Frank Fahrenkopf interview
Frank Fahrenkopf, the influential president of the American Gaming Association, breaks his silence on the organisation's stance on egaming, the Frank bill and the future of US facing sites when, not if, the country regulates.
While it may now be obvious where the European-based egaming industry stands on federal legislation, its US land-based counterpart, despite spending millions lobbying the issue, has yet to declare its position on Barney Frank’s “ or any other “ federal bill.
The exception is Harrah’s, the largest gaming company in the US and the world, for which the silence of its representative body, the American Gaming Association (AGA), can largely be held accountable. The AGA’s official line on the Frank bill, according to its first and only president, Frank Fahrenkopf, is that it is monitoring what is going on very closely. “That is not to say that we are not involved in discussions with the folks involved, but at this point in time, the board has decided not to take a public position,” he says.
The AGA president has seen many changes in the US casino industry in the 15 years since assuming the helm. Back then he says common perceptions of the sector were at an historic low. “A month after I opened the office 15 years ago, the movie Casino came out. It solidified old myths and superstitions about the industry, and we have worked for years to try and change that.”
Indeed, safeguarding this image remains the priority, says Fahrenkopf, resisting suggestions that overseeing his members successfully translate their offline dominance into the online arena in the US could represent his crowning achievement. The US casino industry has, after all, experienced a torrid time during the downturn, particularly among operators with no Macau interests to offset tumbling revenues.
“That continues to be our number one priority, as well as to try and make sure the federal government doesn’t intentionally or unintentionally do something that harms the industry.
“If internet gambling becomes legalised, and our companies are involved and it becomes profitable for them, I will have to judge it at the time. I can’t judge it looking forward,” he explains cautiously.
A change in outlook
While Fahrenkopf refutes the suggestion that a tipping point in favour of US regulation has been reached in the past year, he admits that compared to three or four years ago when the AGA’s board was still opposed to egaming, the dynamic has changed “in that a piece of legislation has cleared a house committee”.
According to Fahrenkopf, the need for fresh revenue at federal level amid difficult economic circumstances has provided the extra impetus to reach this position. This comes despite his disputing “some of the numbers that have been thrown around Capitol Hill”, such as egaming generating a potential US$40bn over the next 10 years.
The AGA’s position on internet gaming “has changed dramatically” since its inception when the board unanimously took the view that the technology did not exist to properly regulate the industry complete with legally enforced oversight. But the organisation reached its own tipping point on the issue in March this year when its board finally declared it was “open to the concept of legalised online gambling”.
Fahrenkopf says the AGA reached this conclusion based on its continual assessment of three factors: does the technology exist to properly regulate egaming; would it be cannibalistic to existing brick and mortar companies; and whether it should be regulated at federal or state level.
“We took the position that the technology now exists, and we would savour a bill as long as there were strong regulatory controls, as long as it was something we felt would protect the integrity of the business,” Fahrenkopf explains.
Division on the Frank Bill
But his statement on the Frank Bill that “there are some questions with some companies about the federal regulatory regime that is created” hints that long-standing rifts between board members over federal versus state taxation/regulation are still far from resolved. This, in turn, suggests the AGA’s new position on egaming has perhaps had more to do with shifting the goalposts in terms of no longer requiring board unanimity on the issue.
Fahrenkopf, however, remains tight-lipped about where influential board members such as Las Vegas Sands, represented by presdent and chief operating officer Michael Leven, and MGM Mirage chief executive Jim Murren stand on the Frank Bill. “They are now members and are on the board, so they are in sync with what our strategy is, and that strategy is what I’m not going to talk to you about,” he says.
But further responses that Fahrenkopf offers on behalf of the AGA merely reinforce the impression that this strategy is far from in line with the one being pursued by Harrah’s, the operator on the AGA board that has pushed hardest for federal regulation.
In turn, the AGA’s positional shift on the issue seems to have done most to accommodate the casino giant. “Well, I don’t know, it depends”, says Fahrenkopf responding to the suggestion that the financial and lobbying power of the AGA means its support was pivotal in determining the success or failure of the Frank Bill. “Some people would say it is crucial, others would say perhaps it wasn’t. The Barney Frank Bill was drafted and has been primarily pushed by many of the offshore operators and many of the off shore payment processors. It did not originate in the US.”
The lack of clarity that the Unlawful Internet Gambling Enforcement Act (UIGEA) created around payments has been instrumental in generating the conditions for the multi-million dollar lobbying push behind the Frank Bill, he says: “UIGEA was deficient in that it did not classify what was illegal internet gambling. The regulations that were eventually put in place were forced down the throat of the Treasury and the Federal Reserve because of pressure from the Bush administration.”
“In many ways, a poker carve out may be more acceptable to members of Congress, and there’s no question some of our members on our board would be happy with that. So, I think on balance, if we could only get poker, the board would be very satisfied.”
According to Fahrenkopf, such a scenario would see US land-based casinos coming into the market at a huge disadvantage to those sites that have continued to take US bets since UIGEA. He reveals that legislators are not just talking about denying these sites a licence, they would also “not be able to monetise once the licensing regime was to go into place, [meaning that] no existing licensee would be able to sell their player database, buy their brand or license their software”.
He adds: “I have talked to legislators who say, ‘So, you deny someone a licence because they have been operating in violation of US law, that’s a penalty for what they did. But if you let them turn around and sell their assets, and make millions of dollars, they have benefitted from violating the law, they shouldn’t allow that.’ I have not seen things that are specifically drafted, but I should tell you that discussions of that nature are taking place inside and outside Congress.”
One key figure
For now however, Fahrenkopf believes one figure remains the game changer as far as federal legislation is concerned. “This whole thing is going to boil down to what happens in the Senate, and the key person there is Senator Harry Reid of Nevada. He’s the majority leader, and has great control over what is considered by the Senate. You need only go back a couple of years to remember Bill Frist and the way UIGEA got passed.”
Former Nevada gaming commissioner Reid, has historically been opposed to online gambling on a similar basis to that of the AGA. Fahrenkopf, however, warns against assuming Reid, who has yet to state a position on the Frank Bill, has reached similar conclusions.
“We are talking about the Congress of the United States, an election year that will end with a hardfought and close election in November. There is also a real question whether Nancy Pelosi (Speaker of House of Representatives) would be supportive of bringing a gaming bill to the floor of the house prior to the election, where it is tight over who is going to control the House of Representatives,” says Fahrenkopf. As the wise head of the AGA echoes, in a Herculean battle such as this one “never assume anything”.