The History of Riverboat Gambling in Missouri
The 1992 Referendum
In 1991, the Missouri General Assembly adopted House Bill 149, ordering that the issue as to whether Missouri should allow riverboat gambling be referred to the voters. On November 3, 1992, Missouri voters approved the referendum by a 63% majority. The ballot language for this measure read as follows:
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"Authorizes riverboat gambling excursions on the Mississippi and Missouri Rivers, regulated by the State Tourism Commission. Excursions may originate where locally approved by the voters. Five hundred dollar maximum loss limit per person per excursion. The proposal is intended to produce increased General Revenue."
While the original ballot language certainly implied that all gambling would occur during an "excursion", and thus that the boat would be cruising the rivers, the text of the amendment plainly stated otherwise. The proposal passed by the people defined a "gambling excursion" as "the time during which gambling games may be operated on an excursion gambling boat whether docked or during a cruise. Gambling games may be continuously operated on an excursion gambling boat which is continuously docked." (Missouri Session Laws, 1991, H. B. 149, § A(§ 1), adopted by referendum, eff. Nov. 3, 1992.) (emphasis added) In fact, the original referendum passed by the people specifically exempted boats on the St. Louis riverfront from ever cruising the river. Furthermore, no boat would ever have to cruise from November to March. Moreover, the referendum allowed exceptions from the cruising requirement in case of "mechanical problems, adverse weather, or other conditions adversely affecting safe navigation, or as authorized by the Commission during the off season.".
Therefore, it is clear that the original referendum did not promise cruising riverboats. Not all boats were required to cruise, none of the boats were required to cruise five months of the year, and all boats could be exempted from cruising if it would pose safety problems.
The Original Referendum Gets a Makeover
Prior to the 1992 election to decide riverboat gambling, critics of some provisions of the referendum language began to emerge. On October 23, 1992, The Kansas City Star reported that the law did not bar convicted felons from holding a license to operate a gambling boat. In addition, some public officials began to question whether the Tourism Commission was the proper agency to regulate the gambling industry, which was predicted to be a significant tourist attraction. (The Kansas City Star, October 26, 1992).
As a result, after the referendum had been approved by the voters, legislation was introduced, supported by then Governor-elect Carnahan, to place more stringent requirements on riverboat gambling licenses and to create a strong Gaming Commission to regulate the new industry.
Senate Bills 10 and 11
On April 23, 1993, Governor Carnahan signed into law SBs 10 & 11 creating the five member Gaming Commission. The bill carried an emergency clause and the Governor immediately appointed the first members.
The Commission was given much more authority over the gaming industry than had previously been given to the Tourism Commission. The Commission could prioritize applications; issue liquor licenses; assess a wide array of administrative penalties; inspect the licensees’ premises at any time; decide the number, type, and location of gambling boats; determine the time during which gambling may occur; have access to all closed records relating to applicants for licenses; conduct hearings and be a trier of fact with regard to alleged violations of the gaming act; and require licensees to release all information on their finances.
In addition, the industry was held to a higher standard, having to prove its suitability for licensure by clear and convincing evidence, rather than a preponderance of the evidence as had been the case under the original referendum. Felons were prohibited from holding gaming licenses under the new act and the Commission was empowered to reopen licensing hearings at any time. These requirements made it clear that a riverboat gambling license was a privilege granted at the sole direction of the State of Missouri and that the license carried no property rights.
The Commission was vested with a strict code of ethics that prohibited members and staff from being employed by or having any financial interest in an applicant or licensee during their tenure with the Commission or for a two year period thereafter.
Continuous Docking Language Clarified
Senate Bills 10 & 11 also added new language clarifying the original referendum’s vague provisions relating to cruising riverboats. While SBs 10 & 11 were being debated, the legislature was made aware that the US Coast Guard had serious concerns about the safety of large passenger vessels on the Missouri River. In a letter to the Missouri Port Authority Association dated February 5, 1993, US Coast Guard Commander, S. P. Cooper stated, "I am concerned about the safety issues attendant to the operation of these [riverboat gambling] vessels..." Cooper went on to say, "The large numbers of passengers on these vessels pose special problems for public safety organizations. The Coast Guard will not have a permanent presence in these communities but will assist if resources are available."
