The Pyramid Scheme
by John Branston
When it comes to gambling in Tennessee, what's "impossible" in Nashville is low-hanging fruit in Memphis.
That would be, of course, casino gambling, not the lottery whose pesky details are bedeviling Gov. Phil Bredesen and the General Assembly.
For Memphians, the lottery has all the excitement of a new convenience store. Anyone with $100 and a car can enjoy casino gambling with better odds, good food, and big-name entertainment 40 minutes away in Tunica. It's the difference between a champagne buffet and a bag of Krystals. When the lottery starts, Memphis, with the largest poor population of any city in the state, will be supporting the college educations of middle-class Tennesseans on the backs of its immobile underclass.
Mike Rose, former CEO of Holiday Inns and Promus when they were headquartered in Memphis and in the casino business through their Harrah's subsidiary, said casinos appear to be illegal under Tennessee law but the idea has considerable merit.
"Having a location like The Pyramid would be fantastic as opposed to having to shlepp down to Tunica," he said.
Hard times call for fresh ideas, and what was considered impossible yesterday is taken for granted today. Just 15 years ago, the big gambling issues in the Mid-South were horse racing and charity bingo. Today, there's an anything-is-possible spirit in the Bluff City, tempered by the realities of deficits, service cutbacks, and tax increases in local and state government. In that context, the idea of turning The Pyramid into a casino after FedExForum opens is worth discussing. Instead of paying Mississippi's bills, gamblers could pay some of Tennessee's.
At the urging of Commissioner John Willingham, the Shelby County Commission may reconsider next week giving a casino consultant the go-ahead to explore the barriers and benefits. Shelby County Attorney Donnie Wilson has inoculated the proposal with "whereas" clauses aimed at making sure the county wouldn't have to pay for anything. Lakes Entertainment would do the legal, economic, and legislative research for free. If anything came of it, Lakes could compete to be the operator or take a $20 million finder's fee from the winner.
Willingham, who once campaigned bare-chested, was elected last year. He is on a lonely crusade at this point.
"Until somebody proves to me that this thing has legs, we're not going to get in the middle of it," said Kevin Kane, head of the Memphis Convention and Visitors Bureau, which has Tunica casinos as members.
There are concerns about how a casino would fit in downtown Memphis.
"In my experience, most casinos basically want to keep all the patrons inside the casino," said Beale Street developer John Elkington, who also has a development in Shreveport, Louisiana, between two casinos. "They don't want to share with restaurants and other businesses. The casinos are really not helpful with respect to driving tenants into the entertainment district."
Kane and Elkington agree that a Pyramid casino would make a lot of money for its owners. Kane estimates it might get a third of the $1.3 billion business now going to Tunica.
"The real question boils down to two things," said Elkington. "Will we be able to get taxes that would help reduce the tax burden we have in the state and will it promote economic development in this community?"
Several states are using taxes from riverboat casinos or negotiated payments from compacts with Indian casinos to help close deficits.
Mississippi, of course, is the closest. The Mississippi Gaming Commission estimates that 28 percent of Tunica gamblers are from Tennessee, with most of those coming from Memphis and Shelby County. That translates to roughly $365 million for the casinos, which pay combined state and local taxes of 12 percent.
In Connecticut, two Indian casinos gave the state's general fund over $300 million last year. Indian casinos are regulated differently from the casinos in Tunica or Las Vegas. Tribes recognized by the federal Bureau of Indian Affairs enter into compacts with state governors. If granted a monopoly, like the Pequots and Mohegans have in Connecticut, they give up as much as 25 percent of their slot- and video-machine winnings. If they compete with other casinos, they pay next to nothing. The Choctaw-owned casino in east Mississippi, which negotiated its compact with former Governor Ray Mabus, pays the state $250,000 a year.
Lakes Entertainment specializes in doing the legal and political spadework for Indian casinos. While Indians were undeniably an important part of Memphis history, the state attorney general has said "there is no Indian tribe which holds Indian land in Tennessee."
