junket operator, Neptune Group Ltd., for instance, was financed in part by ‘an alleged triad leader’.

           Junket operators have been operating in Las Vegas for a decade or so.  They have proven very difficult to regulate by the Nevada Gaming Control Board, long thought the leader in the field.  As Menn reports, a loophole affords them shelter.  When the Board questions an application, it is withdrawn ‘virtually every time’.  And the Board has no investigative staffers in Asia.

           Leading casino operators – MGM Grand, Las Vegas Sands and Wynn Resorts – have followed the money to Macau.  Hence the connections to junkets.  And, hence the dilemma for American casino regulators.

Macau now provides more profit to Sands and Wynn than Las Vegas does; if forced to choose between Nevada and Asia, they might well decide to leave Nevada behind, as MGM chose to abandon Atlantic City. It did that rather than fight New Jersey investigators’ findings that its joint venture partner, Macau businesswoman Pansy Ho, had unsuitable links to triads. Nevada approved the venture after ruling that MGM had ultimate control of it.

           That the US marketplace is worth fighting for, Las Vegas Sands CEO Sheldon Adelson has proven.  He and his wife have given $47 million to Republican candidates this year, $10 million just the other day to Mitt Romney.

           As so often this year with issues like Romney’s off-shore and unaccounted investments, I wonder, ‘Where’s the outrage?’

           Perhaps James McManus had the answer ten years ago:

Degrees of separation between gangsters and friends of gangsters, between homicidal goons and corporate hustlers, are some how less meaningful now that gambling stocks owned by Harvard University and the California State Employees Pension Fund are part of what the authors [Sally Denton & Roger Morris] call a “grand alliance of upperworld and underworld.”[3]

          It does not seem likely that regulating private casino gambling will succeed in doing anything except facilitating this grand alliance – conquest.  Yet no one is considering the alternatives.  Certainly not Nevada.  As Joseph Menn reports:

The [Gaming Commission] rules warn against conduct or associations “which might reflect on the repute of the State of Nevada and act as a detriment to the development of the industry.” The policing is designed not mainly to help consumers or investors but to help the industry itself.

“Nevada’s approach has really been very business-friendly,” said Patrick Wynn, who retired in 2010 after 19 years at the Control Board, finishing as deputy chief of investigations. “They’ve always looked toward what can it do for the state, what can it do for the economy.”

           ‘When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.’[4]  So wrote John Maynard Keynes in 1936 about the American stock market.

He may have been prophetic literally as well as metaphorically.

  Notes

           1.  James McManus, “Profiles In Corruption,” New York Times Book Review, April 15, 2001, p. 10. McManus is reviewing Sally Denton & Roger Morris, The Money and The Power (New York: Alfred A. Knopf, 2001). http://www.nytimes.com/2001/04/15/books/profiles-in-corruption.html?pagewanted=all&src=pm

2.  Evan Osnos, “The God of Gamblers” New Yorker, April 9, 2012, pp. 46, 49.

3.  McManus, op. cit.

4.  John Maynard Keynes, The General Theory of Employment, Interest and Money (photo. reprint 1997) (New York: Harcourt, Brace & World, 1936), p. 159.  To be clear, Keynes was not writing about the gaming industry then or now.

 

2 Comments

  1. Jim Rowley said:

    I also question the lack of outrage but had a bit of epiphany yesterday. During a briefing about emergency preparedness, PA. Goveror Tom Corbett, quite early i his remarks, spoke about the importance of protecting the refineries. I agree we should do our best to protect them from such a disaster but the telling point was it was the only time he went off script, clearly in his wheelhouse and not painfully working through a script.

    From that it was a short leap to understanding the economic determinism that seizes the electorate. Ask Romney any question, the answer is job creation. What should we do about global warming…create jobs; domestic abuse, “those boys just need some work”.

    The slick part is that jobs might reduce domestic violence on any given day but a nuanced, thoughtful response to a complex problem is never forthcoming. We become numb and turn on the NFL. Oh well, time for the 2nd halk kickoff.

    Jim Rowley

    October 29, 2012
    Reply
    • Peter Kinder said:

      Thanks, Jim.

      George Orwell would get the importance of the NFL/MLB and legalised gambling of all sorts. They’re what keep the proles passive. Add in 200 channels on the tele, and you’ve got a trifecta for social control.

      Where’s the clicker … my symbol of masculinity.

      But, jobs — not nattering about them, creating them — is what Obama in a painfully inadequate way tried to do. It’s all about jobs, the multiplier effect. You’d think that much we’d learnt from the Depression, from Keynes, from the good economic times of the 50s.

      October 30, 2012
      Reply

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