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FRONTLINE: "Easy Money"
Air Date: June 10, 1997

Reported by Martin Koughan

NARRATOR: Many Americans still think of gambling as an outlaw industry, a world filled with gangsters and hustlers, but that image is changing.

J. TERRENCE LANNI, CEO, MGM Grand: Gaming is one of the oldest professions in the world. Go back to the caveman days, they find it on the drawings and etchings in the walls of the caves. Gaming has been here for a long period of time.

INTERVIEWER: And you expect it to become mainstream 10 years from now.

J. TERRENCE LANNI: I think it's mainstream now.

NARRATOR: Frank Fahrenkopf is an important man in Washington, the former chairman of the Republican National Committee, the co-chairman of last year's presidential debates. But he's not a public servant anymore. Frank Fahrenkopf is the chief lobbyist for the gambling industry. Gambling has moved from the back rooms to the boardrooms and it has a new name: gaming. It's classier, more respectable, downright American.

FRANK FAHRENKOPF: George Washington's army was clothed and their rifles and bullets were bought with gaming revenue and that gaming revenue was from state lotteries put together-- well, they weren't state, they were colony lotteries that the 13 colonies put together to raise money to arm their civilians to fight the revolutionary war. So I mean, we probably wouldn't be here as a nation, perhaps, if the lotteries hadn't made that great contribution. So I see no problem with it.

FRANK ROSENTHAL: You have to admire the Wall Street, the major corporations, recognizing the potential of legalized gambling and they-- they recognize it. They've bought the properties up and they're just laughing all the way to the bank.

NARRATOR: To the players, the corporations, the government, gambling looks like "Easy Money".

1st GAMBLER: Somebody won the progressive thing!

NARRATOR: The quick fix, the big hit, easy money--

2nd GAMBLER: Yes!

DANIEL McNAMARA: Oh, looky here, another 80!

NARRATOR: It is the most popular form of adult entertainment, more popular than movies, sports, music, theme parks and live entertainment combined.

MARY HILLHOUSE: Well, you forget everything in the whole world and you're just thinking about the money.

NARRATOR: Last year the wagers totaled more than $500 billion dollars, more than Americans spent on cars and houses combined.

FREDERICK BRADLEY: It's the quick pay. You could be broke one minute with a quarter and next time you put it in the machine, you could have money.

TOM McNAMARA: The "red, white and blue" is the best slot machine.

NARRATOR: The number of Americans who go to casinos has doubled in just the past five years.

NORMA HAMBY: We're not really looking for a big win, which we haven't found, but-- it's just-- it's just something to do that's pleasurable.

TOM McNAMARA: Yes!

1st GAMBLER: Oh yeah. If I win enough money I can make all my dreams come true!

NORMA HAMBY: A lot of things that we were taught back 50 years ago as wrong, it's not wrong today. So we're having fun.

NARRATOR: It used to be known as "Sin City," a remote refuge for adult pleasures. Not anymore. Las Vegas is now America's fastest growing city 1and it's not just for adults. The 30 million visitors a year include the whole family. It's one of the world's top destination locations. Eleven of the twelve largest hotels in the world are within just a few blocks of each other. Las Vegas is now a mainstream resort. The same town that was once ruled by gangsters like Bugsy Siegel is now controlled by some of the nation's most respectable corporations.

FRANK ROSENTHAL: The fact that Wall Street and the major corporations -- ITT, Hilton, et cetera, MGM -- have invested places an air of respectability. Gaming today is no different than going to the Metropolitan Opera. Twenty years ago, gaming was a no-no.

NARRATOR: Frank "Lefty" Rosenthal should know. Back when the wiseguys ran Las Vegas, Lefty Rosenthal was one of the biggest men in town-- such a legend, in fact, that Robert de Niro played his character in the movie "Casino." Rosenthal once ran four Las Vegas casinos at the same time. Today he operates a sports bar in Boca Raton. To Lefty, the new corporate masters of Las Vegas don't really understand the business.

FRANK ROSENTHAL: They understand the bottom line. I wouldn't think that anybody at a high level of ITT has a clue about what gambling is all about.

INTERVIEWER: Do they need to know the business to make money?

FRANK ROSENTHAL: No. It's the only industry, to my knowledge, where you need not know anything. Nothing. Zero.

J. TERRENCE LANNI: I think companies like ITT, Caesar's, MGM Grand have said, "What are we? We are the entertainment business. Why not expand upon that? Why not be those destination resorts where more people are going to travel?"

NARRATOR: Terry Lanni is the chairman and chief executive officer of MGM Grand, Incorporated.

J. TERRENCE LANNI: I think it's a part of why people want to be in this particular industry, because we are nothing other than an addition to the motion picture industry, to legitimate theater, to sporting events. We really encompass a lot of that within our own facility.

NARRATOR: There was a time when casinos could not get bank loans because of their shady associations, but now the Mob is gone, tough regulation is in place and loans from institutional investors are pouring in.