That's not to say that consultants, politicians, and creative draftsmanship couldn't change that. The attorney general has also noted that "the regulation of all types of gambling, other than lotteries, is a matter for determination by the General Assembly." Lottery proponents recognized as much when they included anti-Indian casino booby traps in the language of last year's lottery referendum.
Legalities aside -- and that's a big aside -- a Pyramid casino, Indian-owned or otherwise, is a potential 800-pound gorilla. As broadly outlined in the Lakes Entertainment proposal, The Pyramid's debt and operating losses would shift from the city and county to the casino operator. The owner/operator would get first crack at the fourth-largest casino feeder market in the country, thousands of potential employees, and the existing parking and easy access from Interstate 40. At Mississippi tax rates (8 percent state, 4 percent to the county where the casino is located), a single casino that earned $300 million would pay $24 million a year to the state and $12 million to Shelby County.
A Pyramid casino could revive the Mud Island Amphitheater as a concert venue. Entertainers go to Tunica where the casinos can pay them more because they're effectively subsidized by the gamblers they bring in. And no one has come forward with a better idea for The Pyramid, whose future obsolescence and financial burden were predicted by Rose and others during the debate over the new arena.
"That's 16 months away, and so far Willingham's the only one talking about it," said Kane. "We better start thinking about what to do with The Pyramid sooner rather than later."
On its surface -- literally -- converting a pyramid-shaped arena into a pyramid-shaped casino seems doable. A casino hotel called Luxor in Las Vegas, built about the same time as The Pyramid, is its virtual golden twin from the outside: 30 stories tall with 2,256 hotel rooms. The Pyramid's interior space, from the makeshift exhibition hall used by the Wonders exhibition series to the dazzling but never-developed room at the top, presents both challenges and opportunities. New Orleans and Detroit imposed restrictions and requirements on downtown casinos to keep them from overwhelming other attractions and businesses. In New Orleans, the highly touted Harrah's casino fell far short of expectations (even though it is the only land-based casino in the city) because it was forbidden from adding hotel rooms or upscale restaurants.
Ralph Berry was vice president of communications for Harrah's Entertainment when it opened its Tunica and New Orleans casinos. He now works in public relations for Thompson and Company in Memphis, which does not do business with casinos.
"If there are too many restrictions, it's not good for the casino and it stifles the additional development that traditionally would take place around it," he said.
He sees another potential controversy if the idea ever takes off. "The moral argument is not moot," he said. "It is one thing to have to travel 45 minutes to gamble and an entirely different thing to be able to walk from work or housing. Whoever operates an urban casino should have very aggressive responsible-gambling programs and ways to keep those who can't afford to be there from being there."
There is nothing stopping Shelby County from dealing with someone other than Lakes Entertainment, which has development and management contracts with four Indian tribes and is hardly a giant in the industry. Lakes, a publicly traded company, is an offshoot of Grand Casinos, which operates in Tunica and on the Mississippi Gulf Coast. In 1998 the Mississippi properties were merged with the gaming division of Hilton Hotels to form Park Place Entertainment. Grand's Indian casino management business was spun off into a new company that became Lakes Entertainment. Its CEO, Lyle Berman, was one of the founders of Grand Casinos and oversaw its huge investment in Tunica.
Berman and Lakes Entertainment got a foothold in Shelby County through Willingham. He began working with them during the campaign for the Tennessee lottery referendum and introduced the Pyramid casino resolution to the commission in March.
If Willingham's resolution fails next week, a state legislator named Steve Cohen could tell him a little about the value of persistence in the cause of legalized gambling. The lottery referendum Cohen authored took 18 years.
Additional reporting by Mary Cashiola, Janel Davis, and Bianca Phillips.
The Lottery Battle
by Jackson Baker
State Sen. Steve Cohen struggled for years to get a lottery referendum authorized by both chambers of the legislature, then oversaw a strenuous campaign last fall to get voter approval, and even now is involved in a multifront battle to get what he regards as an acceptable version of the lottery through the General Assembly and past some structural obstacles posed by Governor Phil Bredesen.
