An Industry Divided Against Itself

A Look at the Gaming Civil War

By Jon Ralston

 

The analogy almost has become hackneyed from overuse in casino circles: If American Gaming Association (AGA) President Frank Fahrenkopf could emulate the performance of Motion Picture Association of America face man Jack Valenti, the industry’s Capitol Hill success would be assured.

But Fahrenkopf has a problem no Hollywood scriptwriter could envision: a series of Wild West shootouts involving ego-driven gunslingers spraying rhetorical bullets and endangering politicians and anyone else caught in the crossfire and which threatens to shoot the industry in its foot.

As the business enters an unprecedented era of very public, very high-level confrontations involving casino chieftains, the impact on local and national politics seems destined to be far-reaching. And while opinions vary on whether this Balkanization is ephemeral or even damaging to the industry, it is clear that prodigious changes are occurring. The face of gaming, which once bore an LCN scar and then submitted to a corporate makeover, is undergoing another round of plastic surgery — without the benefit of anesthesia.

Let’s look at the gaming industry’s painful paroxysms, their potential political impact and what they could portend. (On page 10, there is a chart examining which companies wield the most influence at the most governmental levels.)

For an emblem of what’s occurring in gaming, look no further than the activities of the two newest industry forces, ITT Chairman Rand Araskog and Hilton chief Steve Bollenbach. Both are non-Nevadans who know little or nothing about gaming and perhaps even less about how to deal with the local political structure. Both are involved in vitriolic, public battles with the industry’s preeminent player, Mirage Resorts’ Steve Wynn.

And both are engaged in what could become a benchmark conflict, the potential dawn of the final consolidation age as Bollenbach’s company is trying to swallow Araskog’s corporation.

Most observers agree that what is happening here is a combination of unbridled egos, ever-intensifying competition and an utter lack of intracompany comity. The days of "the guys" getting together to talk about the business or to socialize are over. The days of wine and roses have become the days of whine and grosses.

"Egos have gotten way out of line," said one industry insider. "We are now believing we are the entertainment industry and we’ve taken on the persona of all the gigantic egos in Hollywood."

The unkind cuts, or perceived slights, have catalyzed public exchanges of venom. To wit:

Responding to what he saw as the Clark County Commission’s caving in to pressure from Wynn on the issue of air rights behind Caesars Palace (an ITT property), Araskog wrote a lengthy letter to commissioners accusing Wynn of a "naked power grab."

The night after Bollenbach supped with Wynn at an intimate gathering, Arthur Goldberg, who runs Bally’s, a Hilton subsidiary, issued a missive expressing sympatico with Araskog in his dispute with Wynn.

After Goldberg tried to take advantage of Mirage’s problems in Atlantic City, Wynn unleashed a brutal string of invective at Goldberg in the New Jersey press.

Wynn sees what he calls these "interpersonal abrasions" as blips that will not do lasting damage, although he believes they may continue for another five or six months. But others are not so sure.

"If anyone thinks these guys are going to work together collegially, it’s just not going to happen," said one veteran gamer. "Steve and Arthur and Rand are not going to just sit down in six months and say let’s figure out a strategy to deal with this and this and this ... It feeds into the notion, however unfairly, that we’re just a backwater bunch of guys."

But there is more to this than just machismo run amok. Consider a couple of factors:

The raised bar: Since Wynn revolutionized the industry by opening The Mirage in 1989, the marketplace has begun to change and the entry fee has dramatically increased. "There was a time when all you had to have is a buffet and a cheap shrimp cocktail," said one insider. "Now you can’t get into the market for less than half a billion dollars."

What’s more, in the era of the destination resort, gaming revenues have become not nearly so dominant as they once were, with people spending less time gambling and more time shopping, eating and riding rollercoasters.

These companies are also doing more than just vying for customers. They are, as one insider pointed out, competing for licenses in other jurisdictions. "That is very competitive," he said. "And that competition tends to spill back into Nevada."

The outsiders: Shortly after Bollenbach took over, he gave a speech at the Flamingo Hilton in which, as one audience member recalled, he essentially said:

"I don’t know anything about gambling. But I’ll make sure it succeeds. I know hotels, I know finance and I’ll grow this company for the shareholders."

Indeed, as one industry watcher put it, "Bollenbach comes out of another world, the Marriott and Disney world. He is a high-powered aggressive businessman."