J. TERRENCE LANNI, CEO, MGM Grand Hotel: The pension funds who invest heavily in our business-- I mean the CALPERS, California Public Employee Retirement Fund, the Wisconsin State Teachers Pension Fund, the New York State Teachers Pension Fund are major investors in the publicly traded companies in this industry. If there is ever a time they think there's something questionable about the regulatory process or the backgrounds of the people in positions within these companies, it is going to have a major effect, negatively impacting the availability of funding, which is the important factor for growing.

NARRATOR: Today Las Vegas has all the funding it needs. The growing popularity of gambling has triggered one of the most ambitious building booms in the history of entertainment. In Las Vegas alone, the industry plans to open $6 billion worth of new casinos over the next two years and the competition to be the biggest and the flashiest is fierce.

J. TERRENCE LANNI: That's the future of this industry. You build or perish.

NARRATOR: Lanni's company, MGM Grand, opened the first new casino this year, New York, New York.

ANNOUNCER: [television commercial] It's the greatest city in Las Vegas!

BILL THOMPSON: The industry itself has gone out into the country and promoted itself and told other jurisdictions besides Nevada and New Jersey that, "This is an industry that can work in your community, that can bring prosperity to your community." It's not always the case, but with the message comes the notion that it's a legitimate industry.

NARRATOR: Bill Thompson is a professor at the University of Nevada, Las Vegas. He has been following the gambling industry's expansion to other parts of the country.

BILL THOMPSON: There are phenomenal profits, phenomenal profits to be made. So there is a business incentive that is driving the spread of gaming. Also, politicians are greedy for what they consider to be free money. They consider gambling tax like money falling off of trees. Well, it's not. It's money that comes out of people's pockets.

NARRATOR: Twenty years ago gambling was legal in only two states. Today some form of gambling is legal in all but two states, Utah and Hawaii. You don't have to go to Las Vegas to gamble today. The action is coming to a town near you.

TOM GREY, National Coalition Against Legalized Gambling: These guys are predators. I really believe that they've targeted the poor, they've targeted the elderly, they've targeted our young, all for the sake of making money. These are bottom-line guys and, I'll tell you, the more I see of them, the more dangerous they become.

NARRATOR: Tom Grey knows his enemy. He spent the last five years on the road, fighting the expansion of gambling. A Vietnam vet who served in the elite Special Forces, Grey is now a Methodist minister and the leader of the National Coalition Against Legalized Gambling.

His latest fight: stopping a developer from building a gambling hall in the small town of Pittsburg, California.

TOM GREY: Gambling's a predatory enterprise. It's come from the other side of the tracks and moved itself and put itself on Main Street. The way we move it off is at the ballot box and Pittsburg, California, is a good place to do that. [at meeting] The casino people said, "We are the wave of the future. We are the force of history. We are inevitable. We will be within two hours of every American.

NARRATOR: The people of Pittsburg have been told that the casino will not only provide jobs, but more money to improve city services. Small towns find it hard to say no to what looks like easy money, but Tom Grey says as much as 5 percent of the local community is likely to become compulsive gamblers.

TOM GREY: If you don't gamble, you're paying for it. You're paying for the losses of someone. We don't shoot families of compulsive gamblers, okay? We're a society that, when someone loses everything, we take care of them. So you can't have it both ways. The casino owners take the money. They maximize the profit and they do nothing to minimize the pain because you and I, as citizens, have to take care of that pain.

NARRATOR: Kim Guerrero is the leader of the campaign to stop the casino. This is her first experience in grass-roots politics.

KIM GUERRERO: They promised an elementary school. They promised a community park. They promised this great community, none of which has materialized. Instead, the plans have changed and we're having a casino.

NARRATOR: Kim's opponent is the developer who sold her her home, Albert Seeno. Seeno refused to talk to FRONTLINE. He has hired political consultants and telemarketing firms to promote the casino.

KIM GUERRERO: Right now all of our focus is on raising money and getting information to the voters.

TOM GREY: How did you do on the garage sale?

KIM GUERRERO: We raised over-- just over $1,000.

TOM GREY: I get a great joy out of beating these guys with little money, but to know we beat them with garage sale money is really going drive them crazy.

NARRATOR: Tom Grey functions as adviser and cheerleader. He believes there's only one way to overcome gambling industry money: Carry the battle house to house.

TOM GREY: This is a good fight. I don't care what Albert Seeno does. I don't care how much money he spends. He can't whip us. I mean, you'll never get in a better fight--

KIM GUERRERO: Right.

TOM GREY: --than you're in now and we've got him right where we want him. He's got to spend money. His greatest fear is what's happening in this living room now.

KIM GUERRERO: [at meeting] Good evening. Welcome to tonight's debate on Measure A. Measure A asks the voters of the city of Pittsburg to approve the San Marco Casino and Convention Center.

NARRATOR: The casino developer has won the support of the Chamber of Commerce and the local police.

Sgt. MIKE BARBANICA, Pittsburg Police Department: [at meeting] And this will enable the department, in the long term, to have more money in the fund, the $1.2 million guaranteed, to staff those officers and that equipment.

TOM GREY: Are we to grow more police? Is that the American dream? You bring something in that creates crime and then we hire more officers? I'd think we'd want to work the opposite direction, that-- less calls, less crime.

