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Investing The Hard Way: Why Adelson Matters (Unfortunately)

TAGs: Editorial, Forbes, investing the hard way, las vegas sands, sheldon andelson, Vince Martin

Investing The Hard Way: Why Adelson Matters (Unfortunately)I know, I know. The recent rants – in a Forbes op-ed and a Bloomberg television interview – by Las Vegas Sands (LVS) CEO Sheldon Adelson were sophomoric and ill-conceived. Our own Steven Stradbrooke highlighted both the lack of evidence and the hypocrisy behind Adelson’s op-ed and again questioned Adelson’s assertions on Bloomberg, among them his argument that poker was “one of the most addictive games.” 

Stradbrooke’s pointed criticisms of Adelson’s stance are dead-on; they rely on concepts such as “facts” and “logic” that were missing in large parts from the CEO’s commentaries. But whether Adelson is right or wrong (and, let’s be honest, he’s pretty much totally wrong), the man still wields tremendous influence. And his comments reflect a strain of thought that – again, whether right or wrong – still has an solid foothold in the online gambling debate and beyond. 

The most obvious and immediate effect of Adelson’s comments is political. Adelson has become a kingmaker in the Republican Party, donating millions of dollars to candidates and causes, notably 2012 Republican primary entrant Newt Gingrich. With Adelson’s hard line now clearly drawn in the sand, Republicans nationwide with hopes for higher office may be more reticent to support any type of iGaming bill, whether at the state or federal level. US politicians have not lately been renowned for their courage, and few Republicans of any stripe may be willing to cross a man who is already, according to the New York Times, “the biggest single donor in political history,” and who told the Wall Street Journal in the wake of Barack Obama’s re-election in November that he planned to double his donations going forward. 

As such, Adelson’s statement provides yet another stumbling block toward Republican support of any federal bill to legalize and regulate online gambling. Indeed, one has to wonder if it is sheer coincidence that Adelson’s media blitz came two weeks after the submission of the first federal bill with a Republican sponsor, Representative Peter King (R-NY) of Long Island. To be fair, Adelson was asked by Bloomberg if his attitude affected his opinion toward New Jersey governor Chris Christie, now in charge of the largest regulated online gambling market in United States history. Adelson replied that “I don’t reward or punish politicians…I’m not trying to be a dictator.” But he also made sure to point out later in the interview that “I like other candidates as well.” 

Regardless of Adelson’s intent, his recent statements seem likely to have a chilling effect on a party that has already shown little inclination to support iGaming legalization at any level. It’s also important for members of the iGaming industry – and investors in stocks with potential exposure to online gambling – to understand that whether or not Adelson’s views are correct, or logical, or factual, is not the only issue. Being right in business, politics, or law is nice – but it hardly guarantees success. 

The fact is that Adelson’s views are shared by millions of people around the world. It is why the gambling industry is one of the most-regulated in the world; it is why casino expansion is often treated as a scourge to be contained rather than the growth of opportunity for consumers to do, you know, what they actually want to do. Adelson’s statement that the slogan for iGaming regulation should be “click your mouse and lose your house” is not much different than that of the Korean minister who claimed that his own citizens did not have the type of “mature culture” that could permit them to visit land-based casinos simply for leisure. 

This attitude is overprotective at best and downright condescending at worst. But it exists; and it retains a great deal of power and appeal. When industry insiders and investment analysts argue that online gambling in the US is “inevitable,” or when Morgan Stanley forecasts $9 billion in US iGaming revenue in the year 2020, they fail to respect the fact the appeal of the argument that Adelson makes. “We need to protect people from themselves” may sound to many of us like the squeal of a paternalistic busybody who needs to mind his own business; but it is a concept that drives many political debates. 

