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Nov. 2, 2015 - Joint Committee comes to town for horse racing and casino gambling as ways to fund the Hope Scholarship

By Lou Phelps, Savannah Business Journal

November 2, 2015 - The Joint House and Senate Study Committee tasked with studying methods of helping to fund and preserve the Hope Scholarship – including through allowing horse racing or casino gambling in Georgia – held an all-day hearing in Savannah on Monday to hear testimony from experts and the public. (See list of members at end of story.)

Receipts from the Georgia Lottery, the primary funding source for the Hope Scholarship program, have declined and are causing a funding crisis for the program. With other areas of the State’s budget competing for money, and with a Republican-controlled General Assembly that doesn’t want to raise taxes, Rep. Ron Stephens of Savannah has filed legislation to allow these new revenue streams.

According to Stephens, the Georgia Lottery revenues are only covering 70% of the needed funds for students that qualify for a scholarship to go to college in Georgia, and will fall into the 60’s percentile next year. 

Casino gambling or horse racing, or both, could be put under the control of the Lottery Commission and not even have to come before the voters. 

The meeting was held at Armstrong State University, with opening remarks by the Study Committee’s Co-Chairs, Rep. Matt Ramsey and Sen. Brandon Beach.

Those testifying included casino company owners and horse race track operators; experts on the rates to charge for casino licenses and tax incentives to provide; consultants on how to set up regulation and the financial oversight needed; a national university expert opposed to the expansion of casino gambling in the U.S. who recently testified before Congress; and a number of religious leaders opposed to either former of gambling being introduced into Georgia.

 Speakers providing testimony were:

  • James Gagliano - President and CEO of The Jockey Club

  • Mike Pollock – Managing Director of Spectrum Gaming Group

  • Professor John Kindt – Univ. of Illinois Professor/Author of academic studies on lotteries and casinos

  • Rep. Rusty Kidd 

  • Keith Smith - CEO of Boyd Gaming 

  • Jay Dorris – President and CEO of PCI Gaming 

  • Arthur Mothershed - VP of Business Development of Wind Creek Hospitality

  • Jim Allen - CEO of Hard Rock International

  • John Damico – Founding Partner of MDD Forensic Accountants 

  • Kevin Mullally – VP of Gov. Relations & General Counsel for Gaming Laboratories International

  • Kelly Duncan – Jones Walker

  • Mike Griffin - Georgia Baptist Convention

  • Tanya Ditty - Concerned Women of America 

  • Virginia Galloway - Faith and Freedom Coalition

  • Cyndy Hartman - Faith and Freedom Coalition & Conservative Women of NE Georgia

  • Rev. Tommy East - Bible Baptist Church in Savannah (Member of Citizen Impact)

  • Rev. Dale Montgomery - Savannah River Baptist Church-Port Wentworth (Member of Citizen Impact)                                              

Additional witnesses could have been added, such as by the public, but the local media did not receive a notice of the event and had not publicized the hearings in advance.    

Armstrong State University hosted a luncheon for the Committee members during the lunch break.

Horse Racing

Leading off was President and CEO of The Jockey Club, James L. Gagliano, testifying on how to introduce horse racing in Georgia. There are now 38 states that have horse racing. 

His background includes 10 years with the New Jersey Sports Authority which owns Monmouth Park and Meadowlands, and was then the GM of Greenwood Racings, Inc. at Philadelphia Park.  He has been president of The Jockey Club since 2010. 

He said that he “is uniquely qualified to give testimony on best practices” in running a race track, and reviewed some of the findings of a McKinsey consulting report on the state of the horse racing industry in the U.S., commissioned for owners. McKinsey came up with “simple but sound recommendations.  Horse racing had been on a decline of about 4% nationally a year, and they made some recommendations that are now bedrock in racing now,” he explained.

These included: fewer race days; innovative wagering platforms; integrated rewards (take better care of your best customers); new televised racing initiatives; simplified betting via free-to-play games; use of social games to promote simple wagering to a new class of betters; integrity and safety reforms including for the racers and the horses; ownership tools to recruit and bring in new owners to enter racing; and disseminating best practices among tracks for uniform practices across the U.S.  