Under those circumstances, the Midtown senator has little to offer John Willingham in the way of either advice or sympathy. "It's a fantasy," he says bluntly, offering some chimerical visions of his own. "I'd like for Exxon Mobil to move their headquarters to Memphis. I'd like to see the Pacific Ocean waterfront moved to Front St. with lots of hotels and wonderful lobster restaurants."
Cohen's belief is that talk of putting a casino into The Pyramid is counterproductive in a double sense -- "It detracts from the real issues of the lottery and from the question of what we do with The Pyramid" -- and the senator is unmoved by speculation that the state Constitution does not expressly prohibit casino gambling. "As far as I'm concerned, the attorney general's ruling doesn't say that. Not only has he [State Attorney General Paul Summers] said that casinos are unconstitutional, he has also ruled that there are no registered Indian tribes in Tennessee, and no application from any tribes to be so considered."
With that, Cohen dismisses the whole Pyramid-as-casino concept as hypothetical and says, "I don't get into hypotheticals."
Cohen is a notoriously complex personality, equal parts Mr. Congeniality and firebrand, famously determined, and, some say, overly competitive. In any case, there are those who see his disdain for Willingham's casino effort as an instance of perceived rivalry. But that sense is dampened somewhat by a conversation with Cohen's Senate colleague Jim Kyle. Kyle serves the working-class population of Frayser and Raleigh and is allied with Bredesen this year in resisting provisions of Cohen's lottery concept, which Kyle sees as favoring the state's elites against the interests of common folks. Kyle has also butted heads with Cohen repeatedly over the years over this issue and that, and, though the two Memphis senators entertain a kind of mutual respect, they are conspicuously short on mutual affection.
Even so, Kyle is like-minded about the Willingham proposal, at least partly because of the provisions of the constitutional amendment effected by Cohen last year and approved by the voters. The concept of casino gambling is legally unsound, says Kyle, because "Senator Cohen, in his infinite wisdom, in order to pick up a couple of votes (in the legislature), expressly forbade casino gaming."
Beyond that, Kyle's reaction, like Cohen's, borders on scorn -- indeed, crosses that border. "I thought Mr. Willingham served barbecue instead of pie in the sky. This is unrealistic. It's putting your hope on something that's going to bail you out of having to make some tough choices for the county."
Laments Kyle: "We missed our opportunity when Tunica was born. There wouldn't be one more Memphian gambling if we'd moved on it when they did. We'd have all the convention business. There'd be half a billion dollars on the property tax rolls. But that train left town 10 years ago."
What if the constitutional issue were resolved in favor of permitting casino legislation in the General Assembly? "No way," says Kyle. "I don't know of a single Republican in the Senate that would vote for it. The Senate is more conservative now, more Christian-right, than it was 10 years ago." And, opines the senator (like Cohen, a Democrat), prospects would be equally bleak in the state House of Representatives.
Meanwhile, the state lottery itself is in the category of unfinished business, and Cohen and Kyle are quite likely to square off against each other this week and next -- Kyle wearing the governor's colors and Cohen championing legislative prerogatives -- as various bills to implement the lottery inch their way toward the achieving of a final product.
Various sticking points that were prominent earlier in this term of the General Assembly have more or less been overcome. Some key ones remain. One question to be resolved is the disposition of lottery proceeds -- designated, under terms of the constitutional referendum, for college scholarships -- with "excess" funds (i.e., those unclaimed by eligible scholarship applicants), destined for early childhood education.
There is tentative agreement that scholarships should be pegged to applicants' grade-point averages, with 3.0 being the qualifying figure more or less agreed on, though some members of the legislative black caucus -- and Kyle -- still think that bar is too high. "He's caved in to the very people who kept him from passing the lottery all those years, the right-wing Republicans," says Kyle of Cohen's acceptance of this provision, as well as of others also favored by legislative Republicans -- waiving an income cap on recipients' eligibility and allowing scholarship money to be spent at private Tennessee institutions, as well as public ones. Though he acknowledges making concessions, Cohen insists that these were not primarily to Republicans in the Assembly so much as to worthy institutions like Christian Brothers University in Memphis and, in several instances, to Bredesen himself.
