LAS VEGAS (AP) — When Springfield, Mass. needed to choose
who would build its first casino, the city hired an outside adviser to
help with the process.
The consulting firm Shefsky & Froelich
recommended that the deal go to MGM Resorts International. At the same
time, the consulting firm was also working as a registered lobbyist in
Illinois for MGM Resorts.
The arrangement highlights an
often-overlooked trend as more cities and states embrace legalized
gambling around the country: Private companies are being hired to write
regulations and vet casinos, even as the same firms work the other side
of the fence, helping casinos enter new markets and sometimes lobbying
for their interests.
States hoping to make money quickly from
legalizing gambling have few options as speedy as outside contractors,
which allow them to get casinos up and running without having to hire
and train a cadre of staff regulators.
But letting consulting
companies with deep ties to the gambling industry decide how casinos are
run — and who runs them — is a significant departure from how more
established gambling states, including Nevada and New Jersey, do things.
Regulators in states that maintain control over their own rules say the move toward privatization is
unnerving.
"How
do you vet your consultants? If a lot of these consultants at one time
or another have worked for the people that you’re in charge of
regulating, at some point, you’re going to have issues with the purity
of the investigation," said Illinois Gaming Board spokesman Gene O’Shea.
At
least 16 states now rely on private companies for major portions of
casino oversight, according to interviews with regulators around the
country.
The companies advise states about whether to legalize
casino gambling, and then draft gambling rules, set up oversight
commissions and implement regulations, deciding which casinos and
executives are suitable for licensing. The companies sometimes hire
lobbyists to get to know lawmakers before gambling is even legalized.
One
of the largest of this new breed of consulting companies is Spectrum
Gaming, which started in a New Jersey basement in 1996, and has twice
been named among the fastest-growing private companies in the U.S. by
Inc. magazine.
Spectrum got the call in summer 2007 when West
Virginia was writing regulations for table games and in 2010 when the
New Hampshire Legislature was considering legalizing gambling. It
recently completed a study for Florida, which is considering expanding
legalized gambling, and continues to vet casino workers for Ohio and
Massachusetts.
At the same time, Spectrum has worked with casino
companies including Caesars Entertainment, Las Vegas Sands, Wynn Resorts
and Pinnacle Entertainment, and many Indian-run gambling operations.
Managing director Michael Pollock says his company would never work for competing interests
simultaneously.
"You
cannot be in this business if you’re willing to entertain conflicts of
interest or even an appearance of a conflict," he said.
State
officials tend to rely on consultants to self-police, and ethics codes
address only simultaneous conflicts. So while Massachusetts wouldn’t
want Spectrum working for Wynn while also vetting the company for a
license, the state doesn’t mind that Spectrum worked for Wynn in 2011.
This
kind of coziness is common. For example, Ohio hired Spectrum and the
consultant Moelis & Co. in 2009 to help establish gambling
regulations and determine which casinos would be licensed. The companies
turned in reports on the state’s two casino operators, Penn National
and Rock Ohio Caesars, even though Spectrum has worked for Caesars in
the past, and Moelis & Co. has worked for Penn National Gaming.
MGM CEO Jim Murren says these issues come down to the clubby nature of the mainstream gambling world.
"This
is not a huge industry, and gaming law is highly specialized," he said.
"There are only maybe four or five firms that are experts in gaming
law, and we know them all, and we’ve probably used them all."
But MGM has also been on the other side of the issue.
The
company complained when it emerged in 2008 that New Jersey regulators
had been freelancing for Spectrum. MGM denounced the arrangement after
New Jersey regulators issued a blistering report questioning the
suitability of MGM’s new business partner in China.
Five years
earlier, Spectrum had written a study for MGM competitor Las Vegas Sands
raising questions about the partnership. The study was circulated
anonymously, apparently to damage MGM.
Pollock says Spectrum would
never take on a client who expected a pre-determined result, whether it
was Las Vegas Sands or a struggling state government.
"We make it
clear from the outset that we are not necessarily going to tell you
what you want to hear, we’re going to tell you what you need to know.
And we will not entertain an engagement in which a client seeks a
particular outcome," he said.
Casino opponents are skeptical. John
Sowinski, spokesman for the Florida nonprofit No Casinos, says that
Spectrum often paints an overly rosy picture of the boon casinos might
provide, overshooting tax revenue estimates in studies conducted for
Ohio, and calling New Jersey’s Revel project "just the tonic that
Atlantic City needs." (The state-subsidized casino filed for bankruptcy
10 months after opening.)
Sowinski believes states in need of consultants should hire experts and firms with no connection to the
casino industry
"The gambling industry is the one industry that seems to get away with this conflict of interest
carte blanche," he said.
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Hannah Dreier can be reached at http://twitter.com/hannahdreier.
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