“New fan development… we need to figure out how to reverse that. The Jockey Club began to invest in ‘America’s Best Racing,’ a wonderful opportunity to hook and engage a new fan,” he explained.  His company run a website that is updated every day with new stories to engage fans.  And, they have had success in getting a younger ran to their race tracks through these initiatives.   

His company now also runs the national Thoroughbred Owner Conference. “One did not exist,” he explained.  The next one will be Jan. 11 – 14, 2016 at Gulfstream Park in Hallandale Beach, FL. that he invited the legislators to attend.  

The Jockey Club also developed the Reformed Racing Medication Rules (NUMP) in 2011, which provides rules for medicating drugs used on horses, and improves regulatory oversight.  Each state runs its own drug testing lab, he explained, and is important to fund that properly. He also added that there should be uniform penalty guidelines across all states, which does not now exist. He suggested a ‘Coalition for Horse Racing Integrity, and put this group in charge of drug testing penalties and under United States Anti-Doping laws and regulation.  He said that Georgia legislators had an opportunity to be leaders nationally, and to introduce horse racing in a top-line fashion.

“In 2008, there were only about 7,000 foals; projected to be 22,000 in 2015, and 22,500 in 2016.  They believe it will stabilize at 25,000 per year, insuring enough horses to race as new tracks are built. “We’re confident we will have a very healthy industry,” 

However, a later speaker in the day, Professor John Kindt of the Univ. of Illinois noted, a number of tracks have filed bankruptcy recently, or are trying to improve their financial performance by adding slot machines, contradicting Gagliano’s enthusiasm.

The “handle,” money bet at tracks in 2014 was $10.6 billion. “The numbers are starting to come back up; we’re on the right path,” he said, due to a number of these efforts by the industry to broaden its fan base. .

On the company’s website, there are details on all states where there is horse racing.  

He concluded his remarks by recommending six best practices for Georgia:  1.)  Independence – a Chinese wall between those responsible for running the sport and those providing regulation;  2.) Proper funding for sustainability of regulation and testing of horses and track practices. “You have to commit to it, and stick to it”; 3.)  Uniformity across the states; 4.)  Transparency on “Who was tested and the results, with transparency”; 5.)  Participate in RMTC ROAP, and other national associations, and 6.)  Leadership “You’ve got the chance to set up a system that is not bound by past practices.  Georgia can become a leader in how the racing and breeding industry is set up in Georgia. “Horse racing is an American heritage sport and a worldwide sport,” he concluded.  

A legislator asked him if he thought Georgia’s population and demographics make a good place for racing?   “I think you have a wonderful opportunity here. There are owners that live in Georgia who are active in the sport.”

Casino Gambling Testimony

Next to testify was Mike Pollack, Managing Director of Spectrum Gaming Group, who began his career in the Atlantic City casino industry.  His firm is neither pro nor anti-gaming, they study gaming, he said.

He said that the report that Georgia did in 2011 about introducing casinos into Georgia is no longer relevant. “Those 2011 projections have passed their expiration date; they’re based on assumptions that are no longer relevant, and it only looked at video lottery terminals and did not include casino gambling.”

“You only have one opportunity to launch a gaming industry, and it requires lots of planning and care.” He added that “Once facilities are opened and operating, the state’s influence declines dramatically.” The State’s influence is before casinos open. “Georgia is in a particularly enviable position – you can look at a number of states to see what has been successful.”

He then outlined his recommendations on balancing the tax rate to charge casino owners – rates appear to vary from 25% to 50% depending on the State, versus setting the tax rate so that top companies are attracted to Georgia.  He also explained that Georgia should demand ancillary amusements and businesses in addition to the actual casino.

“An attractive rate – a lower tax tate – will more likely lead to more capital investment, but that Georgia should also “not leave money on the table… Impose the highest possible tax rate.”

He then reviewed the direct employment that Georgia would see.  Another speaker later said that he believed Georgia could create 24,000 jobs with an average annual salary of $43,000, “plus much higher levels for managers and executives.”

Rep. Stephens asked him about his recommendations on setting the tax rate to charge. (See video.) 

