Lehigh Valley

The long and complicated process of selling a casino

BETHLEHEM, Pa. - As the negotiation presumably continues between Las Vegas Sands Corporation and MGM International over the sale of the Sands Casino Resort Bethlehem, both parties are keeping quiet about the details. But experts agree the deal itself may not be approved for many months. One reason it takes so long is that buying a casino is not like buying a car, a house, or even a regular business. It's a heavily regulated transaction, in a heavily regulated industry, where billions of dollars are potentially changing hands.

Doug Harbach, the Communications Director for the Pennsylvania Gaming Control Board, had little to say to WFMZ.com about the details of a possible acquisition of the Sands by MGM. "There's been nothing filed with us yet," he said. "They're making a private negotiation that became public. We can't comment on anything." He would, however, discuss just how involved the state of Pennsylvania will be if and when the deal is completed.
Harbach had a simple justification for the complicated process as it is now. "The way the law was written was to make sure the cost for regulation was not on the back of taxpayers," he said. He also emphatically claims the process is designed to protect the integrity of gaming in Pennsylvania. But gambling experts that WFMZ.com spoke with questioned the regulation process as it currently exists, and think it needs to be streamlined. "It's a real racket, I'm sorry," said Roger Gros, the publisher of Global Gaming Business Magazine.

The Pennsylvania Gaming Control Board employs about 300 people, more than a third of whom are casino compliance agents staffed at all of the state's 12 casinos. "In a nutshell, it is our job to ensure the integrity of gaming in the commonwealth," said Harbach. "We want to make sure the facilities are financially sound because of the partnership these casinos have with the commonwealth. We want to make sure these facilities are safe for the patrons. And we want to make sure the games are fair." That role includes extensive and time consuming involvement in the sale of casinos, even between two well-known companies like Sands and MGM. "You've got the number one company and the number two," said Alan Silver, an Assistant Professor at Ohio University, referring to Sands and MGM respectively. "Both companies are strong companies, both are well known by all the regulators." But there's no getting around the process, said Silver. MGM, in this case, will "have to go through the time period, the hoops, the procedures the gaming commission has in line," said the professor, also a former casino executive. "There's no shortcuts."

Once a sale is agreed upon between two parties, the state begins the process of approving it. "They need to petition the board for what's called a change of control," said Harbach. "From there, our investigative unit will do work on the new potential holder of that license, in this case it would be MGM." Because MGM does not operate any casinos yet in Pennsylvania, the process would take longer. "You'd be starting from the ground up," said Harbach. He claimed the investigation would be extensive, and would include everything from looking at the other casino businesses they operate, to their financial records, to their hiring and diversity practices, to investigating the backgrounds of individuals who work for MGM. The process involves in depth face-to-face meetings, and past cases have taken the Gaming Control Board's investigative unit around the world. Background checks would be conducted on board members, executives at MGM, and the individuals slated to run the casino. According to Harbach, the cost of these investigations is not paid by taxpayers. "All of the funding for the agency comes from the casinos...manufacturers...and individual applicants." In other words, the parties who want to work in the gambling industry are willing to pay the state the price of admission.

While they concede regulation of the industry is appropriate, both of the experts WFMZ.com spoke to think the current process is inefficient. Because each state has its own system, "the regulators in each jurisdiction do the same investigation all the time," Gros said. He believes there should be one registry that every state uses so they don't have to start from scratch for each investigation. In a case like the Sands/MGM deal, according to Gros, Pennsylvania knows MGM is a reputable company who will pass muster, but they need to investigate anyway. He also said the current system exists because the states want to "have jobs for all their investigators", which he describes as a plush assignment. "It's really a place where you give out favors," he told WFMZ.com, with "perks" like the extensive travel that the casinos are forced to pay for.

Harbach of the Gaming Control Board said these criticisms do not apply to Pennsylvania, insisting to WFMZ.com that his agency does do some coordination with those in other states, and that the seven members of the board are all qualified and serve an almost judicial role. As for the investigators, he said they are not political appointments and they are hired based only on skill, sometimes with backgrounds in agencies like the Secret Service and FBI.

Once approved, MGM would need to pay a gaming license transfer fee. While unwilling to provide a specific amount, when asked by WFMZ.com if it would be in the millions, Harbach responded, "yes", and added that there have been transfer fees up to $2.5 million. "The amount would be set by the board," said Harbach. "That money goes to the general fund of the commonwealth." Silver put it more bluntly, saying "the government is always going to get a piece of the action." He also made it clear, though, that a corporation like MGM would not even blink at the fee. "$2.5 million could be one gambler in one night."

Harbach would not provide a firm amount of time that the entire sale approval could take, but he did say that “six months would not be unheard of.” He insisted the long, in-depth process is necessary. "The background investigations that we do are in large part to make sure we keep out any criminal element." Silver expressed a similar sentiment, pointing to the checkered history of gambling as justification for the substantial regulation, while reiterating that he would prefer a universal system rather than the state by state model. He also praised the corporations that currently dominate the industry. "In the old days we had the crime element, the whole system wasn't clean in many aspects," said Silver, specifically noting that in the 1930s and 1940s there were "mobsters and bootleggers" who came to Las Vegas only to be replaced in the 1960s and 1970s by more reliable corporations. "People want to go to a place that's legit...you don't want to go into a casino with a tricked out roulette table or something like that.

Until the deal is finalized, however, the waiting game continues, and the long process of approving the sale will not even begin.

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