NARRATOR: The debate over gambling is now being played out in small towns like Pittsburg all across the country.

ALBERT SEENO: [at meeting] I hope the majority of Pittsburg citizens share our view on these issues and vote yes on Measure A. Thank you.

TOM GREY: To me, what's beautiful about this fight is that their either right and we're wrong or we're right and they're wrong because there is no in between. The snake oil they peddle is economic development, painless revenue source and entertainment. They don't say, "But a lot of you are going to lose your lives. A lot of you are going to lose your homes." We're saying it's not good economics, it's not good public policy and it's not good for the quality of life.

NARRATOR: For all the potential problems, it's hard to ignore the lure of easy money. James calls himself a gambler, but he doesn't go to Las Vegas very often. He doesn't have to. The action is right around the corner. His favorite play is the most popular form of gambling in the country, the one that has endorsed and legitimized gambling for everyone. James plays the lottery. His bookmaker is the state of California.

JAMES: (to clerk) Okay, you got 10?

CLERK: Yeah.

JAMES: A hundred dollars, right. You know the one I bought, you know, the other day before I left? You remember, I had three. I said I hit three?

CLERK: You went home.

JAMES: Yeah, I went home. It was 104. Are you going to come sit down with me? I spend $300 a week. I average about $300 a week, maybe a little more if I hit. Well, I play birthdays-- nieces, nephews stuff like that. It works, yeah. Sure. And I play license plates on the three-digit. Like tonight, I play my old license plates, new license plates. I noticed that triples come out more on the weekends. The weekends I play the triples only-- 0-0-0, 1-1-1, 2-2-2, all the way down to 9-9-9. So it costs me $30 a weekend. And if you do it all year, it costs you $1,560 for the year, for the weekend. We miss a lot. He missed yesterday by one. I missed one by one number yesterday.

NARRATOR: Gamblers like James miss almost all the time. Lotteries have the worst odds of any legal bet, unless you run the game. The state of California makes more than $1 billion a year from its lottery.

JAMES: [to clerk] Okay, Now we're back for 10 more. That wasn't too bad.

CLERK: One time it was $117 million. We miss one number. Believe me, when you hit, you think you are 18 years old. You don't worry for nothing tomorrow! No more bills, no more this, no more that. But you have to play for it. If you don't play, how are you going to win?

JAMES: Ali, run them through.

CLERK: [to girl] Yeah, get this for him.

NARRATOR: Like most states, California is struggling with how to properly control and regulate this rapidly spreading industry. Legal gambling in the state amounts to a $16-billion-a-year business and it's still growing. This operation is known as a "card room." There are almost as many card tables in California as there are in Las Vegas. But unlike Nevada, where gambling is strictly regulated, there is no state regulation of California card rooms.

BILL THOMPSON: [Commerce Club tour] Now, in this game right here, these people are playing against each other, right?

OWNER: Unfortunately, that player lost about-- it looked like about $1,000.

BILL THOMPSON: A thousand dollars.

NARRATOR: This is a fact-finding team from the California state legislature.

OWNER: We're open seven days a week, 24 hours a day.

NARRATOR: For the past five years, the legislature has been working on a law to regulate card rooms with little success. Critics charge that unregulated gambling halls are fertile ground for all sorts of criminal activity, from money laundering to drug deals.

BILL THOMPSON, University of Nevada, Las Vegas: Everything sleazy in gambling is happening in the card rooms. There's lot's of loose money. There's cheating at the games. It's unregulated. If money laundering and loan sharking is going on, that just hypes the business. If the drug people must come to the tables and pass the money around, that just means more people are sitting at the table and the casino is making more money. There is no concern.

INTERVIEWER: So the card rooms benefits from criminal activity, you're saying?

BILL THOMPSON: Oh, certainly, because it is something that will boost their business. And you bring all the people to one site, they sit there, the casino takes its cut, everybody's happy. They are providing a place for money laundering and deals to be made. And so they benefit. So the casino's not concerned about whether the game's honest. Then there is no state government regulation in California. It's a formula for disaster.

NARRATOR: Dan Walters is a political columnist for "The Sacramento Bee." He has watched the gambling regulation bills comes and go. The reason none have passed, he claims, is because everyone involved doesn't want them to.

DAN WALTERS: Well, the reason we don't have gambling regulation in California now is, even though there is a lot of gambling, those who are immediately involved in the issue -- politicians and lobbyists -- are trying to milk it. They get money in campaign contributions, money in lobbying fees, and they don't want to kill the golden goose. They don't want to stop the cow from giving milk, to use another analogy. And they probably won't resolve it until the goose stops laying eggs and the cow stops giving milk.

NARRATOR: More and more of the expense account meals at political gathering spots in Sacramento are being purchased with gambling industry money.

DAN WALTERS: This has been a full-employment act for lobbyists in California. Dozens of lobbyists have had their-- have gotten pieces of this action and they charge very hefty fees to whatever interest groups they're representing-- card rooms, Indians, Nevada people, whoever they might be. So they have a vested interest to keep this thing churning, as well. So the people who are doing the actual negotiating have all the reason in the world never to resolve the issue.