One need only look at, for instance, the debate over legalization of marijuana in the United States. The battle lines of that debate are similar to those of online gambling; legalization advocates tout individual freedoms and the risk of driving consumers to the black market, while opponents point to the supposed negative societal effects and self-destructive outcomes caused by increased access. Indeed, the terms used by Adelson in his op-ed, which described online gambling as a “plague,” a “toxin,” and “a threat to our society,” have been used by “anti-drug” crusaders to describe marijuana as well. 

Yet, despite recent ballot initiatives in Colorado and Washington, legalizing recreational use, marijuana legalization remains largely stalled in the US. True, eighteen states (and Washington D.C.) have medicinal marijuana programs, but at the federal level, little has changed. Salon reported this weekend that U.S. Attorney Mike Cotter of Montana – an Obama appointee – is threatening marijuana growers in the state with life sentences for their actions, despite a 2009 US Department of Justice memo that instructed federal law enforcement to respect state law. That paper – known as the Ogden Memo – sounds an awful lot like the December 2011 opinion that appeared to legalize intrastate online gambling. One wonders if a new administration in 2017 – perhaps with a president whose election was boosted by millions of dollars from Sheldon Adelson – will take the same tack with state efforts to regulate online gambling that the Obama administration has toward state efforts to regulate marijuana. 

That is admittedly a worst-case scenario, and it would seem unlikely that the federal government would override efforts in New Jersey, Nevada, Delaware, and future states. (Of course, nobody saw the UIGEA coming, either.) But what the marijuana legalization effort shows is that simple public support is not enough. According to 2001 data, 42.4 percent of Americans had smoked marijuana at some point in their life; given recent medical marijuana regulation, that number is no doubt higher, perhaps closer to 50 percent. That number alone would seem to support an overall tolerance for the use of marijuana, even if one includes an astounding number of hypocrites among the 45 or 48 percent of users. Yet, despite that support, legislative action has been limited. Indeed, marijuana regulation efforts have succeeded primarily through ballot initiatives – not through the legislative process. Only seven states (and the District of Columbia) have allowed medicinal use of marijuana through legislature-led action, according to data from ProCon.org. 

The reason is likely the large disincentive for any politician to be a first mover on a divisive issue. No state representative wants to sponsor a medical marijuana bill and then have a teenager crash his car while high on medically obtained marijuana six weeks before an election. Nor they do have a real incentive to sponsor an iGaming bill that has 55 or 60 percent public support, when opponents – such as religious groups, “family values” coalitions, and potentially Native American tribes – have substantial political clout and resources that are disproportionate to their minority status in the debate. That is the threat that Sheldon Adelson represents; and those in the iGaming industry who underestimate that threat will likely regret it. 

To use another example, my newly adopted home state of Illinois has a ban on “happy hour” specials. Most everyone here in Chicago that I’ve met thinks the ban is, simply put, stupid. (To be fair, that sample is not necessarily representative. Most of the people I know are rather fond of alcohol, myself included, and the cheaper it is, the better we like it.) From my vantage point, it would appear likely that a public poll of Chicago residents would find support in the range of 65 or even 75 percent in favor of overturning that ban. 

But who is going to do it? Which state congressman, with an eye on a House of Representatives seat in 2018, is going to sponsor a bill to increase the supply of cheap liquor? Who is going to take the risk of a front-page photo in the Chicago Sun-Times two weeks after the bill’s passage, showing the twisted wreckage of a massive accident caused by a driver drunk off discounted whiskey? The bill was passed in 1989, and a Tribune article at the time noted instant displeasure toward the ban by many consumers. (Notably, tavern owners were rather satisfied.) It didn’t matter at the time, and it wouldn’t matter now. The chance of that law being overturned is slim at best, for reasons that may not be right, or logical, but should be rather obvious. 

This is the challenge for iGaming advocates in the US, and this is why investors in gambling stocks need not pin their hopes on future online gambling profits. This is why Sheldon Adelson matters. He may be stubborn, ill-informed, and misguided. He may have more political influence than any one man in a democracy should have. He may be flat-out wrong. But he matters, and the industry and investors need to understand why he matters, and proceed accordingly. 

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