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Larry Flynt Complains of Casino Poverty
Gambling clubs plead poverty
By Traci Jai Isaacs
DAILY BREEZE
Citing a drop in gaming revenue, higher overhead and increased competition from other casinos, several area card clubs have asked to reduce the city fees they pay to remain open.
Gardena's only two card clubs — the 2-year-old Hustler and 60-year-old Normandie casino — are among those businesses vying for tax relief.
Hustler owner Larry Flynt said he lost about $2.5 million last year, and has asked for a 4 percent reduction, which will save him about $800,000 annually.
“If I even made one dollar, it wouldn't be appropriate for me to ask for a reduction,” said Hustler's Larry Flynt. “But the fact is that I'm operating at a loss and that changes the whole equation.”
Cities, too, are eager to consider easing the casino's woes.
Card clubs provide a key revenue source for many local cities, and the money supports everything from new police equipment to salaries. Gardena lost $2 million in revenue after the 1996 closure of one of its two casinos.
Today, the Hustler and the Normandie employ about 1,200 people, who help support local business, from restaurants to shopping centers to nearby banks. The clubs also sponsor dozens of civic and charitable organizations.
Gardena officials aren't sure how they'd fill the gap if they lost casino money.
But at least one gaming critic said taxpayers shouldn't bail out card clubs.
“That's the nature of competition in a free market system,” said Art Croney, a Sacramento-based lobbyist for the Committee on Moral Concerns. “If one industry can't compete, there's a shakeout and only the strong survive.”
Industry experts point out that while the number of card clubs has dropped in the past 20 years — from 600 to around 100 — available tables remain nearly the same as the clubs have gotten bigger.
Local card clubs earn money by charging a “seat fee” for players. Since the clubs can't bankroll the game, gamblers win or lose to their seatmates. Cities routinely charge clubs a percentage of their gross monthly revenue plus a business license fee.
In Gardena, the Hustler and Normandie casinos pay 12 percent of their gross monthly revenue. This year, the city expects $4.7 million in club revenue or 14 percent of its general fund. Sales and use tax, for instance, is expected to generate $7.4 million.
The clubs also pay state license fees — which started in 1998 — as well as federal and state taxes. The Normandie, for example, pays $245,000 each year in state license fees, based on $3,500 per table.
Revenue source
“We're like the goose that laid the golden egg, and everyone wants a piece,” said Al Nelson, Normandie Casino's general manager.
On the other hand, tribal casinos pay no significant taxes, and there's no oversight or regulation, say opponents of Indian gaming.
Flynt opened the Hustler Casino on June 22, 2000, four years after the previous casino there, the El Dorado club, went into bankruptcy. He invested $37 million into converting the hacienda-style building at Vermont Avenue and Redondo Beach Boulevard into an upscale card club.
Gardena has been reviewing an outside auditor's report on the Hustler club, provided by Flynt earlier this month. But Flynt warned that he'll consider closing the Hustler if he continues to lose money.
“Because of who I am, some people think I should subsidize the club out of my own pocket,” Flynt said. “But I didn't get to where I am today by making bad business decisions.”
The Hustler isn't the only club asking for a fee reduction. Normandie officials say they're also struggling and need a break, especially if Flynt's reduction is approved.
The Hollywood Park Casino in Inglewood has asked the city not to follow through on a planned fee increase because that club barely broke even last year.
“We were down last year from the year before, and down this year from the year before,” said Tom Bowling, vice president and general manager at Hollywood Park. “When the general managers of the four local casinos got together, no one was smiling.”
Numerous Inglewood residents, many of whom had worked in the airline industry, lost their jobs after Sept. 11 and that affects a casino, Bowling added.
Compton's Crystal Park Hotel and Casino — which is also owned by Hollywood Park — was granted fee relief in August 2001. Instead of paying a fee based on the casino's monthly profit, Crystal Park pays a flat $15,000 monthly charge.
The rate cut made sense in light of what's happening, Frank Sotelo, Compton's assistant city manager, said.
“There was a decline in gaming revenue caused by the Hustler, a downturn in the economy and an increase in Indian gaming,” he said.
Jobs have also been lost.
The Normandie casino eliminated 90 jobs this year, mainly through attrition, Nelson said.
In addition to competition from nearby clubs and Indian casinos, Nelson said minimum wage increases, higher workers compensation and employee medical insurance rates have whisked away additional profits.
“No one is making any money off these card clubs,” said Nelson, whose club grossed $25 million last year, paid $3 million in city fees and ended up with a $15,000 profit.