DAN LUNGREN: [press conference] Good morning and welcome to our annual and biennial press conference on this subject. Maybe it's the time of the season but there appear to be fewer lobbyists this time around than before. I don't know whether that's a good sign or a bad sign, but we'll proceed, even though I think we have a lack of a quorum in that house.

NARRATOR: Dan Lungren is California's attorney general. He has been leading the campaign to regulate card rooms for the past five years.

DAN LUNGREN: Every year we get just a little bit further along the line towards passage. The first year, you may recall, our gambling bill got only one vote in Senate committee and that was the vote of the bill's author.

NARRATOR: The attorney general's bill has faced stiff opposition from both the industry and his political enemies. The one person whose support Dan Lungren needed most was not in the room that day: his most powerful political opponent, Senator Bill Lockyer.

REPORTER: Did you talk with Mr. Lockyer about this legislation this time around?

DAN LUNGREN: He said to me in a rather jocular fashion, "Looks like we're going to have to work on that gambling bill again." And that has been the extent of our substantive conversations on this thus far.

BILL LOCKYER: It's difficult to pass legislation here because the system is so complicated and power so distributed, but we're doing our best.

NARRATOR: Bill Lockyer knows a lot about how the system works. He is the president of the California senate and the most powerful Democrat in the state legislature. There will be no gambling regulation bill without Senator Lockyer's support.

Senator BILL LOCKYER: The suggestion's been made that we need this huge bureaucracy at the state level and the attorney general's office. Now, this is a fellow who claims to be a conservative, limited-government advocate, but as soon as it's something that he's in charge of, he thinks we ought to amplify the regulatory effort and spend a lot of money, create a lot of political jobs that pay $100,000 a year of people to sit on some commission part-time. My view is that's a Cadillac solution to a motor scooter problem.

NARRATOR: So Senator Lockyer wrote his own gambling regulation bill.

BILL LOCKYER: Mr. Chairman and members, I have Senate bill 8, which is another attempt to provide for enhanced regulation of gambling activities in California.

NARRATOR: Every move to regulate California gambling has been shadowed by an army of industry lobbyists. In just five years, gambling interests spent more than $7 million to lobby the regulation bills. The fight has been going on so long, in fact, that the players keep switching teams. This is Gene Irbin. Three years ago he was one of the authors of the attorney general's bill. This year he's a lobbyist for a Las Vegas casino.

RICHARD FLOYD: You know, you got to look behind why are these people doing some of these things, and it all boils down-- money and power. What the hell.

NARRATOR: Dick Floyd is also a veteran of the regulation fight. He used to be a lobbyist for the card room industry. Now, he's a member of the state assembly--

RICHARD FLOYD: And all these idiots determined that this was a slot machine?

NARRATOR: And one of the gambling industry's most vocal supporters.

RICHARD FLOYD: Uh-huh. I'm an advocate for any industry that provides 20,000-plus jobs in this state.

BILL LOCKYER: They're all fighting with each other, these different groups and interests. And what's interesting for people like me is you eventually discover how liberating it is to do whatever you think is right. Someone out there will agree and contribute to your campaign.

NARRATOR: And contribute they have. Since the first gambling regulation bill was introduced in 1992, political contributions to California lawmakers have totaled $7.5 million. And the same thing has been happening in state capitals across the nation. The gambling industry has quietly become one of the most generous political lobbies in the nation. An investigation by "Mother Jones" magazine found that, in just the past five years, the gambling industry has spent more than $100 million to influence state legislatures.

Assemblyman RICHARD FLOYD: Well, basically, anybody that spends money in this game wants things their way.

ANTHONY PICO, Chairman of the Viejas Indians: [hearing] Madame chairman and members of the committee, thank you for the opportunity for allowing me to be here. I'm very humbled by the experience.

NARRATOR: Five years ago, no one in the state legislature would have listened to Anthony Pico, but they're listening now.

ANTHONY PICO: This solution works for us, just as it does for the state of California, just as it does for private gambling resort owners and just as it does for Wall Street investors.

NARRATOR: Anthony Pico is the leader of the Viejas Indians. Native Americans are newcomers to the regulation debate. They support limits on gambling elsewhere in the state to protect the new and hugely profitable monopolies on their sovereign lands. The Viejas used to be among the poorest residents of California, but gambling changed all that. They come by the thousands, 24 hours a day, 7 days a week. The once desolate reservation 30 miles east of San Diego is now teeming with activity. It changed almost overnight when they opened their casino. Congress passed a law permitting Indian tribes to offer gambling on their sovereign lands. Ten years later, there are 150 Indian casinos across the country. In California alone, more than 70 tribes have or plan to build casinos.

ANTHONY PICO, Chairman of the Viejas Indians: On this reservation, there are very few elders left because almost all of my father's generation died from alcoholism. Our culture has been obliterated. Our language is almost dead. Our customs and traditions are still being followed, but are becoming a faint memory because of poverty.

NARRATOR: The Viejas Indians once had 80 percent unemployment. Today they are the largest employer in the valley. The tribe used to survive on food stamps. Now each member has a guaranteed income of more than $1,000 a week, their share of the gaming revenues, and there is still plenty of money left over to ensure the tribe's future.

