Los Angeles Business Journal: Win or lose, Casinos, racetracks keep up fight for slots

Even if the two gambling measures on next month's ballot go down to defeat as projected, don't expect card club and racetrack owners to fade quietly into the sunset.

Card and horse racing interests plan a legal and legislative assault to win the right to bring lucrative slot machines to their premises in Los Angeles and other urban areas. They might even try another initiative.

"We're not going to go away on this issue." said Jack McDaniel, president of Santa Anita Park, which operates Santa Anita racetrack. "We may not have done the best job of explaining to the public what our values are. But we'll be back again and again until we succeed in getting what we deserve."

What racetrack and card club owners want is a slice of the $5 billion-plus casino-style gaming industry that has exploded in California since voters first gave Indian tribes the fight to operate slot machines back in 1998. At its current pace, California will overtake Nevada as the nation's largest casino gambling market in five years.

Already, a coalition of racetrack owners has sued Gov. Arnold Schwarzenegger in an effort to overturn compacts his administration signed with five Indian tribes, giving them unlimited slot machines and monopoly rights within their immediate areas in exchange for sharing revenues with the state. Should the court case fail, the coalition may try to put the compacts to a vote of the people in the form of a referendum.

If the compacts are overturned, this coalition would seek a place at the negotiating table to work out a new deal that allows them to operate slot machines.

Under Proposition 68, 11 card clubs and five racetracks would be granted the right to operate 30,000 slot machines unless all Indian tribes that operate casinos turn over 25 percent of their gaming revenues to the state. Five of the card clubs are in the L.A. area, as are three of the racetracks: Hollywood Park, Santa Anita and Los Alamitos.

Proposition 70, placed on the ballot and mostly funded by the Agua Caliente Band of Cahuilla Indians in Palm Springs, would require the state to sign a 99-year compact with all Indian tribes allowing unlimited numbers of slot machines in exchange for the tribes' turning over 9 percent (the corporate tax rate) of all gaming revenues to the state.

Losing ground

Initially, the two measures polled near the 50 percent mark. But two polls that came out over the summer--one from the Field Research Corp. and the other from the Los Angeles Times--showed a dramatic drop in support for both measures, to between 30 percent and 33 percent.

And that was before Schwarzenegger launched his campaign to defeat the two measures last week. The governor opposes both initiatives on grounds they will threaten the agreements he has reached with 10 Indian tribes to turn over varying amounts of casino revenues to the state.

Even proponents concede the odds are long to win passage. Nonetheless, they are pressing forward. Cash is not a problem: supporters of Prop. 68 have raised at least $26 million to date, while two Indian tribes have pumped in more than $21 million to Prop. 70, according to filings compiled by ElectionTrack, an online service that compiles election contribution data.

"We are going to have to redouble our efforts to educate voters," said Shelly Sullivan, spokeswoman for Californians for a Fair Share, the Yes on 68 campaign. She noted that the ballot summary lacks any mention of the fact that Indian tribes would have to turn over 25 percent of their revenues to the state if they wanted to prevent the spread of slot machines to card clubs and racetracks.

The measures' poor showing is being attributed to several factors, chief among them a growing public backlash against the spread of casino-style gambling in the state.

When they initially approved Indian casinos, voters were swayed by the argument that Indians needed gambling revenues to help lift them out of poverty. But since then, Indian tribes have become the single most powerful force in Sacramento, contributing tens of millions of dollars to legislators and gubernatorial candidates. In his campaign during last year's recall election, Schwarzenegger singled out Indian tribes as an example of special interest influence in Sacramento that he would seek to stamp out.

Also, as the threat of casinos in urban areas looms, voters are wary of possible spillover of crime and other social problems.

"As long as the casinos are 'way out there' on distant Indian reservations, that's not really an issue," said Nelson Rose, a professor at Whittier Law School in Costa Mesa who has served as a consultant to both Indian tribes and card clubs.

Diversification

While it pursues broader gaming rights, the horse racing industry is looking to diversify.

At Santa Anita, owner Magna Entertainment Corp. wants to develop a major retail and entertainment complex next to the struggling racetrack.

Meanwhile, Pinnacle Entertainment Inc., the new owners of Hollywood Park, has sold off portions of the parcel to developers of retail and residential projects. Wal-Mart Stores Inc., proposed building a Supercenter store on one of the parcels, but the plan was rejected by Inglewood voters in June.

Card club owners have smaller parcels to work with.

"We're in a low-margin business that's labor intensive," said Andy Schneiderman, vice president of the Commerce Casino. "That's why the (slot) machines are so much more profitable."

Should voters reject Proposition 68, Schneiderman said, the card clubs' next move would be to seek legislative relief. Card club and racetrack owners are also drawing up plans to seek the right to operate slot machines and other currently outlawed games such as 21 (blackjack). (Many card clubs now use a variation, known as 22.) "That would give us a real shot in the arm," Schneiderman said.

And they say they may be back again for another initiative similar to Proposition 68.

Meantime, they are also eyeing possible deals with casinos and even Indian tribes to open casinos in urban areas. Two such deals are pending approval from Gov. Arnold Schwarzenegger for urban casinos in the Bay Area, including one in which Congress--in a little-noticed rider to a bill--granted the Lytton Band of Pomp Indians the right to purchase a card club in San Pablo on land it previously did not own.

Getting new legislation passed will be no easy matter, especially given Schwarzenegger's publicly stated policy of "limiting casinos" in the state, and the clubs' lawsuit against the governor.

"The more critical they are of the governor, the less likely they are to be able to come to any sort of agreement after the election," said Dan Schnur, an advisor to the "No on 68" campaign. "Filing a lawsuit is not exactly endearing themselves to him."