Speech to the National Conference of Gambling States
at Harrah's Hotel & Casino in Las Vegas
January 10, 2004.

By Les Bernal, Chief of Staff, Massachusetts Senator Sue Tucker
(Audience consisted mostly of pro-gambling legislators and gambling industry officials)

I'm here today because most of my experience lies in running political campaigns and I was recently part of a team that helped defeat a casino proposal in Massachusetts.

You all know the arguments for and against expanded gambling so it's not my intention to replay that debate. Rather, I want to present some political issues for you to consider about gambling expansion in your states.

What's great about being in a room like this is that all of us are either legislators or political people who all speak the same language.

As you know, there's a strong backlash developing to the massive expansion of gambling.

That can help explain why in a year where states suffered their worst fiscal crisis in over a decade, gambling expansion was defeated forty-two times in forty-five attempts.

And in the most high profile casino campaign in the country, the people of Maine soundly defeated a referendum with 65% of the vote, despite being outspent 2-to-1.

How do we explain the one-sided nature of most of these defeats?

To start, ask yourself, how many of your constituents call you and tell you they want more gambling, and don't include those who own a racetrack, work at a casino or lobby for the industry?

You're probably sitting there saying "I might not get many calls, but I do get calls from constituents saying they want more jobs in the district, they want more money for education, they want expanded prescription drug coverage and so on.

But here's where the political disconnect happens. Some legislators assumed that a pro-casino stance was the answer for what their constituents were looking for. But political results from across the country don't support this assumption and they show it can be a politically dangerous course of action.

In my state, the biggest advocate for casinos lost his representative seat in the last election cycle.

The votes tell us that once the public listens to the case against casinos and they understand the downside of the issue, most often a majority of citizens will oppose casinos being built in their communities.

Some political analysts argue the casino issue is generally only on voters' minds when it's put directly in front of them and I agree with them. But lately, it's been in front of them a lot.

The issue has become so high profile in many states, there are many pro-casino legislators who if they're in a swing district, are going to have a serious challenge attempting to gain votes with some very important constituencies and it could be the difference between winning and losing.

One of those key constituencies are the white collar suburbanites, the new workforce of postindustrial America, and they'll be a major battle ground in this year's election. A lot money is going to be spent on these people and they'll be turning out to vote.

Many of them might not be opposed to the concept of hopping on a plane to a destination-resort casino, like where we're sitting today but a solid majority have demonstrated opposition to bringing casinos into their communities.

Another important constituency in this year's campaign cycle will only be getting stronger in future elections. Nationally, the Republican Party has invested huge resources to register more religious conservatives to the voting rolls. How do you think that constituency, as it's working its way down the ballot, will react to a legislator's position on bringing more casino gambling into their community?

How should a legislator handle this politically explosive issue which, for now at least, appears to be getting even hotter?

I definitely have some advice about for what a legislator shouldn't do.

Nearly all of us in the political business have an insatiable hunger for press, especially good press.

But here's two press releases that you should not put your name to.

Representative Jones Calls for State to Promote Cigarette Smoking to Increase Cigarette Tax Revenues; New Money to Fund Health Programs

Would any legislator put their name on a release with a headline like that? But why not? People are still smoking in record numbers. They're driving over the state border to buy their cigarettes so why shouldn't we get a larger share of the revenues? Increased cigarette sales would mean more jobs and we really need the funding to support our health care needs.

The reality is you wouldn't go near this press release because it's absurd logic.

Yet we use the same kind of funny logic when we discuss expanding gambling to pay for state services. Even the most vocal casino supporters acknowledge there are serious costs associated with casinos whether it's higher social services costs, domestic violence, child abuse, suicide, homelessness and so on.

But as you well know, the response from the pro-casino side is always - "the benefits outweigh the costs."

To push the analogy further, let's say you could prove definitively that the potential benefits of increased cigarette tax revenues to the state outweighed the added health care costs that promoting cigarette sales would bring. Would you support the state promoting cigarettes? Why doesn't that same logic apply with casinos? Some of your constituents are going to want an answer.

Now I have one other press release I recommend you don't consider sending out to your district - but your opponent might do it for you.

Senator Wilson Votes to Raise Income Tax by 30% on Working Families and Seniors

Any takers?

Don't think we haven't heard it before. "Casino Gambling isn't a tax. It's voluntary." I agree with those who say it's not a tax because "officially", it's not.

But we all agree the state uses casino dollars as a source of government revenues.

And of all the ways government can raise money, casino gambling is one of the worst. It defies three key criteria for raising revenues for government services.

Is it regressive? Yes.
Does it take away from other forms of revenue? Yes.
Is it unstable? Yes.