ANTHONY PICO: We set up scholarships for every child on the reservation and the scholarships were for their higher education through doctorate, if they so desired. What we've done is we've invested in ourselves. The priority is the children, and those children not yet born, and our elders.

NARRATOR: An ancient chant, the burning of sage: the Viejas perform this ceremony to purify a bank in nearby Borrego Springs. A century ago, the Indians were run out of this town by white settlers. The same bank would not have given the tribe a loan just five years ago. Today the Viejas own the bank. They bought it with cash. Indian casinos are the fastest growing and least controlled form of legal gambling. Hundreds of tribes are anxious to join this movement towards economic independence. They call it "the return of the buffalo."

ANTHONY PICO: It feels so good to be responsible. It feels so good to be a contributor, rather than a liability. [to worker] How's you're music career going?

WORKER: Very well, sir.

ANTHONY PICO: All right. Glad to hear that. You guys been playing lately anywhere?

NARRATOR: The Viejas casino employs 1,700 people, 99 percent non-Indian.

ANTHONY PICO: We treat them well. We treat them like family because that's important. It's important to us, as a people, and those are our values, but also, hey, it's good business.

NARRATOR: Gambling profits have transformed California's Indian tribes. They are now major players in state politics. Along with the card rooms, the race tracks, and Las Vegas interests, their lobbyists are carefully tracking the gambling regulation bill. Every hearing is packed with interested parties jockeying for position.

RICHARD FLOYD: [at hearing] You did shut down a joint in Fowler, right?

DON PRESSLEY: That's correct.

RICHARD FLOYD: Why?

DON PRESSLEY: In that particular situation, they were heavily underfunded.

NARRATOR: The attorney general's staff have spent a lot of time in hearings pushing for regulation with little success. With so many players, it's often difficult to tell who is calling the shots. This is Rod Blonien, a lobbyist for the state's largest card room. He's meeting with Brenda Jahns of the attorney general's office and staffers from the assembly and the senate. Blonien has some problems with this year's regulation bill.

ROD BLONIEN: This bill is a railroad job! The A.G. wants the ability to preclude us from having ex parte communications with the division or the staff.

NARRATOR: It's not unusual for lobbyists to play active roles in writing new laws. Staffers know they cannot pass a bill that the gambling industry opposes, so the lobbyists are not shy about voicing their opinions.

ROD BLONIEN: Yeah, put that in, Brenda. Put that in and we'll dance the tango.

1st STAFFER: I get the general concept, but can you sort of explain what you're proposing?

ROD BLONIEN: Yeah. My people need to compete on a level playing ground with the Indians.

2nd STAFFER: I think we made some serious headway here and I hope you recognize that and tell some of your people. And we've got some amendments that we'll be sharing with you.

NARRATOR: But even when the industry approves, that's no guarantee the bill will become law. Since the first regulation bill was submitted to the California legislature, there have been five floor votes and each time the proposal to regulate gambling won by a huge margin. However, when the same bills moved behind closed doors, all were quietly killed.

BILL LOCKYER: [press conference] I would like to mention that I am sincerely disappointed that we were unable to close on gaming legislation last year.

NARRATOR: Senator Lockyer submitted a regulation bill last year that won almost unanimous support. The bill was minutes away from approval when something unexpected happened.

DAN LUNGREN, California Attorney General: The person who makes the rules, controls the house or controls the senate, and a couple of key people in those instances, for whatever reason, did not want them to move. And those individuals who normally, when killing a bill, would take credit for it in daylight sort of walked out with bemused looks on their face as if they didn't know what happened. The funny thing is, it worked.

NARRATOR: It did work. One man killed Senator Lockyer's bill: Senator Lockyer.

DAN WALTERS, Political Columnist, "The Sacramento Bee": The bill was-- passed the assembly in that form on the last night, went over to the senate and needed one more floor vote in the senate to go to the governor. And Bill Lockyer basically adjourned the senate and a few minutes before that bill actually physically reached the floor, and left no doubt about it, and doesn't leave any doubt that he did it to kill that bill.

BILL LOCKYER: [press conference] There were a lot of discussions from which I was excluded, culminating in some agreement below the--

NARRATOR: Senator Lockyer claims he killed the bill because it was full of amendments he had not approved.

DAN LUNGREN: Well, the ostensible reason by Senator Lockyer was that there had been a number of add-ons put into the bill and that there had been a lot of amendments in the last days without his consultation. The only problem with that is we had managed to strip out all of those amendments.

DAN WALTERS: There's a lot of bad blood between Dan Lungren and Bill Lockyer. I mean it's personal. It's ego, and party--

BILL LOCKYER: The attorney general apparently promised lots of the groups -- the horse tracks, the card rooms, the Indian tribes -- that all those things they had tried to add into this bill he could do for them administratively. So I found myself in the uncomfortable position of facilitating all these backroom deals that the attorney general was trying to make just because I had a bill.

DAN LUNGREN: That just shows you how convoluted this can be. There's no good reason. There's no good justification for it.