In response to the safety concerns raised by Captain Cooper, local public officials in Kansas City and other safety experts, SBs 10 & 11 adopted a procedure for allowing the Commission to order riverboats to remain continuously docked if "the safety of the public indicates the need for continuous docking." (SBs 10 & 11, Section 3 (15).
Some legislators and local public officials, however, believed dockside gaming was important for reasons other than safety. Some officials were concerned that riverboat companies might not honor commitments to home dock communities if the operation did not have immediate success. In 1993, several riverboat operators in Iowa had pulled anchor and sailed south in hopes of taking advantage of the more favorable regulatory environment in Mississippi.
To address this issue, language was added that would require the Commission to "consider economic feasibility or impact that would benefit land based development and permanent job creation" when making its decision whether dockside gaming was in the "best interest of Missouri." Officials from the St. Louis area, however, did not want the issue of continuously docked boats tied to additional infrastructure requirements. They believed that St. Louis already had sufficiently developed its riverfront and, therefore, added language to the bill exempting the City of St. Louis from the requirement.
Gaming Commission Begins Work
Supreme Court Intervention - Round One
Troy Harris v. Missouri Gaming Commission
On February 22, 1994, the Missouri Supreme Court issued its opinion in Troy Harris v. Missouri Gaming Commission, wherein it ruled that the legislature did not have the authority to allow games of chance on riverboats. The Commission argued that it was the voters who authorized games of chance by adopting the referendum language in November, 1992. The Court agreed that the people lawfully authorized games of chance in the 1992 referendum. However, it ruled that because the General Assembly repealed the sections of the referendum authorizing games of chance and reenacted language in SBs 10 & 11, that the new law was an act of the General Assembly, not the people, and, therefore, subject to the limitations of Article III, § 39 (9) of the Missouri Constitution prohibiting the General Assembly from authorizing games of chance.
The Court in Harris also found the language exempting the Admiral and the lease sites along the St. Louis riverfront from cruising to be a "facially special law." Because special laws are presumed unconstitutional unless the party defending the law can demonstrate a "substantial justification" for the special treatment, the Court remanded the issue back to the circuit court for an evidentiary hearing.
The Legislative Response to Harris
The legislature responded quickly the to Supreme Court’s decision in Harris by filing HJR 43, a constitutional amendment that would authorize the General Assembly to permit games of chance on the Missouri and Mississippi Rivers. The joint resolution was drafted to address the very narrow question raised by the court as to whether or not the General Assembly had the authority to authorize games of chance on riverboats. (Transcript of Senate Ways & Means Committee hearing, February 2, 1994, page 1).
The language adopted by the House Ways & Means Committee read, in pertinent part, as follows:
Article III, Section 39(e). Notwithstanding any prohibitions contained in this constitution, including, but not limited to, the prohibition contained in subdivision (9) of section 39 of this article, the General Assembly is authorized to permit lotteries, gift enterprises and games of skill or chance upon the Mississippi and Missouri rivers, as may be defined by the General Assembly.
It appears that this language would have avoided the result in Akin whereby the Court ruled that the General Assembly did not have the authority to define the term "river."
This language concerned some members of the Senate because of the fear that by allowing the General Assembly to define the Missouri and Mississippi Rivers, it may allow for a broad definition that could be expanded to other areas of the state such as the Lake of the Ozarks. (Transcript, pages 8-9). Nevertheless, the language that emerged from the Senate, while more specific, would be similar to the House language:
Section 39(e). The General Assembly may authorize the issuance of licenses to permit lotteries, gift enterprises and games of skill or chance to be conducted on floating facilities upon the Missouri River and the Mississippi River, in such numbers, locations and manner, all as or may be provided by law and regulations adopted pursuant to law, and subject to such taxes as provided by law, and fees as provided by law or regulation adopted pursuant to law.
