What Caesars Really Wants From Their Lawsuit in Massachusetts, and Why

massgamingRecently, Caesars filed a suit against the Massachusetts Gaming Commission and  Chairman Steven Crosby, for violations of Caesars due process and equal protection via the Fifth and Fourteenth Amendments of the Constitution. They also cited tortious interference against Crosby individually for interfering in the relationship of Caesars and Suffolk Downs Racecourse.  Suffolk Downs had originally picked Caesars to be their operating partner for a casino yet to be built in Massachusetts, but when questions arose about the possible suitability questions of their partner, the Racetrack asked them to back out, and they did.

In the lawsuit filed, Caesars claim all kinds of mistreatment by Crosby and the commission. They make several assumptions that certain alleged actions by the commission were made at the behest of Crosby, but there is no evidence cited to make those assumptions true. They even took the opportunity to throw their “friend” MGM under the bus, citing possible implications for MGM re that company’s suitability because of what was on the record in New Jersey since 2009 regarding MGM’s relationship with a possible element tied to organized crime.  MGM have since made changes to that aforementioned connection and have now reapplied to be reconsidered in New Jersey.  That process is ongoing.  After Caesars filed their lawsuit, Massachusetts voted unanimously to find MGM suitable for licensing. 

Caesar have also alleged that Spectrum Gaming Group (the company hired by Massachusetts Gaming to conduct the background investigation of Caesars for licensing suitability) made a recommendation to the Commission to grant Caesars suitability which was ignored, but Spectrum has already denied to Las Vegas Review Journal reporter Howard Stutz that that ever happened, they never made any such recommendation in their draft report.

Such is the gift to Caesars (and anyone else) for judicial immunity when making claims in a lawsuit. They can (with very limited exception) make any claim they wish, even if they know it’s not true, and face no sanctions.  But the question is, why even file this lawsuit to begin with?

Caesars admits to having spent over $ 100 million on the project since they came on board.  But its not about the money.  Caesars bleeds money.  Even with over $ 23 billion in debt, they just find a way to print more of it.  The likely real basis for the lawsuit is what Caesars is asking a judge to rule, namely that the suitability process used by the Gaming Commission was constitutionally flawed. While I cannot find any gaming attorney or constitutional expert that thinks this could happen, most agree it’s an interesting suit. In every single case, each expert I spoke to agreed that a judge would be hard pressed to second guess a regulatory agency decision unless some extreme circumstance called a decision into question, but to say that the process itself is unconstitutional would never happen. The regulatory agencies themselves undertake long and arduous investigations into backgrounds of applicants, sometimes taking a year or more, something a court would not do. As for allegations that Crosby may have had a conflict of interest, the fact that he had already disclosed this to his superiors (albeit not publicly) probably clears his path. In addition, Caesars are claiming that they “believe” all of the statements, actions and recommendations that went against them were at the behest of Crosby specifically to remove them as competition, but their “belief” is not evidence.

Caesars walked away from the project voluntarily.  They did so without ever having to see a rejection as to their suitability and in fact, prior to any recommendations being filed. Their own SEC filing states that the company has never been found to be unsuitable and that no final findings had been issued in Massachusetts before they voluntarily withdrew from consideration. IF they had actually been found to be unsuitable, that of course would have followed them into every jurisdiction where they already have a license or where they might be planning to apply for one.  There is the rub.

The filing of the lawsuit also now becomes part of their requirements for disclosure at any licensing or re-licensing process. If a judge rules against them here, which experts say is likely, they might be asked, in other juridictions, to relive the questions as to their relationship with Gansevoort and any potential money laundering implications, their CEO of Caesars Interactive, Mitch Garber could be asked to respond to questions about his CEO tenure at various companies that admitted to committing felonies related to igaming and payment processing for sports betting, they might have to justify their debt of almost $ 24 billion and they will likely again be asked to explain their actions regarding treatment of a high roller customer, Terrance Watanabe and the litigation that encompassed their relationship.  Whether they ever try to apply again in Massachusetts wouldn’t matter.  They have cleared their way in various states over the years to be approved, but as for i-gaming alone, there could be 47 more states in which they would have to disclose this lawsuit and potentially answer questions again  regarding each of the alleged areas of possible unsuitability.  It is well known that Caesars lobbied hard in New Jersey, and in the federal gateway for online gaming. They continue to spend millions lobbying further in various states across the country who may be looking to determine their suitability for licensing in the near future. Just how often they would be willing to defend these allegations and more importantly, how often they may NOT be successful in doing so, remains to be seen.  Their only sure way to avoid these lengthy processes, would be to have the process in Massachusetts declared unconstitutional.

Garber’s Hearing in New Jersey – Don’t Ask, Don’t Tell

garber hearingFollowing the information in Massachusetts becoming public, Caesars Interactive (CIE) CEO Mitch Garber, underwent a public licensing hearing in Atlantic City.  Such a hearing was necessary to complete the application for CIE with respect to online gaming in the state. Garber testified and answered questions for almost 90 minutes, discussing his tenure at both Optimal and Party Poker, both of which admitted to committing felonies with respect to operating payment processing services and igaming in the USA prior to UIGEA while he was CEO at both companies (he also was CEO at Firepay prior to Optimal, but that was never discussed. Optimal eventually acquired Firepay and Neteller).  Garber spoke that he had operated in “gray areas” because he had legal advice at the time that what his companies did was not illegal (such a defense is reminiscent of some defenses following Black Friday).  He did say however, that once he went to Party Poker as CEO in April 2006,since  he KNEW that taking wagers for sports betting was surely illegal, he demanded that Party have no connection to sports wagering at all. He neglected to mention however, that at Firepay and Optimal, under his leadership, both companies processed for sports betting in the USA for many years.  Not surprisingly, his attorney, who led him through the questions, did not raise that subject either,  Very surprisingly however, the NJ DGE also did not bring up this inconsistency in his testimony.  I questioned the DGE later about it, and was told that sports betting was not part of their questioning line. Most other possible non-i-gaming felonies were also not part of the process, but one would still imagine that a record when determining personal suitability should reflect one’s true history. Garber can skate by on a criminal level, since the statutes of limitations for such indiscretions have long passed, but that could not and should not stop the questions from being asked.  If not by Nevada or New Jersey, certainly by every other state where CIE and Garber may look for licensing in the future.

Garber and Party Poker (now bwin.Party), got lucky when the US government “gifted” them with UIGEA in 2006 as a way to get out of online gaming in the US without ever having to admit they knew it was illegal all along.  As proponents for online gaming in the USA these days, possibly to help save them from further financial debt, Caesars and Garber are hoping that luck continues to hold.

This entry was posted in News and tagged , , , , , , , , . Bookmark the permalink.

Comments are closed.