NARRATOR: One result of Senator Lockyer killing his own bill was that the issue of gambling regulation remained alive for yet another year. To ensure access to the leadership, the industry had to give generously one more time. Senator Lockyer and the state Democratic Party were showered with gambling industry money. In just four months, contributions raised totaled more than a half million dollars.

BILL LOCKYER: As the leader of the Democrats in the senate, I have an obligation to help finance all of the expensive campaigns. We now spend $2 million on each side of a state senate election. That's just horrible and we need to change that. But that's one of my tasks and responsibilities.

NARRATOR: Meet George Hardie, the man whose influence with California politicians, including Senator Lockyer, helped stop gambling regulation. Hardie is a founding partner of The Bicycle Club, one of California's biggest card rooms. The secret to his political success, Hardie admits, was money.

GEORGE G. HARDIE, Bicycle Club Founder: You know, it does enter a politician's mind who his supporters are and if he can try to justify or-- maybe that's the wrong word-- or rationalize or feel that supporting that individual is important, then he's going to do that. The card club industry had not had much of a presence in Sacramento until the Bicycle Club and myself suddenly realized, we better-- if we were going to be competitive in the ball game, that we better get in there and make our presence known and try to make some friends.

NARRATOR: George Hardie made lots of friends, all the way to the White House. This photo op on Air Force One cost Hardie a $20,000 contribution. Everyone important in California knew George Hardie. His Bicycle Club gave more than $1.5 million in political contributions in just the past five years.

GEORGE HARDIE: We gave substantial sums. Yes, it's a lot of money, but it's in relationship to the business. When you have a $100-million-a-year business -- and it was growing at the time -- then you need to protect that industry and protect your business.

BILL LOCKYER: He's one of the colorful, fascinating rascals of California business. I found him to be very interesting, just as a character. He seems to have very complete and credible explanations about his own business background that are-- that defend his-- himself and his activities. Beyond that, he certainly is a matter-- a person that is controversial.

NARRATOR: The attorney general remembers George Hardie, too.

DAN LUNGREN: Well, he was up here quite a bit. He was one of those who came up and testified against it. He was one of those who said basically he was going to kill it. He was one of those who worked as hard as he could to kill it, one of those who said it wasn't needed. And he was talking with the authority of the Bicycle Club and the federal government behind him.

NARRATOR: The federal government behind him? That's right, the controlling partner in Hardie's bicycle club is none other than the U.S. Department of Justice. One of Hardie's original partners was convicted of drug smuggling, so his share of the club was turned over to the U.S. Marshals. We wanted to show you the inside of the taxpayers' gambling hall, but the Department of Justice would not let our cameras in. They were concerned our cameras would disturb the gamblers.

FREDERICK WYLE, Federal Trustee: The clients don't like it. It's an invasion of their privacy. They're not consenting to be filmed and broadcast, so they're very much against it and didn't like it. And the word I had from everyone was that it would be bad for business to have any kind of cameras in there.

NARRATOR: The Bicycle Club was the largest asset ever seized by the federal government and that was seven years ago.

DAN LUNGREN: Well, I don't know what it has made, but what I hear from them is they'd have to sell it at a fire sale. They wouldn't get enough money for it. That was never the intent of asset forfeiture law. They were to get in, they were to get out. Seven years is a long time.

GEORGE HARDIE: I don't think they ever, seriously, for years wanted to sell because they were making $5 million a year from the asset. So even though the guidelines under seized assets say "Sell promptly," they had no intention of selling promptly.

NARRATOR: The federal government has turned a tidy profit from its card club, at least $35 million.

GEORGE HARDIE: When you have what was a golden goose, everybody thinks, you know, they want to get a piece of it, whether they're qualified in any way or entitled or competent. And that's what's hurt the Bicycle Club, you know? The government saw a great opportunity. If this had just been a machine shop that was breaking even, I mean, they would have never bothered with it at all. You know, money, it's like honey, you know? It attracts the flies.

NARRATOR: And card rooms attract criminal activity, too, even one run by the U.S. Department of Justice.

DAN LUNGREN: We've seen drug deals go down at the Bicycle Club. We know money laundering, large scale money laundering that took place. We have it on film, for God's sake! We have film of people bringing in bags of money, tens of thousands of dollars worth of money, and over a period of hours being able to launder it.

NARRATOR: The U.S. Marshals insist they don't have sufficient evidence of criminal activity.

KENNETH HOLECKO, U.S. Marshal Service: At this point, there hasn't been a single case brought to the attention of the U.S. Attorney's office which is prosecutable and we don't know of any law enforcement agency today who would say that there are cases that we could prosecute that are federal offenses that aren't being pursued.

NARRATOR: Surprised the government runs a gambling hall suspected of criminal activity? Well, that's not all. Some of its gambling profits went to promote the card room industry. Remember all those political contributions that George Hardie made? all of it was approved by the U.S. Department of Justice.

GEORGE HARDIE: Under the terms that I operated as the general manager, anything over $25,000 they had to approve. I mean, they were well apprised. I felt it was my responsibility to keep them apprised of all of the activities at the club.