Bollenbach is a dealmaker, as is Araskog, another out-of-towner who doesn’t know the gaming business and who many believe paid too much ($ 1.7 billion) for Caesars World, not executing the due diligence to recognize how much money he had to plow into the company.

"You have these wildly disparate people like these ITT guys who bear no relation to anybody in the industry," said one political observer. Neither Bollenbach nor Araskog has Las Vegas roots, and therefore no inherent loyalty and perhaps no compunction about branching out to other jurisdictions, perhaps even California.

And neither company appears to have a clue on how to deal with the local political elite. "And when they do, they do it poorly," said one elected official. "One of the reasons Steve [Wynn] has more impact is because Steve does it one on one. He calls you and yells at you. That has impact. We don’t even know who the corporate people are at Hilton and ITT."

A perfect example is ITT’s handling of the air rights controversy. Even though most in the industry see ITT as the aggrieved party, Araskog’s decision to write a letter to the commission was seen as a mistake.

"Who is giving him advice to attack the commissioners?" asked one gaming executive. "You don’t do that publicly to elected officials. Then, if they back down, they will be accused of doing it under pressure."

The ramifications of this escalating warfare could come at both the local and federal levels.

In Las Vegas, as one pol pointed out, anybody who deals with the industry will have to be more wary. "I think there is the risk for people who have legitimate dealings with the industry, be they political, business or labor," he said.

"You run the risk of getting caught in issues that have nothing to do with these rivalries and conflicts." And the fact is there are very few elected officials who have, as one source put it, "the will or the capacity to stand up to these guys." Thus you have a prescription or paralysis, as in the air rights imbroglio.

But the impact at the federal level may be even more dramatic. In the past, as one gamer put it, "people usually got their act together when there was pending federal legislation, or on Indian gaming or a tax issue.’

Indeed, the Clinton administration’s excise tax cloud a few years back resulted in a silver lining for the industry: The formation of the AGA.

But this internecine warfare, many believe, may be manna from Hades for Congressman Frank Wolf, Reverend Tom Grey and Ralph Reed. For instance, consider the recent report that ITT has hired a firm to unearth dirt on Hilton. "What we are essentially saying to the Christian Coalition is you guys haven’t been able to get anything on us, so we’ll get stuff on each other and give it to you," said one insider. Added another: "That kind of stuff will get right to (commission member and anti-gaming zealot) Jim Dobson and Tom Grey. There will be innuendo and all kinds of allegations. I’m very concerned about the long-lasting effects of an ego-driven personality war at very senior levels."

The overall problem is that there is so much focus now on Las Vegas for a variety of reasons that almost anything is magnified.

"If you have a rollercoaster anywhere else that breaks down, it’s paid no attention," said one observer. "But if it’s on the Strip, you have international clips."

So far, at least all of this sturm und drang on the home front has been ignored by the national media and gaming’s congressional foes. But remember that Congress is just getting rolling, and Wolf and Company are almost certain to amass some clips when they return.

The AGA structure, set up to make the industry less reactive, may suddenly become shaky. Wynn and a few others may be optimistic that the industry has a wonderful story to tell and will be inoculated from congressional viruses despite an enduring image problem. Perhaps the commission will only focus on problem gambling, and increased oversight or taxation will not materialize. But that may be wishful thinking.

The future remains uncertain. What if Hilton is successful in devouring ITT? Will it take long for copycats to engage? And what of the other simmering brouhahas, from a Strip divided over monorails and companies warring over frontage roads and slivers of land for expansions, to conflicts over whether to be union or not? Some cynics believe that the gamers are much like the dinosaurs. "Our brains haven’t gotten bigger, just our bodies," was one wag’s description.

Others, though, say the industry will continue to make, as one observer characterized it, "a monolithic presentation in Washington. They are like sheep. They may be scattered around the field. But when the wolf comes (I assume no pun intended), they band together."

For an indicator of whether that will happen, mark July 31 on your calendar. That’s the date of the next AGA board meeting which will take place in Las Vegas. By the end of that gathering, Fahrenkopf will know whether he has a chance to be the next Jack Valenti or whether he will be presiding over a scene that John Ford or Howard Hawks could not have scripted even for Hollywood Westerns.

 

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