Alert September 11, 2012

Update: Massachusetts Gaming Commission Holds Weekly Meeting

On September 11, 2012, the Massachusetts Gaming Commission took the show on the road, bringing its 26th public meeting out to Springfield Technical Community College. The commissioners traveled to Springfield to discuss the city’s planned casino vetting process and issues involving a possible conflict of interest for Shefsky & Froelich, the firm the city hired to consult on that process. Springfield will seek payment from potential applicants to cover the consultants’ fees.

Springfield mayor Domenic Sarno and his representatives appeared at the meeting. They have put their proposed schedule on hold pending discussion with the Commission. The debate between the commissioners and city officials became heated at times throughout the over two-hour long discussion. During the back and forth, city officials stressed the need to move quickly to bring in revenue to rebuild areas of the city ravaged by a June 2011 tornado. The Commission, conversely, kept stressing its need for more time to get its regulations in place before Springfield enters into host agreements that might not comport with the regulations ultimately adopted by the Commission.

Mayor Domenic Sarno

Mayor Sarno opened the meeting with a prepared statement, highlighting the city’s desire to work in the best interests of the city through an open and transparent process. City representatives have been meeting with members of the public on a regular basis, according to the mayor’s statement.

Representative Joe Wagner

Representative Joe Wagner, House Chairman of the Joint Committee on Economic Development and Emerging Technologies, followed the Mayor’s remarks with his own. Chairman Wagner represents Chicopee, which could ultimately be defined as a surrounding community under the Gaming Act and, according to Mr. Wagner, could be in the running as a host community down the road. Mr. Wagner called the Springfield situation “unique” in that two developers have already expressed interest in building a casino in the city, with the possibility further potential bidders will emerge.

Mr. Wagner made some oblique comments about knowing politics when he sees it and noting that developers had been acting in a political manner when it came to their comments on the Springfield casino process. Chairman Crosby made a point of responding by saying that the Commission was looking into the Springfield process and the potential conflict of interest prior to any media attention on the issue. Chairman Crosby stressed that the Commission is acting independently, not in response to any complaints from potential bidders.

Solicitor Edward Pikula

Following Chairman Wagner were Springfield City Solicitor Edward Pikula and the city’s Chief Development Officer, Kevin Kennedy. Mr. Pikula opened by noting the regional monopoly a license grants a casino operator and the need for the city to engage the same high-quality consultants casino developers themselves use. Mr. Pikula said the city was aware of the potential for the appearance of a conflict, but that the consultants filed a disclosure pursuant to MGL ch. 262A, § 23(b)(3). He further stated that the city used a process similar to the Commission’s RFP process for finding their own gaming consultants. The consultants disclosed their links to MGM, Penn National Gaming and Hard Rock in responding to the RFP. According to Mr. Pikula, the consultants are not representing any of the three casino interests in the MA process. Mr. Pikula’s statement to the Commission echoed the sentiments he expressed in his letter to the Commission dated the same day.

In their follow-up questions, the Commission seemed most concerned that the City Council had not played a role in selecting the consultants or approving their contract. Mr. Pikula kept returning to the fact that Springfield has a Plan A charter which provides for a strong executive, in Springfield’s case, the Mayor. Mr. Pikula emphasized that, under that charter, the Mayor did not need Council approval to hire the consultants. All the Mayor needed from the Council was budget approval to hire consultants. The Council gave that budgetary approval prior to learning of the potential conflict of interest, however, which seemed to trouble the commissioners.

Another fact that seemed troubling to members of the Commission was that the consultants did not seek an opinion from the State Ethics Commission until August 31, weeks into their retention by the city. Chairman Crosby stressed that there is extraordinary sensitivity to this particular issue of the appearance of conflicts of interest and stressed that the Commission intends to hold itself to a higher standard than that set out by law. Chairman Crosby stated that all parties in the casino licensing process need to go out of their way to avoid what can be construed as anything other than total objectivity as to the merits of the process.

