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Arkansas becomes casino country 

The state rolls the dice with the passage of Issue 4.

click to enlarge REAL SLOTS ON THE WAY AT OAKLAWN: The neutrality of the racetrack in Hot Springs and the support of Southland Racing Corp. helped Issue 4 win at the polls.
  • REAL SLOTS ON THE WAY AT OAKLAWN: The neutrality of the racetrack in Hot Springs and the support of Southland Racing Corp. helped Issue 4 win at the polls.

On Nov. 6, for the second election cycle in a row, Arkansas voted for vice. Issue 4, a constitutional amendment authorizing four casinos in the state, was approved by 54 percent of voters on Election Day 2018 — an echo of the vote on the medical marijuana amendment that Arkansans approved by a similar margin in 2016.

Note that the state also overwhelmingly supported Republicans both years. Maybe it's the influence of Donald Trump or maybe it's some larger cultural slouch toward Gomorrah, but social conservatism just isn't what it used to be. Many GOP voters in Arkansas seem increasingly comfortable with sinful behavior, at least when it has the potential to be entertaining.

The passage of Issue 4 was no foregone conclusion. Arkansans rejected ballot initiatives that would have amended the state Constitution to allow casino gambling in 1984, 1996 and 2000. That didn't discourage gaming interests from continuing to try: In 2012 and 2016, proposed amendments were placed on the ballot, only to be disqualified by the Arkansas Supreme Court because of problems with the wording of the ballot title.

Issue 4 faced two legal challenges of its own, but in October the Arkansas Supreme Court ruled in favor of Driving Arkansas Forward, the committee behind the measure. Little Rock attorney Alex Gray, counsel for Driving Arkansas Forward, said the Supreme Court ruling was half the reason this amendment succeeded when so many other attempts had failed.

"First off, it was actually on the ballot. The ballot title was drafted properly, people could understand it and ... we got good signatures. It was not susceptible to the challenges that we saw with other initiatives," he said.

The campaign for Issue 4 won voters over by framing its arguments in terms of economics. "The second reason is that people are tired of losing our dollars to surrounding states and their casinos," Gray said. "This was not an effort to somehow make Arkansas a 'casino state.' It was not an effort to do this huge expansion of gambling in the state. It was just an attempt to boost our economy, create thousands of jobs and keep our tax dollars here."

Nonetheless, Issue 4 will significantly expand gambling in Arkansas. The measure directs the Arkansas State Racing Commission to issue four new licenses for casinos to be located in Garland, Crittenden, Jefferson and Pope counties. The Garland County license must be awarded to Oaklawn Jockey Club in Hot Springs and the Crittenden County license must be awarded to Southland Racing Corp., which operates the greyhound track in West Memphis. The racing commission will award the other two licenses following a merit-based application process that has yet to be established. No entity may hold more than one license.

Sanctioned gaming activities include anything found in casinos from Tunica to Vegas. The amendment authorizes "any game played with cards, dice, equipment, or any mechanical, electromechanical, or electronic device or machine for money, property, checks, credit, or any representative value, as well as accepting wagers on sporting events." A federal law prohibiting sports betting was struck down by the U.S. Supreme Court earlier this year, and Issue 4 overrides an Arkansas statute that otherwise still bans the practice in the state

Good legal verbiage and PR aside, there are other reasons why Issue 4 beat the odds and became law. One is the fact that Arkansas's existing gambling industry seems to have been cut in on the deal from the beginning.

Oaklawn and Southland have fiercely guarded their turf from outside competition by fighting previous attempts to establish casinos in Arkansas. Their opposition helped bring down the 2016 proposal, which was pushed by a group of Missouri investors and the Cherokee Nation of Oklahoma.

The racetracks in Hot Springs and West Memphis have long operated casinos in all but name. Technically, Arkansas law prohibited any casinos until last week, but Oaklawn and Southland convinced the legislature in 2005 to enact a statute allowing patrons to wager on so-called "electronic games of skill." Issue 4 ends the need for this farcical workaround and allows the two "racinos" to begin offering real slots and table games instead of video simulations of such. It also gives them a tax cut and a sizable head start on their two potential competitors, which still must secure licenses, build facilities and gain the blessing of local officials. (In Pope County, at least, that could prove to be a significant roadblock.)

With the racetracks and their attorneys co-opted, groups opposing Issue 4 were left underfunded and outgunned. In 2016, the Family Council, a conservative political advocacy group that opposes gambling in all forms, found itself effectively aligned with Oaklawn and Southland in fighting out-of-state gaming interests. But in 2018, Southland threw its support behind Issue 4 while Oaklawn stayed neutral. Two committees formed to fight Issue 4 together raised only about $30,000 through Oct. 27, the most recent campaign finance reporting date. A third opposition gropu called "Vote No on Issue 4" was only formed in late October. It raised $150,000 from Caesars Entertainment of Las Vegas, but it's not clear how much of that money was actually spent.

