When It Comes to COVID-19 Relief, Small Gaming Businesses Lose

As the COVID-19 crisis wreaks economic havoc, CARES Act is bringing federal relief if coming to assist devastated businesses and their employees. And yet some businesses are excluded from these relief efforts, including businesses that derive the majority of their revenue from the gaming industry: Why are small gaming businesses barred from receiving the relief that most other businesses can receive?

In the fine print of the CARES Act, businesses that received illegal gaming revenue are categorically ineligible from a Paycheck Protection Program (PPP) loan; this is logical and proper. However, a business that would otherwise be eligible for PPP is rendered ineligible if:

1. The business’s legal gaming revenue (net of payouts but not other expenses) exceeded $1 million in 2019.
2. Legal gaming revenue (net of payouts but not other expenses) comprised 50% or more of the business’s total revenue in 2019.

The Treasury’s stated rationale is that this test “appropriately balances the longstanding policy reasons for limiting lending to businesses primarily and substantially engaged in gaming activity with the policy aim of making the PPP Loan available to a broad segment of U.S. businesses and their employees”.

Let’s take Nevada as an example, where much of the revenue derives from casinos. Large casinos are known for substantial income and earning streams and are presumed to be strong enough to survive temporary shut-downs. But what about small casinos? In Nevada, there were 316 gaming locations at the end of 2019, 265 of which reported gross gaming revenue of at least $1M for the year, according to the Nevada Gaming Control Board.

This means that each of these 265 businesses are ineligible for PPP and cannot receive COVID-19 payroll relief – even though these businesses have been affected as much as any other business (if not more). To be clear, small gaming businesses that closed during the pandemic — in compliance with government orders — will be completely denied access to this critical assistance that would be used to support and protect their employees. Yet these are businesses that completely rely on in-person transactions for revenue, with no legal possibility of switching their business model to an online service delivery model. Moreover, these businesses tend to hire a disproportionate amount of service workers – waiters, cooks, bartenders, dishwashers – who are widely known to be especially hurt during this crisis and, in other industries, are receiving the relief they need. Why are these employees subject to unequal treatment simply by virtue of their industry?

In total, as of April 20th, 989 commercial and tribal casino properties have shuttered their doors due to COVID-19. This translates into half of the 1.8 million jobs supported through gaming, including restaurant jobs.

But why should Congress not offer equal access to support all legal businesses? These casinos are operating legally, in full compliance with financial and reporting requirements. Their revenues are derived from completely legal, legitimate activities, just like other businesses. They follow food and beverage safety standards and laws, just like any other businesses. Their employees report their income and pay taxes annually, just like any other employee.

So why, when it comes to PPP, are these businesses are deemed ineligible? Are these employees suddenly, in the eyes of the government – less qualified to receive assistance – than any other employees? The SBA appears to find gaming employees less deserving during this crisis, even as it exhorts us all to understand and believe that we are all ‘in this together’.

In fact, in many states, gaming pays among the highest tax rates of any industry, with almost $11B in gaming taxes and tribal revenue share payments; this revenue supports fundamental programs ranging from infrastructure projects to education initiatives.

Small casino employees must pay for groceries, mortgages, car loans and utility bills, just like any other individual. They require food and shelter just as all of us do. Without these crucial PPP loans, small casinos will likely be forced to lay off workers during the extended shutdown rather than keeping them on with reduced hours or short furloughs, creating devastating financial situations for many of these employees. These workers in turn will be forced to turn to unemployment assistance and Medicaid, while the casinos themselves will undergo costly re-hiring and training once the economy returns to a more normal state. All of this slows down productivity and, by extension, economic recovery.

Initially, when Congress passed the $2.2T CARES Act late last month, the $349B SBA loan program was available to casinos and other gaming businesses that employ 500 employees or fewer; the loans, which would be forgivable if used to pay employees and pay other essential bills during the pandemic, would allow business to borrow what is needed to cover up to two and a half times its payroll, with a $10M per business maximum.

However, when PPP was rolled out, the SBA suddenly leveraged guidelines from 1996 to determine eligibility. Under those antiquated guidelines, any business that derives half or more of its revenue from gaming is ineligible for the loans.
Exacerbating the situation is the first-come, first-served nature of PPP loans; even if the ineligibility clause is rectified, the loan funds might be exhausted.

We can only point to a long-standing prejudice against gaming based on antiquated sentiments and prejudices surrounding gaming. In 2020, restrictions from 1996 are being applied to shut out gaming businesses – an inexplicable and disappointing development that will hurt many with little rhyme or reason to rationalize the outcome.

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