Small casinos around the US are waiting with bated breath to find out if they qualify for federal COVID-19 relief.
Under the Coronavirus Aid Relief and Economic Security (CARES) Act, most businesses with under 500 employees are eligible for loans to cover payroll and other expenses. These Payroll Protection Program (PPP) loans fall under the direction of the Small Business Administration (SBA).
While Congress intended the Act to cover all legitimate businesses, the SBA has instead been using 25-year old eligibility criteria intended for non-emergency loans. And those criteria expressly exclude certain types of businesses, most notably casinos.
At the end of March, American Gaming Association (AGA) president Bill Miller penned an open letter to SBA Administrator Jovita Carranza and Treasury Secretary Steven Mnuchin asking them to reconsider.
When his plea went unanswered, Miller last week sent a second letter on the subject directly to President Donald Trump. That one was accompanied by similar letters from several sympathetic members of Congress.
Loans under the PPP can be up to 2.5x a company’s total monthly payroll, to a maximum of $10 million. They’re also more of a direct bailout than a loan, as the entire amount can be forgiven provided it’s used for its intended purpose. Most of the money must go to paying employees on furlough, but a portion can also go to other unavoidable expenses like rent and utilities.
Unfortunately, the wording Congress chose for the CARES Act treats PPP as an extension of the SBA 7(a) small business loans program. These include standard Economic Injury Disaster Loans (EIDL), which under ordinary circumstances are expected to be repaid with interest.
The SBA approves these loans on a case-by-case basis. However, it has a list of business types that it will automatically reject as part of its standard operating procedure. These include any business that isn’t privately owned and for-profit, or those which it considers either high-risk or lacking in “good character.”
Businesses like casinos that generate more than one third of their revenue from gambling fall under that umbrella. Other examples include:
The first letter Miller sent to the SBA points out that Congress included wording in the CARES Act implying that it expected the administration to expand the eligibility criteria. Although he didn’t reference a specific portion of the Act in that letter, Miller clarified what he meant in the subsequent letter to President Trump.
Here’e the language from the Act covering business that fall under the 500-worker cap:
“During the covered period, in addition to small business concerns, any business concern, nonprofit organization, veterans organization, or Tribal business concern described in section 31(b)(2)(C) shall be eligible to receive a covered loan[…]”
Neither the CARES Act nor the relevant section of the Small Business Act make specific reference to gambling one way or the other. Miller feels that the “any business concern” language indicates Congress intent that the SBA not impose any limitation beyond the size restriction.
If the AGA received a response from the SBA, it did not make it public.
When the SBA made no immediate changes to its policy, Miller moved up the chain of command. His letter to Trump last week took a flattering tack, praising the President’s handling of the situation while expanding on his previous points regarding the language of the CARES Act.
Reporters asked the President about smaller Nevada casinos in his daily briefing on April 8. Trump said that it was the first he’d heard about the problem but seemed amenable to the idea of extending relief measures to small casinos.
“It’s a great state, and I will take a look at that strongly,” Trump said. “Are you talking only the smaller casinos? Yeah, I’ll take a look at that. I don’t mind that.”
It does not look as if SBA will reverse its position unless compelled to do so, however, whether by the President or by Congress. Mnuchin announced on Monday that it had slightly adjusted the guidelines, but Miller says the changes “fall woefully short” of addressing the problem.
Under the new guidelines, businesses can qualify so long as their gambling revenue is less than $1 million and not more than 50% of their total. The adjustment was only to allow loans to bars and restaurants for which gambling is a significant (but not primary) revenue stream.
Mnuchin stressed that casinos — even small ones — remain ineligible for relief.
The COVID-19 crisis has had a significant negative impact on most sectors, and gambling has been hit particularly hard. The problem is worse for some states than others, however, depending on the laws in place.
In New Jersey and Pennsylvania, for instance, losses are partially mitigated by the existence of legal online gambling. These states furthermore have a limited number of brick-and-mortar casinos owned and operated by major corporations with significant war chests and/or borrowing power available to help weather the storm.
Smaller businesses are much less resistant to volatility. The SBA’s policy is therefore drawing the most ire from states with a large number of small, independently-owned gambling establishments. Places like Montana, Colorado, and South Dakota are heavily impacted.
The situation is even worse for Native American tribes which rely on casinos as their primary source of revenue. As sovereign nations, they’re not obligated to comply with orders to close. The overwhelming majority of tribal casinos have closed voluntarily, however, in the hopes that such cooperation would be reciprocated.
So far, it has not been.
The fight isn’t over. It’s still unclear whether the President will do anything beyond looking into the situation, but the AGA isn’t fighting alone. Several members of Congress have also written letters to Trump and SBA Administrator Carranza.
Miller appended copies of several of these letters to his own. Though they range widely in tone, from apologetic to angry, all express the opinion that the SBA is being unreasonable in applying standard EIDL policy to a crisis of this magnitude.
The bipartisan list of federal politicians supporting Miller and the AGA includes:
Public pressure will likely mean that they will soon be joined by other representatives and senators from these and other affected states.
Unfortunately, the clock is ticking.
Even if the SBA eventually changes its policy, relief may come too late for some smaller casinos. Shutdowns related to COVID-19 could easily last several months or more, and not many small businesses have the financial resources to survive that long without income.