As the legislation moved through the process to a conference committee, however, concern over the breadth of the language granting the General Assembly authority to permit games of chance continued to grow. The House rejected the Senate’s language and passed the House version. The Senate refused to adopt the House version and both sides appeared deadlocked. Finally, the following compromise language was adopted as a conference committee substitute:
The general assembly is authorized to permit only upon the Missouri and Mississippi Rivers, lotteries, gift enterprises and games of skill or chance to be conducted on excursion gambling boats and floating facilities.
The conference committee substitute was adopted by both houses with bipartisan support. The Senate vote was 23-10 and the House vote was 107-48.
While HJR 43 was truly agreed to and finally passed in time to put the question before the voters in the April 5, 1994 election, the measure was defeated with 527,011 in favor and 528,278 opposed.
The General Assembly was now faced with implementing the referendum adopted by 63% of the voters in 1992 without the games of chance that Harris declared to require constitutional authority. In addition, it was becoming increasingly clear that serious safety problems on the Missouri and Mississippi Rivers may preclude riverboat casinos from being able to cruise. (Transcript, page 17).
Therefore, the General Assembly adopted SB 740, which defined games of skill, specifically authorized boats to be located in artificial basins and made minor revisions to the process for determining the conditions under which a boat may operate while continuously docked. In addition, the bill added new ethical standards and conflict of interest rules for the Gaming Commission, General Assembly, Attorney General’s office, Missouri State Highway Patrol, peace officers and other public officials. SB 740 was truly agreed to and finally passed with an emergency clause (E.C.) on May 12, 1994. The bill had bipartisan support and was adopted by a vote of 21-11 in the Senate (E.C. 24-8) and 93-63 in the House (E.C. 110-50).
On May 22, 1994, the Commission implemented the provisions of the riverboat gambling act, as amended by SB 740, and granted the first excursion gambling boat licenses to President Riverboat Casino on the Admiral and St. Charles Riverfront Stations. The licenses permitted the operators to offer only games of skill. The inability to provide games of chance, most importantly slot machines, left the Missouri operators at a distinct disadvantage from their competitors in Illinois. While Missourians initially flocked to the newer, more elaborate Missouri riverboats, the attraction soon dissipated. In the first six months of operation, the Missouri boats attracted fewer customers and generated less revenue than their Illinois competitors in East St. Louis and Alton.
The markets on the west side of the state presented a different situation. Without competition from casinos in the same market with competitive advantages, the riverboats licensed in Riverside and St. Joseph on June 22, 1994, faired better than their St. Louis market counterparts. Nevertheless, the games of skill offered by the riverboats did not generate sufficient revenue to make the casinos profitable.
In response to Harris and the failed April 1994 constitutional amendment, an initiative petition effort was mounted to allow voters to again decide whether riverboat casinos in Missouri should be allowed to offer games of chance. The effort was successful and on June 6, 1994, the Secretary of State certified the following proposed constitutional amendment for the November 8, 1994 ballot:
"Shall the General Assembly be authorized to permit only upon the Mississippi River and the Missouri River, lotteries, gift enterprises, and games of chance to be conducted on excursion gambling boats and floating facilities? This proposal would increase state revenues from existing gaming boats approximately $30,000,000 per year. Impact on local governments unknown."
The First Boat in a Basin
While the licensees offering only games of skill were not operating profitably in the summer of 1994, it did not deter the company constructing the first "boat in a basin" from completing its elaborate gambling complex containing the state’s first land-based entertainment amenities. On September 22, 1994, the Commission issued a license for games of skill to Harrah’s for its $89 million facility in North Kansas City.
