Someone who has been around gaming as long or longer than I have will always get my respect. I learned a lot from I. Nelson Rose over the years, but I always remember a piece that he wrote about how cyclical gaming is, called the “Third Wave of Gambling.”
Rose, a scholar and legal expert, looked at the history of gambling over the past 200 years or so and discovered that its acceptance rose and fell in direct relation to scandals that have blemished the activity over the years. His implication, because the cycle has thus far remained unbroken (and we are still in the third “expansion” phase), is that a time will come when gambling will once again be reviled because a major scandal has tainted the activity.
Since Rose’s postulation is now more than 20 years old, I was beginning to doubt that it would ever happen again. After all, gaming in the U.S. and most other developed countries has become almost universally accepted. Strict regulations in most jurisdictions have kept criminal elements out of the industry. So maybe this theory was just that.
But then New Jersey started sniffing around the MGM Mirage-Pansy Ho deal in Macau as it considered whether it was acceptable under state gaming regulations. Without recapping the entire episode, MGM surrendered its New Jersey license rather than giving up its Macau partnership with Pansy Ho. A report from the Division of Gaming Enforcement indicated that they objected to Pansy’s close business ties with her father, Stanley Ho, who, said the report, was and is intricately linked to Chinese organized crime.
That event was later followed by a “special report” issued by the Reuters news agency linking a Macau VIP operator with a murder-for-hire trial in Hong Kong that involved some criminal activity in a Macau casino. The report suggested that this kind of activity was just the tip of the iceberg on Macau and organized crime.
Now, both the New Jersey report and the Reuters story have weaknesses, procedural errors and holes as big as Mack trucks, but they bring up concerns about the Macau regulations that could blow up in the face of everyone involved in Macau and the industry as a whole. There is clearly an organized crime element involved in the VIP operations in Macau (or “colorful” characters, as one poster described them on the GGB online blog). Companies knew that going in, but expected that over time, like in Nevada, there would be procedures put in place that would eventually eliminate any criminal elements.
And that still may happen. Macau regulators say they license VIP operators for just one year to make sure there is an ongoing review of the companies involved in this area. But clearly, there is some issue here. When Singapore announced that it would require all VIP operators to submit to complete licensing investigations, few if any of the Macau operators said they would participate in this huge new market. What do they have to hide? And what is it that Macau regulators are willing to overlook in their licensing efforts?
We know that there is not always fire where there is smoke, but in this case, the smoke keeps getting thicker and it begins to obscure the truth. Nevada gaming regulators say they can’t impose Nevada standards on Macau regulators, which is true. But they can impose Nevada standards on companies with licenses in Nevada to behave in the manner those companies are expected to behave in Nevada. New Jersey has clearly held MGM Mirage to those standards and the company came up short, at least according to the state’s somewhat questionable report.
At any rate, this seems to be “the way things are done” in Macau, and there is so much money being made under these procedures that it is unlikely anything will change anytime soon. U.S. companies need to realize, however, that there are more than just gaming regulations at issue here. I’m sure this issue is keeping the compliance departments of the major companies involved in Macau busy, but it’s hurting some U.S. jurisdictions. New Jersey has lost the participation of MGM Mirage, the second-largest gaming company in the U.S. Other states are now re-examining their approval of the Ho deal with MGM and may also be forced to drop the company.
So while I was once confident that a scandal could never occur that would be big enough to cause re-criminalization of gambling and ending the “third wave” of legalized gambling, I am no longer quite so sure. All I can say is, let’s be careful out there!