But not all clubs face the same financial battle.
Expansion is possible
One of the largest casinos, the Bicycle Club, has been expanding, said Manuel Ortega, Bell Gardens acting city manager and police chief.
That club generated $7.5 million in revenue for the city annually, providing more than 50 percent of the general fund. Revenue should reach $8.5 million this year, Ortega added.
“Our casino is very progressive and a prosperous commodity,” he said. “There's no need for them to even consider asking us for a break. Whatever they're doing, I hope they keep it up.”
Hustler boosted its marketing and first quarter figures indicate business is better, Flynt said.
“With our brand name we expected we'd be profitable,” Flynt said. “Getting people to change their habits is hard. Slowly but surely we are getting regular customers.”
Some Gardena officials seem inclined to give Flynt a fee break rather than risk losing another casino.
“We don't want another abandoned white elephant on that lot,” Councilman Paul Tanaka said, referring to the El Dorado. “We want something profitable for him (Flynt) and the city.”
Five Gardena casinos have closed since the early 1980s, mainly due to financial problems. The El Dorado's closure left Gardena holding a $1 million parking bond.
Fluctuations in gaming have plagued Gardena for decades.
After Proposition 13 limited cities' abilities to raise taxes, cash-strapped cities turned to card clubs for additional revenue and it sparked a rush of new super clubs, said Nelson Rose, a gaming expert and professor at Whittier Law School in Costa Mesa.
Smaller clubs folded and super clubs later faced problems when the state passed laws in the 1980s that regulated game clubs and made it more difficult for some to stay open. Their problems worsened the same year Flynt opened his casino when California voters passed Proposition 1A, paving the way for Indian casinos to offer Las Vegas-style games.
Indian gaming
Today, 43 tribes have the right to open as many as two casinos each.
“They (card clubs) have a location advantage but can't offer the same games,” Rose said. “Fortunately for Los Angeles-based clubs there's no federally recognized tribes here or in Orange County.”
But the scarcity of tribal land doesn't mean much, said critic Croney.
Tribes may open casinos on American Indian land and not just out-of-the-way reservations.
A Northern California tribe, for example, bought an office building a few blocks from the state Capitol. They promised not to open a casino but there's no law against it, he said.
By Traci Jai Isaacs
DAILY BREEZE
Citing a drop in gaming revenue, higher overhead and increased competition from other casinos, several area card clubs have asked to reduce the city fees they pay to remain open.
Gardena's only two card clubs — the 2-year-old Hustler and 60-year-old Normandie casino — are among those businesses vying for tax relief.
Hustler owner Larry Flynt said he lost about $2.5 million last year, and has asked for a 4 percent reduction, which will save him about $800,000 annually.
“If I even made one dollar, it wouldn't be appropriate for me to ask for a reduction,” said Hustler's Larry Flynt. “But the fact is that I'm operating at a loss and that changes the whole equation.”
Cities, too, are eager to consider easing the casino's woes.
Card clubs provide a key revenue source for many local cities, and the money supports everything from new police equipment to salaries. Gardena lost $2 million in revenue after the 1996 closure of one of its two casinos.
Today, the Hustler and the Normandie employ about 1,200 people, who help support local business, from restaurants to shopping centers to nearby banks. The clubs also sponsor dozens of civic and charitable organizations.
Gardena officials aren't sure how they'd fill the gap if they lost casino money.
But at least one gaming critic said taxpayers shouldn't bail out card clubs.
“That's the nature of competition in a free market system,” said Art Croney, a Sacramento-based lobbyist for the Committee on Moral Concerns. “If one industry can't compete, there's a shakeout and only the strong survive.”
Industry experts point out that while the number of card clubs has dropped in the past 20 years — from 600 to around 100 — available tables remain nearly the same as the clubs have gotten bigger.
Local card clubs earn money by charging a “seat fee” for players. Since the clubs can't bankroll the game, gamblers win or lose to their seatmates. Cities routinely charge clubs a percentage of their gross monthly revenue plus a business license fee.
In Gardena, the Hustler and Normandie casinos pay 12 percent of their gross monthly revenue. This year, the city expects $4.7 million in club revenue or 14 percent of its general fund. Sales and use tax, for instance, is expected to generate $7.4 million.
The clubs also pay state license fees — which started in 1998 — as well as federal and state taxes. The Normandie, for example, pays $245,000 each year in state license fees, based on $3,500 per table.
