Chapter 8 HISTORICAL DEVELOPMENT REFLECTS THE CHANGING COMPETITIVE ENVIRONMENT

1. Chapter 8HISTORICAL DEVELOPMENT REFLECTS THE CHANGING COMPETITIVE ENVIRONMENT Robert McMullin East Stroudsburg University

2. Introduction • Since colonial times, government has either banned or taxed gambling revenues. • To cross the Atlantic Ocean, the Puritans must have been risk takers. • Several cycles of gambling proliferated; social problems forced a government ban. • As each jurisdiction or tribe opens another casino, the industry grows.

3. Early Settlers and History • The East Coast • Every civilization developed gambling devices such as cards and dice. • To obtain money for the Mayflower’s voyage, the Puritans created a lottery. • Organizers stole a great deal of the money. • Laws were written to forbid gambling because of presumed addictive, sinful nature. • Continental Congress used lotteries to finance the American Revolution. • Eventually, the Colonies started taxing people, ending the need for lotteries until current times.

4. The Mississippi River • Louisiana Purchase (1803) expanded America and gambling. • In 1806, Louisiana prohibited gambling, except in New Orleans. • New Orleans is first gambling mecca; licensed and taxed casinos, donated benefits to charity. • By 1830s,1000 to 1500 professional gamblers worked the steamboats. • Other forms of transportation created competitive environment.

5. The West Cost • During 1840s Gold Rush, gambling made its way from New Orleans (main port of embarkation) to San Francisco: • Many gold miners were gamblers by nature with appetite for high risks with big rewards. • Gold mining stimulated gambling because it encouraged people’s trust in luck and speculation. • Competition was high in San Francisco, since there were hundreds of gambling saloons in town.

6. Gambling and Government • Government continued to ban gambling: • States believed the growth of the professional gambler negatively impacted society. • In 1814, Missouri Territorial Legislature passed first law against gambling. • By 1862, lotteries were banned in all states except Kentucky and Missouri. • In the latter part of the Nineteenth Century, the federal government outlawed lotteries. • Baseball and the Mob • Organized crime developed an interest in gambling. • 1919 World Series fixed by New York gambler Arnold Rothstein – darkest moment in history of baseball.

7. The Development of Las Vegas • Gambling legalized in 1869; outlawed in 1910. • “Wide Open Gambling Bill” legalized gambling again in 1931. • Siegel opened Flamingo in 1946 • One of first modern hotel casinos • Included elegant restaurants, nightclubs, and entertainment • Nevada Legislature passed a gaming revenue tax in 1945 • Also given power to investigate backgrounds of individuals seeking licenses

8. In April 1967, Howard Hughes purchased Desert Inn from a Cleveland mobster. • Within a year, Hughes spent $65 million, acquired four of the top fifteen hotels on Las Vegas strip. • Hughes was a successful businessman; helped legitimize the industry and took it to an era of corporate business. • Corporate Gaming Act passed in 1969. • Legitimized gaming to corporate America. • 1972, Harrah’s was the first solely gaming corporation placed on the NY Stock Exchange.

9. The Ocean, Emotion, and Promotion • Early 1900s – Atlantic City was major destination, luring visitors to the ocean, beach, & boardwalk. • Draw of illegal gambling, drinking, and late night entertainment perpetuating the excitement. • By 1913, police raids confiscated and destroyed gambling devices worth tens of thousands. • Air travel in the 50s and 60s lead public to further destinations; Atlantic City experienced decline in tourism dollars and a physical deterioration. • Regarded as the “Slum by the Sea.” • November 1976 – New Jersey voters approved gaming for Atlantic City.

10. Native Americans Get Their Chance • Within boundaries of tribal reservations: • Federal law upholds tribes having powers of self-government over their lands. • State has little/no say inside reservations. • Congress only has “plenary power” to place limits on Native American tribes’ sovereign rights. • Indian Gaming Regulatory Act (IGRA) of 1988 • Provided regulatory framework for Indian gaming • Consists of three classes of gaming: -Class I: traditional tribal games -Class II: bingo; regulated by tribe and federal Indian Gaming Commission -Class III: casino gaming; IGRA requires compact between tribe and the state government

11. Financial impact of Native American gaming: • In 1988, tribal gaming earned $288 million. • By 2003, earnings were $16.2 billion. • That’s a growth rate of about 5500%. • Tribal casinos employ over 400,000. • Roughly 75% held by non–Native Americans. • Some problems faced by tribes: • No American banks would touch the ventures. - Foxwoods found a Malaysian investment group. • Many early management contracts had clauses that robbed tribes of much of the profits. • Tribes who divided profits among members had no specific definition of members; people claiming tribal bloodlines demanded their share.

12. The Return of “Maverick” • Riverboat gambling returned to its historic roots. • Concept was appealing; would lock gaming into small areas next to the Mississippi River • Iowa first to introduce riverboat casino, April 1991 – Riverboat casinos were unhappy with restrictions in Iowa – Politicians forgot that riverboat required to sail can easily move its home base • Riverboat jurisdictions expanded in early 90s. • In 1993, potential markets start voting against riverboats. • Competition increases; cities agree to improve infrastructure for better access. • The tax rates are the highest of any industry.

13. Mega Resorts and the Future of Gaming • Las Vegas created Mega Resorts as the newest casino attraction. • Goal: lure visitors to all-inclusive experience without venturing to competitive properties. • All-inclusive: dining, entertainment spas, shopping, casino all under one roof. • Steve Wynn’s Mirage opened in 1989; one of the first mega casinos.