The Harrah's North Kansas City project consisted of a 60,000 square foot land-based pavilion containing three restaurants and a permanently moored excursion gambling boat located in a protected coffer cell basin. The facility offered 1,800 parking spaces on its 60 acre site.
It is important to note that when Missouri voters approved constitutional amendment 6, authorizing games of chance on riverboat casinos with 943,652 in favor and 807,707 opposed, a boat in a basin was licensed and operating at the Harrah’s North Kansas City project. Pursuant to voter approval, the Commission amended the licenses of Argosy-Riverside, Harrah’s-North Kansas City, President Riverboat Casino-St. Louis, St. Charles Riverfront Station and St. Joseph Riverboat Partners to allow games of chance on December 9, 1994.
The Dramatic Impact of Games of Chance
The advent of games of chance would dramatically impact the casino gambling industry in Missouri. The most significant game of chance, the slot machine, now accounts for over 60% of total casino revenue. Casino revenue more than doubled in the first quarter of fiscal year 1996 when casinos offered games of chance as opposed to the first quarter of fiscal year 1995, when riverboats were limited to games of skill.
The addition of games of chance would also lead to the construction of bigger, more elaborate projects through the addition of new facilities as well as the expansion of existing properties. For example, shortly after games of chance were introduced, Station Casino opened a second riverboat at its property in St. Charles. The new facility was larger and more lavish than its predecessor and would provide the necessary revenue for the expansion of its non-gaming, land-based amenities.
Similarly, armed with games of chance, Harrah’s-North Kansas City quickly moved to expand its facility. On April 12, 1995, Harrah’s advised the Commission of its request for approval of a $70 million expansion. The expansion proposal included a 200 room hotel, 10,000 square feet of meeting space, a covered parking garage with 765 spaces, a swimming pool, exercise facility, video arcade, gift shop, expanded restaurant seating, a full-service car wash, and a second gaming vessel with 40,000 square feet of gaming space to be located in a protected artificial basin. The proposal was given final approval by the Commission on May 15, 1996.
Boat in Basin Controversy Emerges
Although the first boat in a basin had been operating since September 22, 1994, the first objection to allowing a riverboat to be located in a basin arose during the Hilton’s request for continuous docking status for its project in Kansas City. On March 16, 1995, attorneys representing Roy Fischer appeared at the Hilton hearing to protest Hilton’s proposal to locate its excursion gambling boat in a protected coffer cell. Mr. Fischer owned land in the St. Louis area that was under contract to a gaming company wishing to build a project near a competing proposal for a boat in a basin in Maryland Heights.
Mr. Fischer argued that the Hilton proposal did not comply with the Missouri Constitution or the gaming statute. He claimed that the voters approved cruising riverboats and while the legislature had provided for narrow exceptions to the cruising requirement, it did not include artificial basins. The Commission ruled that because the legislature defined the Missouri River as including artificial basins located within 1,000 feet of the main channel, that the Hilton boat was, for purposes of the statute, in the river. Since the Commission did not have the authority to strike down the statute, but was under an obligation to presume that it was constitutional, it followed the statute, found that the Hilton boat met the criteria for continuous docking and granted it a license. Although this decision could have been appealed to the Western District Court of Appeals, where the constitutionality of the statute could have been challenged, Mr. Fischer chose not to do so and the Commission’s decision stood.
On August 29, 1996, over 17 months after the Commission issued its ruling in the Hilton dockside case, W. Todd Akin filed a declaratory judgment action in Cole County Circuit Court seeking a determination that the statutes defining the Missouri and Mississippi Rivers in the gaming act were unconstitutional. The Cole County Circuit Court ruled in favor of the Commission by issuing a finding similar to the Commission’s ruling in the Hilton dockside case. However, on November 25, 1997, the Missouri Supreme Court reversed the lower court decision and declared the gaming statute unconstitutional to the extent that it allowed games of chance on riverboat casinos that were not "contiguous to the surface stream of the river."
