“Regulators are in the best position to regulate when they are intimately knowledgeable about the activities they are regulating.” —John Thain
One of my new-found habits is reading the Malta newspapers on a daily basis. This is for both personal and professional reasons. While recently involved in this activity, I came across an article announcing that the island nation is running an advert soliciting applications for the CEO position of the gaming authority. The article also suggested that this public call was a new approach to sourcing candidates for this position.
I then went to the Malta Gaming Authority website and found the solicitation. As is typical of most adverts for jobs, it contained numerous bullet points as to the duties and desired qualities of the ideal candidate. It also included an interesting sentence at the bottom of the presentation that stated: “Experience in the gaming industry will be deemed beneficial.” I found this line fascinating.
In the U.S., gaming regulation owes its heritage to the development of the Nevada regulatory model. Back in the day when Nevada was the only state in the nation that allowed casino gaming, there was a great deal of unwanted federal attention suggesting that the early Nevada operations were, shall we say, mobbed up.
In an effort to mitigate any negative consequences from this perception, the state set out to build a regulatory apparatus to help reshape the industry’s image. In essence, an attempt was made to legitimize the industry by providing the perception that participation by inappropriate people in the Nevada casino industry was avoided thanks to the regulatory intervention in the market as provided by the Nevada Gaming Commission and the Nevada Gaming Control Board.
Part and parcel to this history was a tendency to hire the top regulators from the lay population—that is, the regulatory leadership would have no connection with the industry and this was driven by that old fox-in-the-hen-house thing. An early example of this was the appointment by Nevada Governor Grant Sawyer of a regulator who was highly influential in shaping the Nevada regulatory model, especially in the area of suitability. The appointment Governor Sawyer made in 1961 was for Mr. Ed Olsen to be chairman of the Nevada Gaming Control Board.
During his tenure, Governor Sawyer was heavily challenged by an aggressive stance on the part of the head of the FBI, the Attorney General of the United States, and other national political figures who were making dangerous overtures that could affect the future of Nevada gaming, an industry that was of growing significance in the Nevada economy. Mr. Olsen was the individual selected by the governor to lead the state away from this trap and he had a pedigree not as a casino or gambling expert, but as a journalist who served as the Associated Press wire-service correspondent covering parts of California and Nevada in the 1950s. This tendency to hire lay people has often been repeated in Nevada and has been exported out of Nevada to other jurisdictions that mimic the Nevada model. In short, many people in key leadership roles in gaming regulation really do not have much of a hint as to what gambling is about.
This is not a customary approach in many non-gaming regulatory efforts. My guess is that most people would be a bit alarmed if they were approaching a complicated heart surgery and discovered that many aspects of this surgery were codified and approved by a group of people who had no experience in medicine or surgery. People on an airline at 32,000 feet may not welcome the insight that the approval process for the aerodynamic qualities of the aircraft received final approval by a lawyer, accountant, and ex-police officer. I suspect that most people, as they approach a bridge, assume that someone approved this bridge who understood the many technical relationships that need to be in place to keep bridges from falling down or tipping over, and so on and so forth.
I am a strong advocate of understanding the historical roots to things. My motivation in this regard is that if one understands the historical underpinnings of institutions, they can modify those institutions when the historical reasons for things being as they are no longer exist.
A great deal of public polling suggests that casino gaming is a socially acceptable outlet for a wide majority of the American public. While such a shift is attributable to a great many different influences, it should be understood that the efforts of what was perceived as strong regulatory oversight of the industry in Nevada, and copied throughout the U.S., did pay dividends. Not only was Nevada able to hold off any efforts by the federal government to materially damage the industry, but the state’s effort led to the development of a product that has proven suitable for export across many states of the United States.
It has long been my position that organized crime is long gone from the U.S. gaming industry (it is also one of my favorite jokes to suggest that it has been replaced by unorganized crime in the form of the modern gaming corporations). The point is, the mob is basically gone, and it has been gone for a long time, yet there are residual actions that are a legacy of the mob days—and these include the dependence upon lay people to try to regulate the industry.
Given these changes in the character and perceptions of the industry, I believe that the initial logic of appointing lay people to key regulatory positions has outlived its historical roots and its usefulness. In addition, this appointing of lay people has allowed the appointment process to become overly politicized.
When I was a gaming commissioner in the state of California, I was the first commissioner to ever have gaming experience in the history of the that commission. Moreover, all of my fellow commissioners (and almost all of my predecessors and successors on the commission) had two things in common – they had previously worked for the state of California and lived in the Sacramento metropolitan area. That seemed a bit weird for a very large state with a diverse population approaching 40 million people.
The complexity of the gaming industry has grown exponentially through time. Many new gaming verticals, the utilization of the Internet as a delivery channel for gaming products, changes in the banking and payments world, efforts to control the presence of money laundering, and an ever-increasing complexity of gaming law are but a few of the top-line issues challenging regulators today. One does not come to understand these issues and the interconnectivity they possess in the gaming industry by attending the orientation phase of the commissioner intake process.
Another trend that is becoming quite widespread is the use of the appointment process as a political tool. Since there are few requirements about having gaming regulatory leadership know anything, the politicians can basically appoint who they want. Commissioners throughout the country often appear to be party loyalists who had lost an election, were termed-out, or were the friend of a friend or relative. I have come to understand instances of where people were appointed to accrue time towards their pensions, or who were recommended by donors. In a particular Western state, it appeared the appointment process was used to build up the name-identity of a promising upcomer in the political party of the governor. And on and on the stories go.
In our ever increasing world of tribalization of the political process, one would hope that the people making and approving these appointments would set aside these political uses and work to secure talent who actually can understand the complexity of the industry. Too many jobs, tax dollars and economic activity are involved to make this a dimension of the political nonsense that plagues so much of our country. Moreover, expecting lay people to understand the complexity of the modern gaming industry is a stretch goal that has a small likelihood of success.
Good regulation leads to a sustainable industry—and good regulation, in this day and age, is based on having people in authority who actually know what they are talking about and are appointed for their experiences and knowledge, not their connections.
In short, I think that Malta has it right in the belief that experience in gaming does benefit the regulators in the industry. It also benefits the industry and the jurisdiction by helping provide a sustainable model where the approach is based on recruiting regulatory assets who understand the complexity of what they are regulating—and nothing less.