Revenue source
“We're like the goose that laid the golden egg, and everyone wants a piece,” said Al Nelson, Normandie Casino's general manager.
On the other hand, tribal casinos pay no significant taxes, and there's no oversight or regulation, say opponents of Indian gaming.
Flynt opened the Hustler Casino on June 22, 2000, four years after the previous casino there, the El Dorado club, went into bankruptcy. He invested $37 million into converting the hacienda-style building at Vermont Avenue and Redondo Beach Boulevard into an upscale card club.
Gardena has been reviewing an outside auditor's report on the Hustler club, provided by Flynt earlier this month. But Flynt warned that he'll consider closing the Hustler if he continues to lose money.
“Because of who I am, some people think I should subsidize the club out of my own pocket,” Flynt said. “But I didn't get to where I am today by making bad business decisions.”
The Hustler isn't the only club asking for a fee reduction. Normandie officials say they're also struggling and need a break, especially if Flynt's reduction is approved.
The Hollywood Park Casino in Inglewood has asked the city not to follow through on a planned fee increase because that club barely broke even last year.
“We were down last year from the year before, and down this year from the year before,” said Tom Bowling, vice president and general manager at Hollywood Park. “When the general managers of the four local casinos got together, no one was smiling.”
Numerous Inglewood residents, many of whom had worked in the airline industry, lost their jobs after Sept. 11 and that affects a casino, Bowling added.
Compton's Crystal Park Hotel and Casino — which is also owned by Hollywood Park — was granted fee relief in August 2001. Instead of paying a fee based on the casino's monthly profit, Crystal Park pays a flat $15,000 monthly charge.
The rate cut made sense in light of what's happening, Frank Sotelo, Compton's assistant city manager, said.
“There was a decline in gaming revenue caused by the Hustler, a downturn in the economy and an increase in Indian gaming,” he said.
Jobs have also been lost.
The Normandie casino eliminated 90 jobs this year, mainly through attrition, Nelson said.
In addition to competition from nearby clubs and Indian casinos, Nelson said minimum wage increases, higher workers compensation and employee medical insurance rates have whisked away additional profits.
“No one is making any money off these card clubs,” said Nelson, whose club grossed $25 million last year, paid $3 million in city fees and ended up with a $15,000 profit.
But not all clubs face the same financial battle.
Expansion is possible
One of the largest casinos, the Bicycle Club, has been expanding, said Manuel Ortega, Bell Gardens acting city manager and police chief.
That club generated $7.5 million in revenue for the city annually, providing more than 50 percent of the general fund. Revenue should reach $8.5 million this year, Ortega added.
“Our casino is very progressive and a prosperous commodity,” he said. “There's no need for them to even consider asking us for a break. Whatever they're doing, I hope they keep it up.”
Hustler boosted its marketing and first quarter figures indicate business is better, Flynt said.
“With our brand name we expected we'd be profitable,” Flynt said. “Getting people to change their habits is hard. Slowly but surely we are getting regular customers.”
Some Gardena officials seem inclined to give Flynt a fee break rather than risk losing another casino.
“We don't want another abandoned white elephant on that lot,” Councilman Paul Tanaka said, referring to the El Dorado. “We want something profitable for him (Flynt) and the city.”
Five Gardena casinos have closed since the early 1980s, mainly due to financial problems. The El Dorado's closure left Gardena holding a $1 million parking bond.
Fluctuations in gaming have plagued Gardena for decades.
After Proposition 13 limited cities' abilities to raise taxes, cash-strapped cities turned to card clubs for additional revenue and it sparked a rush of new super clubs, said Nelson Rose, a gaming expert and professor at Whittier Law School in Costa Mesa.
Smaller clubs folded and super clubs later faced problems when the state passed laws in the 1980s that regulated game clubs and made it more difficult for some to stay open. Their problems worsened the same year Flynt opened his casino when California voters passed Proposition 1A, paving the way for Indian casinos to offer Las Vegas-style games.
Indian gaming
Today, 43 tribes have the right to open as many as two casinos each.
“They (card clubs) have a location advantage but can't offer the same games,” Rose said. “Fortunately for Los Angeles-based clubs there's no federally recognized tribes here or in Orange County.”
But the scarcity of tribal land doesn't mean much, said critic Croney.
Tribes may open casinos on American Indian land and not just out-of-the-way reservations.
A Northern California tribe, for example, bought an office building a few blocks from the state Capitol. They promised not to open a casino but there's no law against it, he said.
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