The nicer the entire casino complex is and better attractions, high end restaurants and shopping, the “ more likely to encourage Georgia residents to spend their discretionary money. More gaming revenue will be generated with a lower tax rate. And it will generate more economic activity for Georgia businesses supporting the casinos and ancillary businesses.”

“While lower rates are more attractive to investors, if an operator will be build (anyway) don’t leave tax revenue on the table.  Focus should be to give a lower tax rate to operators that have earned it, by bringing more creativity and maximum capital investment.  That’s the goal, to encourage the maximum amount of capital investment.”  

He encouraged a competitive bid process, and explained that by limiting the number of casinos, Georgia could charge as much as $500 million to $1 billion just for the license. Georgia should “require that a bidder clear a high hurdle,” even if the State only gets one bidder. 

“The proposed legislation that I read, also have has portions to protect and enhance the sale of existing lottery products,” which he said was a good thing.

“Atlanta is one of the most prized opportunities in North America, the largest most affluent market with excellent air and highway access,” and no current casino.  He added that Savannah is also very attractive with Charleston, Hilton Head and Jacksonville nearby, and 13 million annual tourists.

“You have to insure that the applicant will do that,” that will commit to ancillary development, “not just have a lower tax rate and assume that ancillary investment will come.  The applicant should be a participant in committing to that ancillary investment,” was the point of his remarks.   

Ohio has a 33% tax rate on horse racing, and a 33% to 35% tax rate on four stand alone casinos.  Pennsylvania has lower rates, and Massachusetts – which has just approved casinos – is charging as high as 48%.  He didn’t recommend that high rate, but it was,” but they put forward what they had to do for the legislative process.” 

The third expert to testify was Professor John Kent from the University of Illinois. He is the author of a variety of reports on casinos, and recently testified before the Congressional committee considering controlling the expansion of gambling in the U.S.  He urged the legislators to reject both casinos and horse racing in Georgia.

“We had these same hearings in the State of Illinois 25 years ago, one of the first states to approve casinos besides Las Vegas and Atlantic City. “Gambling is simply a failed policy, particularly casino policy.  Illinois has tried to contract; $35 billion and more is going out of the state to gambling insiders,” severly hurting the State’s financial position. 

“Illinois has no budget, $115 billion in unfunded liabilities, and has not paid any bills in nine months,” he said, and has been cutting pay for teachers.

He said that even back then, academics warned that the states that brought in casinos would eventually face enormous budget shortfalls.  “Look at the gambling research,” he said, and referred to studies by Mercer Law School, Emory Law School and other “multiple other research universities.”

He also said that during recent testimony in Congress, there were “unflattering statements” about the Georgia Lottery’s new machines that were recently approved, and the report the Commission produced called for a moratorium on any type of gambling in the United States. 

“Crime increases 10% a year around a casino as people lose their assets and resort to crime,” he testified. There is also an increase in mortgage failures, increase in new addicted gamblers, people spend 10% less on food, and 25% less on clothing and drained their local bank accounts. “Medical personnel today align gaming addiction to crack cocaine.”

Most importantly, he said that the research shows that for every $1.00 of State revenue there is a $3.00 increase in social costs to taxpayers.   And, he said that larger companies want to locate in ‘non-gaming’ states because they know that their employees will be less affected by gambling. 

“When downtown Chicago turned down having a casino, the companies went to Detroit. Well, Detroit is now bankrupt,” he pointed out. “Government and citizens cannot gamble their way to prosperity.” 

He also pointed out that if Georgia allows even one casino license, then any Indian tribe in Georgia can open as many casinos as they choose, under Federal law. 

How are you going to tax the tribes?   Oklahoma had none 15 years ago; now they have 100 on tribal land. “The public is very distressed about this,” he said.

But one of the legislators who questioned Prof. Kindt said that he understood that the State of Illinois’ economic budget problems were due to other issues. How did Kindt prove that they were due to casino gambling and horse racing, pointing out that Caterpillar came to Georgia from Illinois.

That is when Kindt explained that that example of corporations leaving Illinois made his point. They know that a certain percentage of employees are going to get hooked.”

But, the legislator responded that “The state of Illinois has been regulating people out of business for years; Illinois has been shooting itself in the foot for years,” he said.   

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