Gaming in Mississippi

Casino style gaming legally arrived in Mississippi on December 19, 1987, aboard the Europa Star, a cruise ship docked in Biloxi that offered "cruises to nowhere." The 157-foot cruise ship allowed passengers to wager on roulette and bingo, and to play slot machines. The ship conducted its short round-trip cruises in the Mississippi Sound, a channel of water between the coast of Biloxi and a series of barrier islands located eight to ten miles out from Biloxi. The ship operators claimed that the Europa Star, a Panamanian-registered vessel, was in international waters and free from U.S. and Mississippi law when it was three miles into the sea from the Biloxi shore. State officials argued that international waters did not begin within the Sound, but only beyond the barrier islands in the Gulf of Mexico. The state filed anti-gambling charges against the ship operators. Before hearing the merits of the charges, a state circuit court issued a temporary ruling allowing the games to continue aboard the ship within the Sound. While the court struggled with the issue of where international waters began, the Mississippi State Legislature took notice of the gaming activity.

In 1988, the courts held against the Europa Star and ruled that international waters began not in the Sound, but beyond the barrier islands in the Gulf of Mexico. The Legislature also rejected a bill that would have allowed gaming on the Europa Star while it was in the Mississippi Sound. In November 1988, the Europa Star left Mississippi, its owners claiming that it was not commercially viable to continue its cruises if gaming was permitted only after the ship was well past the Sound.

Still, the issue of cruise ship gaming persisted, and in March 1989, the Mississippi Legislature approved a measure allowing larger ships to offer casino gambling within the Mississippi Sound. The successful bill accommodated the Pride of Mississippi, a ship that was operating its casino games after reaching international waters. Ships capable of carrying 400 passengers overnight could now offer gaming in Mississippi waters if they were at least 300 feet long and had a minimum draft of 15 feet. The ships would still have to go into international waters, but gaming could begin when the ships left their Mississippi ports.

Yet, like its predecessor, the Europa Star, the Pride was not financially successful. It operated only from January until November 1989. However, civic officials along the coast saw value in the ship's activity as hotel occupancy and tourist spending improved during the time when the cruise ships operated. In 1990, Gulf Coast leaders persuaded the Mississippi Legislature to allow 150-foot ships to operate casinos in the Mississippi Sound if the ships were traveling to or returning from international waters. While the state could control gaming within the Sound, questions soon arose about gaming in international waters. The Federal Gambling Ship Act of 1948 makes it illegal for a United States registered vessel to operate in international waters with the principal purpose of gambling. (See the chapter on Gaming on the High Seas). The United States Attorney and the Customs Office began investigating the principal purposes of the ship cruises.

Nevertheless, the State of Mississippi had jurisdiction over gaming inside the United States waters. Following the adoption of riverboat gaming in Iowa and Illinois, effective April 1, 1990, the Mississippi Legislature authorized gaming on boats on the Mississippi River and in navigable waters (including oxbow lakes) lying in counties bordering the Mississippi River and in the waters of the Mississippi Sound lying south of the three Mississippi Gulf Coast counties. If the citizens of a county do not desire gaming in such a county, a petition signed by 20% of the registered voters or 1500 of such voters, whichever is less, may force a vote on the issue. A second, more comprehensive statute was enacted during a special legislative session in the summer of 1990, establishing a regulatory framework under the jurisdiction of the Mississippi Gaming Commission (the "Commission") and a taxing mechanism for gaming on the casino vessels.

Government Authorized Forms of Gaming

Mississippi law permits all forms of gaming, except lotteries. These include virtually any type of game played for money or property, including baccarat, blackjack, bingo, chemin de fer, keno, klondike, monte, pai gow, panguingui, roulette, twenty-one, poker, and wheel of fortune. Moreover, the Mississippi Gaming Commission may approve new games and has done so upon application and following a field test. While the statute prohibits non-banking games and wagers on athletic events, it authorizes sports pools and race books. However, no regulations have been promulgated for these types of wagering and there are certain federal law issues that must be considered. Charitable bingo is also authorized under Mississippi law, and regulated by the Mississippi Gaming Commission. Lotteries are illegal.