Still at issue is the point at which scholarship money would be considered paid out. Also still being debated is what would happen to the remaining funds. Recently beaten back as old-fashioned "pork" was a rural legislator's proposal to dispense "leftover" funds equally to the 99 House districts for disbursement on educational projects to be chosen by the recipient legislators. Cohen's House co-sponsor, Rep. Chris Newton, a Turtletown Republican, has come up with a proposal to set aside, in advance, $25 million for pre-kindergarten purposes. Cohen himself has not signed off on that idea, and he is even more dubious about Newton's call for scholarship levels to be dropped from $4,000 to $3,000 (though poverty-line students would be entitled to additional stipends).
But those disagreements can be worked out. The real showdown is between Cohen and Bredesen over the point-blank matter of control. There are four areas of conflict:
1) An "ethics" or "revolving-door" provision which Bredesen insists on to prevent members of the General Assembly from working in control positions on the lottery for two years after the completion of their legislative service. Cohen, who took umbrage at that provision as having been designed to impugn his own motives, has countered with an amendment requiring professional experience in the field for a lottery director. "That eliminates me from the job," says Cohen, who has for his part alleged that some of the governor's own associates may be angling for a piece of the action.
2) The issue of vetting annual budget estimates, which Cohen thinks should be the work of the lottery's private board of directors and which Bredesen believes is the responsibility of the state Funding Board, operating under executive aegis.
3) The governor's proposed "procurement board," consisting of the state finance commissioner, treasurer, and secretary of state, which would review the private directors' proposed contracts and purchases and which would own veto power over them; Cohen and other legislators, including House Speaker Jimmy Naifeh, oppose this vigorously and insist on hewing to the model of Georgia's state lottery, which served as the model case in last year's legislative and electoral action on the lottery.
4) Finally, and most importantly, a clear difference of opinion on who should appoint the lottery's board of directors and, ultimately, control the lottery itself. In addition to the government oversight mentioned above, the governor wants to appoint three members of a five-member board of directors, with one each to be named by the House and Senate speakers, respectively; Cohen and legislators in general have proposed a nine-member board, whose members are appointed in equal measure by the governor, by the House speaker, and by the Senate speaker (lieutenant governor). Clearly, this part of the battle is a tug-of-war between branches of government.
All of this will get resolved in the next fortnight, and Kyle, a believer in close government regulation of outsourced activities and a Bredesen supporter who was dubbed "Phil's boy" by a Nashville columnist in recognition of his hand-in-glove closeness to the governor, concedes that Cohen has legislative "traction" on many of the disputed issues. But, after all the hardball has been played, the final tally is likely to show that both sides have scored, compromise still being the name of the game in Nashville.
That's how politics is played in Shelby County government as well; the question is (to return to the pending issue of converting The Pyramid into a gaming casino) whether Commissioner John Willingham can comply with those standing rules of play. The basic conclusion to be drawn from his several months of service so far is that of an unpredictable maverick -- hewing neither to a Republican nor a Democratic line, nor one reflecting either urban or suburban values as such. Elected as a populist of the right, he is pro-consolidation, flexible on development, but intent on playing watchdog over the FedExForum now being constructed. He can be regarded as either broad-minded or opportunistic, depending on how one looks at it.
Both qualities can serve him well during next week's commission showdown over his resurgent casino proposal. If Willingham had his druthers, he would have Shelby County government begin to implement a scheme he has drawn up of staggering complexity, one that would totally remake the way procurement and construction are carried out in the county. Or, he can settle for half a loaf (in his case, one should probably say a 10th of a loaf), forgoing his threat to take back his pivotal vote last week for rural school bonds -- a threat which, if carried out, would force Commissioner David Lillard, in his words, to fight Willingham "tooth and nail" in ways Lillard left unspecified. And Lillard would scarcely be alone in that regard. Meanwhile, Democrats so far partial to the casino project but opposed to rural school bonds are eyeing Willingham warily from the other side.
Ironically enough, the short-term success of Willingham's casino initiative depends on how much of a gambler -- and how good a gambler -- he turns out to be.