INTERVIEWER: Including political contributions?

GEORGE HARDIE: Oh, absolutely. But it was a business. And in running a business you contribute to political campaigns to protect your business.

INTERVIEWER: Even if you're the federal government?

GEORGE HARDIE: Well, don't say that because they don't like it.

KENNETH HOLECKO: It's obvious that when you have a political contribution made by a business entity under the control of the United States, there is a clear perception problem even if the contribution is otherwise legal under the appropriate laws. And it should stop.

INTERVIEWER: But it went on--

KENNETH HOLECKO: And it did.

INTERVIEWER: --for five years.

KENNETH HOLECKO: I really wish that it had stopped earlier than that. I'm not going to say that we don't feel otherwise. All I can tell you is that when we became aware of the extent of it, we stopped it. It's against policy. It won't happen again.

DAN LUNGREN: Think about this. On behalf of the Bicycle Club, contributions were being made to influence elections in California, local as well as, I believe, state, but certainly local. And they were paying lobbyists to come up here. Some lobbyists, I believe, were lobbying against my bill. This is the Bicycle Club, which has a controlling ownership interest by the United States Department of Justice. Last time I looked, we're not a banana republic. California shouldn't have to worry about the federal government coming in like a rogue CIA and trying to overturn our elections. I resent that tremendously. I think it's an embarrassment.

BILL THOMPSON, University of Nevada, Las Vegas: They're using gambling money to influence legislation in American government, but the gambling money is being used by the government to influence the government and the influence is a negative one. The influence is one not to have regulation. It's just incredible. It's just incredible.

Assemblyman RICHARD FLOYD: These are not the guys to run a joint. They would blow it all, man. Those guys don't run a joint. They're bureaucrats.

GEORGE HARDIE: Why is the government even in the business of gambling? You know, there are prohibitions about advertising gambling for private individuals, and yet the state's out telling you how wonderful it is to come down and spend part of your paycheck and try to hit the lottery, which is the worst gamble in the country.

SINGER: [television commercial] Going in good style, morning to good night, spreading the good news, living the good life!

FRANK ROSENTHAL: The state is asking you in a very discreet manner to take some money and try to become a millionaire.

SINGER: [television commercial] This could be your ticket to the good life!

FRANK ROSENTHAL: The state is encouraging, the state is an advocate, and the state is creating the interest by advertising to the public, "Gamble. Make a bet. You can win. You can be a millionaire."

JAMES: Are we hitting? We're almost done. This is my last game on this. I just missed four out of four three times on that. That could have been maybe $200, $300 there. I got back the money I played, so it's worth playing it again. Oh, Ali, our numbers are coming out! Our numbers are coming out! See, I got two numbers there again.

FRANK ROSENTHAL: Gambling today is within range of] almost every citizen in this country, whether it be lottery, poker, Las Vegas, Nevada, Atlantic City, floating casinos, open air casinos, dog tracks, you name it, Jai Alai, Fron Ton. It's there.

NARRATOR: When the public has a chance to decide, they tend to say no to gambling. The people of Pittsburg, California ended up rejecting the casino in their town, but such small victories have not slowed the growth of gambling.

FRANK ROSENTHAL: I don't think we recognize, any of us, how dangerous the growth and expansion of gambling is. Ninety nine and nine tenths percent of the public, including myself, have two chances. One is slim the, other is none and slim's out of town. Years ago we found out that you make more money with square dice -- meaning legitimate dice -- than you do with baloneys, i.e. phony dice.

NARRATOR: Lefty Rosenthal isn't in the gambling business anymore. He has a slot machine in his club, but it is only for show. Nevada regulators have banned Rosenthal from Las Vegas casinos. He says most gamblers don't really know what they're getting into.

FRANK ROSENTHAL: The public, being so uneducated, doesn't realize how vulnerable they really are to what we call "the heat"-- the heat being you start out very lightly, very small, very conservatively, and then you lose your control. And when you work in the industry and you work behind the counter and you watch their eyes and you watch their habits and you see someone with an extremely high I.Q. go down the tubes, you recognize that we all have an Achilles heel. And I've witnessed that on thousands of occasions.

JAMES: I was down $3000 in, what, eight months since it's back. In eight months I lost $3000. But it's bound to come out in 100 games. That's the true way, if you want to. But, see, I enjoy watching it. I got two out of three. Well, what do we got, last game? We got one more game. We're not doing good. But we hit one hit and it could be $380. So then the $100-- we got $280 to split, you see what I'm saying? The last game, the last number we hit a couple of times. And of course we were screaming. We got excited.

TOM GREY, National Coalition Against Legalized Gambling: People, walk down to your grocery store on Saturday night when the jackpot is $30 million, $40 million and look who's standing in line. James Bond's not standing in line with a blonde on his arm waiting to buy his Quick Pick ticket. Understand, this is preying on those people who can least afford it.

NARRATOR: Lotteries, riverboats, Indian casinos, racetracks. America is obsessed with gambling. No matter how many casinos are built, there are always enough gamblers to fill them.

