While in Vegas I attended a great session on the gaming industry and bankruptcy.  I took a lot of notes, but what's stuck with me are Frank Merola's remarks origins of the gaming industry and their effect on gaming regulation.

According to Merola’s account, when the gaming industry was born in the 1950s, no banks would lend money to casinos, and they lacked access to the public markets as well.  So casino operators financed each other’s operations by taking a minority interest in a competitor (Caveat: I’m not sure of the accuracy of this assertion—everything I know about the casino industry I learned from…well…Casino).  Given this background, there was a real emphasis on knowing with whom you’re doing business (insert mafia joke here).  When Nevada enacted its Gaming Control Act in the late 1950s, it also focused on who was investing money, i.e., the state’s strict licensing requirements took their cues from the underlying structure of casino financing. 

Of course, the modern financial landscape looks very different from the 1950s, and it took a while for Nevada to decide how to handle investors whose character could not be readily ascertained.  It introduced institutional investor waivers to allow mutual funds with no identifiable owners to invest in casinos.  And, eventually, it let private equity funds in as well, using a kind of blind trust. Sounds like the separation of ownership from ownership has hit even the insular world of Las Vegas, doesn't it?

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