I put it out to you - can anyone here cite other examples of government revenue sources that fail all three criterion to a worse degree?

Let's use the math from the recent casino proposal in the Massachusetts Senate. Massachusetts residents had to gamble and lose $2 billion for the state to reap the $400 million in new revenues.

A Massachusetts family of four had to lose $1400 a year. That’s the same as of raising the income tax over 30%!

And we all know, and we don't like to acknowledge it publicly, that the vast majority of people gambling at these non-destination casinos and racinos live locally- they're working families and senior citizens.

Imagine the public reaction to any legislator proposing a 30% income tax increase on working people and seniors in order to balance the budget?

The political question is can that message stick? I don't know but the help of conservative pro-business media like The Economist and other business journals continuing to refer to state sanctioned gambling as a regressive tax certainly won't hurt.

Just ask yourself, how many of the people who advocate for a casino in their community are good voters?

You may also hear out on the campaign trail this year some intense debate about casino gambling being a voluntary act and these new consumer loyalty cards.

I recently read Jackpot: Harrah's Winning Secrets for Customer Loyalty and I encourage you to do it too.

I didn't purposely intend to single out Harrah's because many in the gambling industry do the same practice but I want to focus on two quotes that appear in the book.

I was only going to read one but someone from Harrah's told me yesterday that they didn't do this type of thing.

        "Let's say we have a 60-year-old woman who lives in a comfortable suburb of Memphis. She visits our Tunica property on a Friday night, briefly plays a dollar slot machine, and goes home. Based on traditional casino methods, she'd have a low theoretical worth, perhaps a few dollars. Consequently, she wouldn't be a likely prospect to pursue, and little effort would be made to get her to come back. And in all likelihood, she wouldn't respond to it. Our present system draws distinctions between the observed worth of a customer and what we predict their worth is. The fact that this player is 60 years old, female, plays slots, and lives in an affluent Memphis suburb that is near Tunica now suggests to us that she's a good customer, but we just haven't seen it yet. Today, instead of ignoring her, we market to her in a way that is intended to test the proposition that she's been improperly categorized. So, with the little information we know about her, we are going to make a prediction based on what we know about people like her-- that she's probably a terrific customer, even though our exposure to her is not yet inspiring. And if we predict she's a great customer, we are going to give her a very rich offer. In this particular incident, we'll give her a marketing offer that has a short redemption window to see if she responds quickly. It won't include a hotel room offer because she lives nearby. And since we know she's slot-centric, she'll receive a cash offer to play the slot machines. We'll measure how fast she responds and how much she plays. If the woman responds the way we think she will, that verifies the prediction that then puts her into a new category for the next marketing wave. What we did with this woman, we have the capacity to do across a 25-million person database and have it executed in 26 locations by modestly trained people. "

- Gary Loveman, CEO, Harrah's
Jackpot! Harrah's Winning Secrets for Customer Loyalty, 2003. Pg. 235

"We have a lot of transaction data on our customer. We know how often they come, what they like to play, if they stay at our hotel, and so on. Since we know past behavior, we can also understand what our customers' potential is, and we can determine what their future value is likely to be. We know who's likely to be a long-term customer and who's not. We take a look at their observed behavior, and our group of analysts builds models to show their predicted behavior. We look to see if there's a gap between how many times a person comes here and the share of his wallet we receive now, versus what our models say is possible. Using this segmentation strategy, we bucket people into groups and see who comes perhaps twice a year but who should come as many as 20 times a year. Within the traffic our casinos generate, we isolate these groups of customers and send them customized messages. A letter might say, "Thanks a lot for your loyalty but we'd really like to see you more often." To incent them to come, we'll shorten up their redemption window. This is Pavlovian marketing because we give them carrots such as a $20 food offer or a $20 coin offer to come. In the past, everybody would get the same redemption offer, say 60 or 90 days in one of our frequency markets in the Midwest. Now, we look at these groups, and with one of them we'll determine, "These people over here come twice a year, but we can change their behavior. So maybe will still give them $20 if they come within 60 days."

- David Norton, Marketing Vice President, Harrah's
Jackpot! Harrah's Winning Secrets for Customer Loyalty, 2003. Pg. 236

Is that "voluntary?!"

People are being induced to gamble. Now honestly, am I the only one in this room who thinks that's not the role of government?

Is that a practice that government should be helping to promote?

More and more people everyday are answering no. In the State of Maine, the business community, the medical community, the statewide media, the environmental community, the religious community and a dozen other constituencies all came under the same political umbrella to oppose casinos.

If the size and the nature of the coalition that came together in Maine serves as an indication of future political campaigns over casinos, then the industry and those legislators who support it could be in for an even more difficult time than they had in 2003.