Bingo Bill: Sweet Home Alabama, Part Deux

Walt had a good post the other day about the newly introduced “Sweet Home Alabama” bingo bill for this legislative session (HB507).  I just finished reading through it and it seems substantially similar to the previous version of the bill.  In other words, it had the same offensive provisions.

My major beef with the bill is that it is monopolistic in nature.  It constitutionally ensconces established operations as the sole destinations for bingo in their county (and sometimes congressional district).  Starting on page 10, line 25:

Only one point of destination may be authorized in such county authorizing federally recognized bingo after the ratification of this amendment and ratification of the subsequent local constitutional amendment.

Oh, and a “point of destination” is a bingo hall with not less than 1,000 machines that cost at least $100 million to build.

At first blush it seems like there could be up to 67 bingo halls, each with at least 1,000 machines, across our great state dependent on passage of local amendments.  But Section 7 on page 22 seems to contradict this:

Section 7. Limit in the number of bingo points of destination.

The seven Congressional Districts in the state shall be allowed one or more points of destination as follows:

(1) Congressional District 1, one point of destination which shall be the racetrack in Mobile County;

(2) Congressional District 2, three points of destination consisting of the Houston County bingo licensee and the two City of White Hall bingo licensees;

(3) Congressional District 3, one point of destination which shall be the racetrack in Macon County;

(4) Congressional District 4, one point of destination which shall be selected by the State Gaming Commission;

(5) Congressional District 5, one point of destination which shall be selected by the State Gaming Commission;

(6) Congressional District 6, two points of destination, one point of destination of which shall be the racetrack in the City of Birmingham in Jefferson County and one point of destination which shall be selected by the State Gaming Commission; and

(7) Congressional District 7, one point of destination which shall be the racetrack in Greene County.

Section 7 specifies that only ten “points of destination” are allowed.  Seven of those are already in existence.  It is a bit curious that District 6 is the only district with at least one existing “point of destination” that will be constitutionally allowed to add another one.  Does one of the gaming big wigs have plans in place?

Then there is my favorite section, the one that Alabamians should find particularly odious. (Emphasis mine)

Page 16, Line 11: In order to discourage predatory competition among the points of destination that may legally conduct federally recognized bingo pursuant to this amendment, the operator of any point of destination is authorized to enter into an agreement with the operator of another point of destination to share profits from the conduct of federally recognized bingo in such proportions and to cooperate in such manner with respect to conducting federally recognized bingo as such operators may deem to be mutually beneficial.

I asked this last year: “What is ‘predatory competition’ anyway?”  That section is nothing more than legalized collusion among the bingo operators.  Allowing entities to enter into profit sharing agreements in a market where so few entities can operate means that they can artificially pad their operating margin to squeeze more money out of patrons.  Normally businesses, including casinos, would try to increase market share by luring customers away from competitors with better value.  This section could mean there were no competitors!  Since Alabama bingo halls could equitably split the profits there would be no need to try to slash “prices” (i.e. increase payout ratios) to win more business.  Codifying this into the constitution would be reckless.

Commenter “Therm” on Walt’s post offered up a much more agreeable framework for legalizing bingo:

Establish a maximum number of machines allowed statewide. Limit each Congressional District to a fixed amount. Require companies to bid on medallions for each machine good for 5 years. At the expiration of the medallions, bid them all out again. Proceeds from the bids on the medallions is deposited in a trust fund with the interest to be used by the Alabama Department of Human Resources to help the fools who are destroyed by gambling, to law enforcement for the expected increase in crime resulting from the establishment of the gambling halls and to the gaming commission to enforce the law. Prohibit any person or company from owning more than one establishment and cap the maximum number of medallion authorized machines at each location to 500. Require each county to conduct a separate vote on whether or not to allow medallion authorized machines in their county. Create a state gaming commission to oversee the public auction of the medallions, licensing the establishments, auditing of the establishments and enforcement of rules and regulations needed for controlling the gaming industry. Repeal authorization for all local gaming commissions or similar bodies. Set a state and local tax on the gross proceeds from the machines. Require the state gaming commission to do a body cavity background check on any persons or companies bidding on the medallions with absolute prohibition for any one with any felony conviction. Prohibit persons or companies holding medallions from making any contributions to any public official or PACs. Require any non gambling operations co-located on site (like hotels and restaurants) with the medallion authorized machines be totally seperate businessses [sic] enterprises with only a contractual relationship with the holders of the medallions.

The key element there is the medallion system that lets interested parties bid for the right to operate gaming equipment.  That is FAR better for the people of Alabama than constitutionally protecting, for example, Milton McGregor’s operations.  McGregor would have a huge incentive to outbid others for medallion rights since he has already made substantial infrastructure investments, but let’s not just give him that right while keeping it from others.  I’ll be honest, if HB507 above was modified to remove all the anti-competitive claptrap and replace it with a competitive, medallion based system then I would be a vocal proponent of this legislation.

Therm also brings up another good point regarding the social ills of gambling.  I’m all for more liberty, including allowing grown men and women to throw away their hard earned money if they see fit.  But we shouldn’t pretend that the subsequent gambling addictions won’t happen.  It would be wise to provide DHR with funding to cope with the problems that gambling brings.

The bill also specifies how the proceeds would be taxed:

Page 18, Line 18: A state gross receipts tax on federally recognized bingo games using bingo equipment at each point of destination is hereby levied in an amount equal to 20 percent of the bingo gross revenue derived by the operator therefrom. A local gross receipts tax on federally recognized bingo games using bingo equipment at each point of destination is also hereby levied in an amount equal to five percent of the gross revenue derived by the operator therefrom.

I’m not one to demand a punitive level of taxation.  Taking away a quarter of gross revenue seems adequate.  I assume that operators will still be subject to income taxes on their net income, which will result in them bearing a substantial tax burden.

Update: According to The Montgomery Advertiser Gov. Riley called the bill “the biggest fraud ever perpetuated on the people of Alabama.”  That’s right, it’s a bigger fraud that an unnecessary proposed billion dollar tax increase!