The Tropicana gaming license denial and casino regulation

SEATTLE, Washington - The Courier-Post of Cherry Hill, NJ recently editorialized on the denial of a gaming license to Columbia Sussex, a denial that I have previously discussed. The Courier-Post thinks that the Casino Control Commission went too far in denying the license, and that much of the justification for denying the license (the nebulous "running a first-class property") was for business practices that would have doomed the casino anyway in the competitive Atlantic City market:

We're not denying the Tropicana has slipped or that new ownership would almost certainly do a better job and hire needed staff back... but we think the Casino Control Commission went too far because, in a free-enterprise system, what right does the government have to tell an owner, "You need to do a better job or we'll make you sell." The commission ruled that Columbia Sussex failed to meet state gaming license requirements by lacking business ability and lacking good character, honesty and integrity.

It would be one thing if the casinos owners had allowed cheating to thrive, weren't keeping enough money on hand to pay winning gamblers, or were rigging slot machines to never pay out. This would violate the law or destroy gamblers' trust in a fair game. But that isn't what has happened at the Tropicana.

It's simply been bad ownership trying to maximize profit by sacrificing quality. It's not a pleasant thing for customers, and it hurts, especially for those who've been laid off. But it's something that bad businesses do all the time, and it's their right to do. If they want to run themselves into the ground, they can.
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With this decision, a message has been sent to businesses inside and outside New Jersey that the state has no problem passing judgment on how your business is run.

There is a lesson in all of this about government regulation and oversight more generally. The editorial mentions that the original, overarching mandate of casino regulation in New Jersey was to prevent mob infiltration of the casinos and to ensure honest games. The regulators have been successful at this*, but regulatory bodies seem to be congenitally incapable of keeping a narrow scope to their regulation. Atlantic City casinos have been burdened by a blizzard of regulatory decrees that have nothing to do with the honesty and integrity of the business. Examples:

• Casinos started operating in Atlantic City in 1978, but poker was not offered until 1993. Why? Regulators were reluctant to approve a game where the players touched the cards. Players had been touching the cards in Nevada and Europe for decades, but so what? This was pure fear, ignorance and over-regulation.
  
• All parties in casino poker are interested in a fast game. However, for many years after the introduction of poker in 1993, all players had to buy their chips from the dealer at the table, instead of from a cashier window or a chip runner. Why? Well, casino accounting involves some metrics related to how much money is in the box on each table, and how many chips are in the tray (the "take" and the "drop", among other things) and having players buy chips at a cashier window mussed up the calculations. Again, other jurisdictions offered many ways to buy chips, but New Jersey regulators were resistant to change. It took years and years, but players can finally buy chips at a cashier window in New Jersey.
  
• The ratio of table games to slot machines at a casino is controlled by regulators. Slot machines average more profit per square foot than table games, so regulators put in requirements for a minimum percentage of table games out of a fear that some casinos would turn into pure slot-houses. This has also been relaxed over the years, but the fact that it exists at all is a classic regulatory over-reach of the type mentioned by the Courier-Post.
  
• While I'm mentioning square footage - regulators also mandated a mininum number of restaurants on a property, based on the square footage of the casino. This typically came to more restaurants than the property needed, so some casinos (especially the larger ones) had a restaurant or two sitting around, that was open the bare minimum hours per week necessary to satisfy the regulators, but was otherwise idle and unwanted.
  
• Casino managers holding a Key license (on the casino floor, this translates to Pit Boss and higher level management) are not allowed to gamble anywhere in New Jersey. This regulation seems to be based on the nonsensical belief that high-level personnel will have some special insight on how to cheat a casino. I know some good casino employees that are basically stuck on their career path because they do not want to submit to this silly regulation. This prohibition used to be broader, applying to every employee of a casino, not just the key employees - my father, may he rest in peace, worked at a casino and used to don a wig and a fake cast on his arm to go gambling.
  

This list is not the result of intensive research, it's stuff off the top of my head that anyone that has been around New Jersey casinos knows - I'm sure there's much more stuff that I don't know about.

I think this whole experience planted in me a basic wariness of burdensome regulation. Not an outright opposition to it, but a healthy skepticism - a realization that it will inevitable be over-broad in scope, and provide a lot of counterproductive sand in the gears for each bit of good it does. So when politicians start ringing the bell for more regulation of something (like John Edwards recently calling for sweeping new food regulations - is there some mass poisoning of Americans by evil food companies that I don't know about?) I look at it with all appropriate cynicism.

* I am taking the mainstream view that New Jersey casinos are largely mob-free and have been the whole time. Some authors have a different view - that the company owning the first New Jersey casino, Resorts International, was either a Meyer Lansky mob operation, or a CIA front company, or both. It is suspicious that just ten years before the casino opened, Resorts International was the humble Mary Carter Paint Company.