In contrast, records show Driving Arkansas Forward raised $7.05 million in contributions through Oct. 27; another committee created to back Issue 4 raised a separate $1.91 million during that period. Through the end of October, supporters of the amendment appear to have outraised opponents by a factor of more than 50 to 1.

Family Council President Jerry Cox said the amendment will adversely affect Arkansas. He said the casinos will have a harmful effect on the communities in which they're located, as those who live nearby will be more susceptible to gambling addiction. Cox also said the casinos will have a negative impact on local economies, as some will choose to spend money on gambling instead of more essential purchases, like groceries and house payments. (It's not just conservatives, of course; plenty of moderate and liberal voters also feel casinos will bring more harm than good to their communities and hurt the poor.)

The passage of Issue 4 is indicative of Arkansas voters becoming less socially conservative, according to Cox. But he said this was in part due to voters being susceptible to expensive, deceptive advertising for Issue 4. "Advertising is very powerful, and voters need to be more astute in discerning what's true and what's not true," Cox told the Arkansas Times.

Much of that money — over $3 million — came from Delaware North, the parent company of Southland. The biggest single contributor, though, was the Downstream Development Authority of the Quapaw Tribe, which contributed at least $3.65 million to promote Issue 4. Cherokee Nation Businesses added another $2.28 million. The Quapaw are the favorites to win the permit in Jefferson County. The Cherokee were eyeing Pope County, but local opposition may derail their plans.

Much is yet to be determined as Arkansas gears up for casinos. Here's what we know so far, and what we don't:

What will change at Oaklawn and Southland, and when?

At this point, the racetracks are holding their cards close to the vest. Both sent terse nonstatements to the Times when asked for comment.

Oaklawn said it's preparing for the 2019 horse racing season, which begins in January, and will "move forward as legislation and regulation permits." Southland didn't offer much more: "We plan to increase our investment, provide more jobs and continue to offer a great experience for our guests. We're still determining our expansion timeline and will have more to say about our specific plans in the coming months, but we will work with the state to add live table games at Southland as soon as is feasible," a spokesman wrote by email.

On Nov. 4, a Talk Business & Politics article quoted an executive at Delaware North as saying the Buffalo, N.Y., company planned to build a $200 million hotel and convention center in West Memphis should Issue 4 pass. Jack McNeill, a senior vice president of governmental affairs, said the investment would be "a priority." Note, however, that that statement came immediately before the election.

The amendment suggests the racetracks could go full casino as soon as mid-March. The Issue 4 ballot title says "Southland and Oaklawn do not have to apply for a license and will automatically receive a casino license upon the [racing] Commission adopting rules and regulations to govern casino gaming." It also says the commission must have rules and regs promulgated within 120 days of the amendment's passage, which is March 14.

If the Hot Springs and West Memphis casinos are as successful as everyone seems to assume they'll be, that raises the question of the future of their tracks themselves. Horse racing at Oaklawn isn't going anywhere anytime soon, presumably. But the world of dog racing is rapidly disappearing. On Election Day, Florida voters approved a measure ending greyhound racing in that state, which is home to 11 of the 17 remaining dog tracks in the U.S. In his interview with Talk Business, McNeill claimed Delaware North hasn't discussed the possibility of discontinuing greyhound racing, but it's hard to believe the multi-billion-dollar food service and hospitality company isn't taking a hard look at the profitability of the track as it prepares to expand.

How will the other two licenses be awarded?

The state Racing Commission is tasked with awarding the Jefferson and Pope county permits. There are seven commissioners, each appointed by the governor, and the positions are unpaid except for a per diem for meetings and travel. The state Department of Finance and Administration provides staff for the commission.

Gray said the application process will be merit-based: "They will pass rules and regs governing the application and licensing process, similar to what was done with medical marijuana. There will be an open application period, and qualified groups will submit applications, and the racing commission will score those applications and award permits."

If there should be more than one applicant for a site, it's not yet clear how they'll be graded. Those criteria will be part of the rules now being promulgated by the commission. The amendment does specify a few things: An applicant must have casino gaming experience and a letter of local support and cannot have a felony conviction.

click to enlarge ALEX GRAY: The counsel for casino proponents Driving Arkansas Forward says the process of awarding licenses won't be plagued by the same problems as medical cannabis because the Arkansa Racing Commission is experienced.
  • ALEX GRAY: The counsel for casino proponents Driving Arkansas Forward says the process of awarding licenses won't be plagued by the same problems as medical cannabis because the Arkansa Racing Commission is experienced.