FRANK ROSENTHAL: One just need walk or drive through Las Vegas, Nevada, and ask themselves, "How could So-and-So build a casino for $1.5 billion dollars? Where is he getting the money? Who is supplying the funds?" It's you.

J. TERRENCE LANNI, CEO MGM Grand Hotel: This is my wife, Debbi.

DEBBI: Hi.

J. TERRENCE LANNI: A very exciting opportunity. We're now opening. Now push number one here because we're going down to the ground floor from the 38th floor penthouse here at the new New York, New York Hotel and Casino. We have a special party for 3500 of our nearest and dearest friends.

NARRATOR: MGM's New York, New York has been phenomenally successful. Gamblers are visiting the new casino at the rate of a half million a week and investors are betting that the crowds will keep on growing. Some of the new casinos will cost well over $1 billion.

REPORTER: [to Wayne Newton] So Wayne, what do you think of this whole New York theme?

J. TERRENCE LANNI: We're going to do a lot more hotels, so we have a lot more openings for people to come to.

NARRATOR: In just the first three months, New York, New York has earned a profit of $31,000 an hour 24 hours a day, 7 days a week.

J. TERRENCE LANNI: And this is the man who taught all our people to be the dealers here. He trained every single dealer in the table games here at New York, New York. So you better to be very careful when you're playing here. It'd be very difficult to get a 21 against this fellow in blackjack. MAN: Congratulations!

J. TERRENCE LANNI: Thank you. We're pretty excited with this. MAN: I would be, too.

J. TERRENCE LANNI: It's going to be a great, great facility. What do you think of it, honestly, the interior?

MAN: Having grown up in New York, I feel like New York has been brought inside.

J. TERRENCE LANNI: This is the great new New York.

MAN: Better than the outside is the inside.

J. TERRENCE LANNI: Yeah, we kind of feel that way, too. If casinos are an integral part of what people want to do as a form of entertainment, why couldn't it be one-stop shopping? It's almost really like your mall. It's like the-- it's the old shopping mall, if you will. I think there'll be little difference between a major motion picture studio, a hotel-casino, an entertainment casino, a non-gaming entertainment resort. I think they'll be very, very similar. I think it's going to become much more acceptable on that basis. Ten years from now, the issue of gaming won't be an issue.

JAMES: Ali, before you close I'm going to play this again.

NARRATOR: The question of whether Americans should gamble doesn't seem to matter much anymore. Americans will gamble -- and with the enthusiastic approval of their government--

JAMES: Good night, Ali. I'll be back Ali.

NARRATOR: --both lured by visions of easy money.

SINGER: [television commercial] This could be your ticket to the good life!

ANNOUNCER: Check out FRONTLINE's Web site at www.pbs.org for more persuasive arguments on gambling's impact. Learn what the odds are against the player in casino and sports betting. Study our timeline of the spread of gambling. Join our discussion and much more. Explore FRONTLINE on-line at www.pbs.org. Next time on FRONTLINE, it's the final chapter of the Holocaust.

1st EXPERT: they were just interested in making money.

ANNOUNCER: How Swiss banks hid a fortune in blood money.

2nd EXPERT: The vastest killing machine in history, fueled by one of the most efficient banking systems in history.

ANNOUNCER: And how a country that claimed neutrality secretly financed Hitler's war machine.

3rd EXPERT: A very willing ally.

ANNOUNCER: "Nazi Gold" next time on FRONTLINE. Now your letters. "Innocence Lost: The Plea", the story of alleged day care abuse in Edenton, NC, brought an outpouring of opinion about the investigation and prosecution of this case.

MARK MENDELSON, Albuquerque, NM: Dear FRONTLINE, What I see in teh Edenton, North Carolina child sex scandal is prosecutorial terrorism, pure and simple... Constitutional rights were literally stolen and then re-sold for shorter prison terms and plea bargains. The basic concept of any criminal law in this country is that it is better 1,000 guilty go freee than 1 innocent be imprisoned.

ROBERT HANNIGAN, Garfield, NJ: Dear FRONTLINE, Never in my limited experience with legal issues have I ever considered that in America, you might very well have to say you're guilty and "cop a plea" rather than attempt to prove your innocence in a court of law... North Carolina has suffered, the "accused" have suffered and certainly justice has suffered...

NANCY DOOLEY, Iowa City, IA: Dear FRONTLINE, The whole Little Rascals case is a trajic travesty of justice... Nothing can give these defendants back the time and grief they have already expended; however, it is my sincere hope that the judge will see fit to recognize Ms. Lamb's vendetta for what it is and in the interest of justice... throw the case out.

JOHN CHOWNING, Seattle, WA: Dear FRONTLINE, After following the McMartin and Little Rascals cases I wondered why the government wouldn't protect all parties by videotaping any investigative interview with a child... The tragedy in this case is that the children are left with false memories while the accused's lives are forever altered by an overzealous prosecution and investigators of the state of NC. Where is the justice here?

ANNOUNCER: Let us know what you thought about tonight's program. [by fax at 617-254-0243; by e-mail at frontline@wgbh.org; or by the U.S. mail at Dear FRONTLINE, 125 Western Avenue, Boston, MA 02134].

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