Commissioner McHugh pointed out that the process is as important as anything else the Commission is doing. He noted that the state has a statute and an ethics watchdog agency that has shown it is “not a toothless tiger.” Commissioner McHugh reiterated his comments from last week’s meeting that the Commission needs to be careful to announce rules so that everyone knows the standard to which they must adhere. Mr. Pikula latched onto Commissioner McHugh’s comments in praising the ethics oversight process already in place in the Commonwealth and called upon the Commission to wait to see what the Ethics Commission says.

Chief Development Officer Kevin Kennedy

Mr. Kennedy began by addressing Commissioner Cameron’s question as to what the city will do if they receive a negative advisory decision from the Ethics Commission. Mr. Kennedy said he would recommend to the Mayor they take the necessary steps to correct it. When Ameristar was the only potential operator in the city, Mr. Kennedy recommended the city not partner with Ameristar, but rather engage in a strategy that would attract more potential operators. Mr. Kennedy noted that this plan worked and that there is another operator who has recently visited the city “looking about.” Mr. Kennedy said that the wealth of interest raised the question of what the city must do to create a process that will result in maximum benefits to the local community and the Commonwealth.

As to the consultants, Mr. Kennedy stressed that they are just that and are not the ultimate decision-maker in the Springfield casino process.

Timing Concerns

As noted, the main tension between city officials and the commissioners was as to timing of the Springfield process. The city envisions a two-phased process. During the first phase prospective developers would pay fees to cover the costs of the consultants and any studies the city deems necessary. In the second phase, the developers would submit their formal proposal.

While city officials presented their process as complementary to that of the Commission, the commissioners were concerned such an early process could lead to host agreements that don’t pass Commission muster and developers who end up locked out of seeking licenses in other towns due to their early commitment to Springfield. Springfield officials envision entering into host agreements with one or more developers by January, while Commissioner McHugh stated the Commission is unlikely to have its phase II criteria and regulations in place by then. Mr. Kennedy continued to stress the city’s “time is of the essence” stance, with the mayor heatedly interjecting on the timing point. A major concern for Springfield is that their FEMA aid will max out shortly and they need to start selling options on land in the south end of the city which was largely destroyed by the 2011 tornado.

Shefsky & Froelich Comments

Rounding out the discussion were two of the three consultants from Shefsky & Froelich Ltd., Michael Schaller and Kimberly Copp. The third member of the team is partner Cezar “Cid” Froelich. The Springfield consulting team is the same team that advised Detroit in its casino selection process. Shefsky & Froelich attorneys also advised the city of Taunton in its negotiations with the Mashpee Wampanoag Tribe.

Mr. Schaller spent a fair amount of time explaining work the group had done in Michigan and Illinois to advise towns in their host agreements. When pushed by the commissioners on why Mr. Schaller would recommend a process that finalizes a host agreement before the prospective licensees know what the Commission’s criteria are going to be, Mr. Schaller said any agreement will have a “reopener” clause that allows the developer to renegotiate if the Commission puts into place criteria not covered by the original host community agreement. Voters would be alerted to the “reopener” potential in casting their votes on the original host community agreement.

On the perception of conflict, Mr. Schaller stated that the firm has a gaming practice with over 20 years’ experience, which makes them an expert in the field. He stressed that the firm is registered in Illinois as a lobbyist for MGM and Penn Gaming because in Illinois anyone who represents a gaming company in front of the Commission must register as a lobbyist. He emphasized, however, that the firm does not work for these gaming interests to change legislation; it only works as a representative for the gaming companies in routine regulatory matters coming before Illinois Gaming Board.

Mr. Schaller also explained that no member of Illinois team will be on Springfield team and vice versa. Further, according to Mr. Schaller, no member of the Springfield team is compensated based on Illinois work. When pushed as to why Mr. Schaller did not request an ethics opinion prior to the media controversy, Mr. Schaller claimed he did not see a conflict when entering into the agreement with Springfield.

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Those interested in learning more about Goodwin Procter’s gaming and gambling expertise and practice, and/or the issues outlined above, should contact David Apfel or Bob Crawford, co-chairs of Goodwin Procter’s Gaming, Gambling & Sweepstakes Practice.