Might the licenses get tied up in litigation if there are multiple applicants? After all, that's what's happened with medical cannabis. In February 2018, the medical marijuana commission scored dozens of applicants vying for just five cultivation licenses, a flawed process that led to multiple lawsuits, months of delays and accusations that the commissioners' merit-based grading system was riddled with inconsistencies and conflicts of interest.

That seems less likely to happen with the casino licenses. First, there probably won't be large numbers of competitors jostling for the Jefferson or Pope county sites. Second, the medical marijuana commission was created from scratch in 2016, and its five members had no professional knowledge of medical cannabis and very little experience with regulation.

"The racing commission has been around a long time. They are experienced, extremely qualified, and this is not their first rodeo in terms of acting responsibly," Gray said.

How soon can the Jefferson County casino get up and running?

Though the amendment allows any would-be casino operator to seek a permit from the state, the Oklahoma-based Quapaw Tribe has been working with Pine Bluff officials for five years to gain approval of their bid. Quapaw Chair John Berrey said he hopes the tribe's work with the city will help his group prevail in the permitting process.

Berrey told the Times he hopes to file the tribe's application by the end of April, to be "digging dirt" by June and to open a casino in Pine Bluff early in 2020. He said the group has an option on land on the southwest side of the city, but he wasn't ready to reveal the precise location yet. Some land lies outside the city and would be voluntarily annexed. He said the tribe wants an orderly planning process and envisions developing some 180 to 220 acres initially.

click to enlarge QUAPAW CHAIRMAN JOHN BERREY: He says the tribe will invest more in community projects in Pine Bluff should it win approval for a casino there than would a shareholder-owned corporation focused on the bottom line.
  • QUAPAW CHAIRMAN JOHN BERREY: He says the tribe will invest more in community projects in Pine Bluff should it win approval for a casino there than would a shareholder-owned corporation focused on the bottom line.

Berrey said it took 10 months to build a casino the tribe operates in Joplin, Mo., a development he said has been worth several billion dollars in associated economic activity to that city. If that construction timeline holds, his 2020 target for a Pine Bluff casino and restaurant could be close. It might take longer to complete the hotel portion of the project, Berrey said.

The Quapaw-run casino would offer all gambling options, including a sports book, but Berrey said sports wagering is not a major focus of casino operation because it has a low profit margin.

The Quapaw Tribe is a government, not a shareholder-owned corporation, Berrey emphasized. He said it would devote more to community development than a casino corporation driven strictly by the bottom line. "We're about building communities," he said. "Our goal is to make it a better place for people to live."

Pine Bluff was briefly home to the Quapaw during the 19th century. The tribe occupied eastern Arkansas during prehistoric and historic times.

Will Pope County hold the line?

The situation in Pope County is complicated by the fact that the voters there don't want a casino. Sixty percent of those casting ballots in the county voted against Issue 4 in the election. And, 70 percent of Pope County voters approved an initiative that would bar the county judge or the quorum court from issuing a letter of support absent a local election that gives them the authority to do so. Issue 4 requires any applicant to obtain such a letter.

But would a local option election be permissible, given that Issue 4 is now enshrined in the Arkansas Constitution?

"Obviously, civics 101 says state law trumps local," County Judge-elect Ben Cross told the Times. The issue is moot, however, because Cross said he will not issue a letter of support "until the people of Pope County decide otherwise." The quorum court has already expressed its opposition. As things stand now, then, it doesn't appear that a casino will be built near Russellville anytime in the near future.

Christopher Burks, the lawyer for Citizens for a Local Choice, a Pope County group that sought to throw Issue 4 off the ballot, noted that the amendment could be read as having contradictory language. It says licenses "shall be" issued for Jefferson and Pope counties, but that to be successful, an applicant must have a letter of support either from the county judge or the quorum court — and, if the casino is to be operated in a city, from the mayor of that city.

Representatives of the Cherokee Nation met last summer with Cross. According to people familiar with the casino campaign, that wasn't early enough to convince county leadership of the benefits of a casino. The Quapaw worked for five years gathering support in Jefferson County.

The Cherokee interest in Pope County could be intended to stymie competition from the Choctaw Tribe, which operates a casino 15 minutes southwest of Fort Smith. The Cherokees operate a casino in West Siloam Springs, on the Benton County border.

What does the passage of Issue 4 mean for Indian gaming in other parts of Arkansas?