The Court’s decision had changed the law affecting gaming in Missouri. It was then the charge of the Gaming Commission to determine which operators were in compliance with the Akin ruling. To the extent that a property did not comply, its license for games of chance must be revoked. While the Court’s initial ruling was issued November 25, 1997, the final mandate was not issued until December 23, 1997. On January 9, 1998, the Commission was scheduled to issue preliminary disciplinary orders revoking the license for games of chance to all boats located in artificial basins that were not contiguous with the surface stream of the Missouri or Mississippi Rivers.
Preliminary disciplinary orders are documents that allege a company is not in compliance with the law. Preliminary disciplinary orders do not become effective for 30 days, during which time each licensee is afforded the opportunity to request a hearing contesting the Commission’s preliminary order. If the licensee requests a hearing, the riverboat can continue operating pending the outcome of the hearing.
The riverboat gaming operators, however, stopped the Commission from issuing the preliminary orders by obtaining an Order of Prohibition from the Cole County Circuit Court. The operator’s lawsuit alleged that the Commission’s hearing process did not provide sufficient due process in violation of the US and Missouri Constitutions. The Commission appealed the lower court ruling and, on May 28, 1998, the Missouri Supreme Court ruled in favor of the Commission by holding that the Commission’s procedure complied with constitutional due process and had appropriate remedies for judicial review to avoid irreparable harm to any of the parties. State ex. rel. Riverside Joint Venture et. al., vs. Missouri Gaming Commission.
On June 23, 1998, the Commission issued preliminary disciplinary orders to Boyd, Kansas City, Inc.; Hilton Kansas City Corporation; Harrah’s North Kansas City Corporation; Kansas City Station Corporation; Riverside Joint Venture and Harrah’s Maryland Heights, LLC; Riverside Joint Venture and Players MH, L.P.; and St. Joseph Riverboat Partners. Each riverboat was then entitled to a hearing to prove compliance with the Akin ruling.
Requested hearings are conducted by an independent hearing officer who makes a recommendation to the Commission. The five members of the Commission are ultimately responsible for deciding the matter, accepting, modifying, or rejecting the findings of the hearing officer. If the Commission ruling is adverse to the licensee, it can be appealed to the Western District Court of Appeals, then ultimately to the US Supreme Court.
Should a license come up for renewal while a hearing or appeal is pending, the licensee is eligible for renewal contingent upon the outcome of the disciplinary hearing. This standardized procedure has been consistently applied by the Commission in its handling of disciplinary action for several years.
With disciplinary hearings pending, the gaming industry mounted a campaign to gain sufficient signatures on initiative petitions to put the "boats in moats" issue before the voters at the November 3, 1998, general election. Successful in their endeavor, a constitutional amendment that would reverse the impact of Akin was placed on the ballot. The ballot language for this measure read as follows:
"Shall the Missouri Constitution be amended to authorize the general assembly to permit upon the Mississippi and Missouri Rivers only, including artificial spaces containing water that are within 1000 feet of the closest edge of the main channel of either of those rivers, lotteries, gift enterprises and games of chance to be conducted on excursion gambling boats and floating facilities and to provide that any license issued before or after the adoption of this amendment for any such boat or facility located in any such artificial space shall be deemed authorized by the general assembly and compliant with this section?"
"The fiscal impact to state and local governments of adopting this constitutional amendment is the continuation of revenues ranging from approximately $95,000,000 to $170,000,000 annually, that are currently received from gambling boats and floating facilities that most likely could not continue to be licensed under the present constitution."
The gaming industry and other proponents of this measure, as well as gambling opponents, each vigorously campaigned to garner support for their stand on this gambling issue. Ultimately, the measure passed with 857,829 votes in favor and 688,184 against. The measure failed in 71 of the state’s 114 counties, and won by a margin of fewer than 200 votes in 14 counties. Had it not have been for large voter turnout in the areas in which the boats were located, the measure would have failed.