Federal law says that lands held in trust for recognized tribes can be used for any type of gambling otherwise permitted elsewhere in the state. The Quapaw Tribe owns undeveloped land near the Little Rock Port. Should the tribe convince the federal government to designate that land as tribal trust land, it's possible the Quapaw could build a casino there. City and county officials took a number of steps to prevent the Quapaws from doing that after they acquired the land.

But Berrey said that putting land into trust "has become more and more difficult and political." It requires approval of members of Congress, a governor and other local officials. "I just don't see it happening," he said.

What will be the impact on state revenue and jobs?

Don't expect public coffers to see a big windfall in the near term, unless you live in Garland or Crittenden counties. The state Department of Finance and Administration has projected general revenue will take a $36 million hit in the upcoming fiscal year as a result of Issue 4. Driving Arkansas Forward believes that number will rebound and then some within several years.

Currently, Oaklawn and Southland are taxed at 20 percent on their net wagering revenues on "electronic games of skill." The state takes 18 percent and city and county government take 2 percent. On top of that, an additional 15 percent is set aside for purse money (meaning prizes distributed to live racing winners) and support for the racing commission.

After the racetracks obtain the new licenses under Issue 4, the 15 percent dedicated to purses and the racing commission will remain in place. But the total 20 percent rate paid to state and local government will decline to just 13 percent on the first $150 million of net wagering revenues. Of that 13 percent, a little over half will go to state general revenue and a little over a quarter will go to local governments. The rest will further fund racing purses. The tax rate rises to 20 percent again on any wagering revenues above $150 million.

In short, that means more money for city and county government, more money for purse support (which bolsters the status of Arkansas as a racing destination), more money staying in the pockets of Oaklawn and Southland and less money for state general revenue.

Right now, state general revenue receives about $64 million from the two racetracks. That will decrease to about $28 million in the next fiscal year, according to the DFA analysis. Garland and Crittenden counties, together with the cities of Hot Springs and West Memphis, will see a projected gain of about $7 million in that time.

Gray said his group didn't dispute that state general revenue will see a "temporary gap" before the new casinos come online. The big question is what happens after that. The first year all four casinos are operational, Driving Arkansas Forward said it anticipated a total of $120 million in total tax revenue, yielding $66 million for state general revenue, $33 million for local government and the rest for purse support.

The DFA analysis didn't take such a rosy view. Even once all the casinos are up and running, it projected state revenue would only stand at about $50 million, or $14 million less than the current take.

Gray said Driving Arkansas Forward projects general revenue to increase thereafter. Five years after all the casinos are online, he said, general revenue should reach $80 to $85 million. "But those projections were before Southland announced it was going to make a $200 million investment on its property, so I would assume that Southland will potentially exceed what was projected," he added. Gray also noted state and local governments will also receive more sales, property and income taxes as a result of the casinos.

As for jobs, Gray said a study commissioned by Driving Arkansas Forward estimated Issue 4 would generate about 8,000 construction jobs over the next 18 months. After construction is complete, he said, the casinos should sustain about 6,000 new positions statewide.

Will new laws need to be passed?

The passage of a new constitutional amendment often necessitates new legislation to flesh out the details. But Gray said he didn't foresee the need for enabling legislation in the 2019 session, which begins in January.

"I don't really anticipate any legislation that would affect the amendment. The amendment was very detailed and very thorough in terms of who does what, and the racing commission has the authority to regulate casino gaming," he said.

In 2017, after Arkansas voted yes on medical marijuana, legislators put forward a host of bills tinkering around the edges of the amendment. Some were meant to slow down or derail the rollout of cannabis, but others were much needed clarifications to law. Gray said the situation is different with Issue 4.

click to enlarge WILL THE DOGS STILL RUN? That's the question at Southland, which announced before the election it would spend $200 million on an upgrade of the West Memphis racino.
  • WILL THE DOGS STILL RUN? That's the question at Southland, which announced before the election it would spend $200 million on an upgrade of the West Memphis racino.

"I think the difference between medical marijuana and casinos is that marijuana was and still is a Schedule 1 drug, so there are some federal issues," he said. Also, while medical marijuana laws are still fairly new, casinos have been operating in many states for decades. "So, I really don't think you'll see the same sort of reaction," he said.

State Rep. Doug House (R-North Little Rock), who sponsored a number of 2017 bills aimed at fixing issues with the marijuana amendment, said he's heard "loose talk" among some members about passing oversight legislation related to Issue 4.

"It's just discussion at this point. There's no clear formulation of issues," House said. The main concern for the legislature and the governor, he added, is addressing the $36 million state budget shortfall expected to result from the tax break given to Oaklawn and Southland.

Max Brantley, Rebekah Hall and Leslie Newell Peacock contributed to this story.

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