Permitted Locations for Authorized Gaming

A licensed operator can conduct gaming only in limited areas in Mississippi. Gaming can take place aboard any "cruise vessel" in the waters within Mississippi which lie south of Hancock, Harrison and Jackson counties on the Mississippi Gulf Coast. The statutes also allow gaming on any "vessel" whenever such vessel is on the Mississippi River or on navigable waters lying within any county bordering on the Mississippi River. A cruise vessel is a vessel that complies with all U.S. Coast Guard regulations, has a minimum total length of 150 feet and a minimum draft of six feet and is certified to carry at least 200 passengers. A vessel is any vessel having a minimum overall length of 150 feet and includes a cruise vessel. The Mississippi Gaming Control Act, however, does not require that either a vessel or a cruise vessel actually conduct a cruise in order for gaming to take place on the vessel; hence, Mississippi was one of the first states to authorize "dockside gaming." As a result, most gaming "vessels" in Mississippi are in fact large buildings built on barges and are designed to remain always "in port".

Navigable waters are any rivers, creeks, bayous, or other bodies of water within any county in the state bordering on the Mississippi River that

(1) are used or susceptible for use as an artery of commerce and which either in their natural or improved condition are used or suitable for use as an artery of commerce, or

(2) are used for the docking or mooring of a vessel, notwithstanding interruptions between the navigable parts of such rivers, creeks, bayous or other bodies of water by falls, shallows, or rapids compelling land carriage.

The Mississippi Gaming Commission has adopted regulations that limit legal areas for gaming on the Mississippi Gulf Coast to the traditional beachfront areas and the Bay of St. Louis, the Biloxi Bay and the Pascagoula Bay; excluded are the rivers and bayous leading into these bays. The Mississippi Attorney General has also ruled that (i) landlocked, currentless bodies of water are not navigable waters; (ii) oxbow lakes (which are old river channels running alongside the current channel of the Mississippi River) qualify as navigable waters; and (iii) artificially created lakes, ponds, borrow pits or other bodies of water are not navigable waters.

Interpreting the above requirements, the Mississippi Gaming Commission has granted licenses to gaming vessels in "ports", which are actually cofferdams along the edge of the Mississippi River or, in some instances, hundreds of feet inland from the river. The purpose of placing the gaming barges in these structures is to protect the vessels and related improvements from the dangers associated with the periodic and sometimes dramatic flooding along the Mississippi River. Despite this, the Commission has not yet granted site approval to any location which is on the "protected" or eastern side of the mainline Mississippi River levee. If the regulators had not permitted gaming to take place on barges in cofferdams protected from the ravages of the Mississippi River, very few hotels, golf courses and other amenities would have been built in some areas. Instead, this rather creative and industry supportive administrative position is widely regarded as one of the most important reasons for the phenomenal development of the gaming industry in Tunica County.

Gaming is not automatically permitted in each of the affected counties, however, and is subject to a "local option" procedure. An applicant must file a notice of intent with the Commission staff which must within ten (10) days of receipt consider approval of the notice for publication. The notice must appear for three consecutive weeks in a newspaper having general circulation in the county of the proposed operation. If no petition is filed with the county Board of Supervisors within thirty (30) days after the last date of publication, the Board of Supervisors must adopt a resolution stating that no petition was filed and that legal gaming may be conducted in that county. If a petition is signed by 20% or 1500, whichever is less, of the registered voters in the county and the petition is filed with the county Board of Supervisors within such thirty (30) day period, an election on the issue must be held on the date of the next succeeding presidential election. In 1997, the act was amended to provide that any county in which the voters had elected not to permit gaming in three gaming referenda would not be permitted to consider gaming again until the second succeeding presidential election. This law was enacted solely for the benefit of DeSoto County, Mississippi, located between Memphis, Tennessee and Tunica County, Mississippi, which has voted against three times in the last five years.

The gaming authorities may deny a license for any location deemed unsuitable because of its proximity to a residential area, church, school, hospital or playground, or because the location is difficult to police. The Commission has also adopted a policy that no sites lying within the State of Mississippi but which are on the western shore of the Mississippi River shall be approved as legal sites for gaming. In December 1996, the Commission denied site approval to a location on the Big Black River between Vicksburg and Jackson, Mississippi, at least partially on the grounds that a casino at such location would adversely economically impact the existing Vicksburg gaming industry.

Counties and municipalities through zoning laws regulate the location of gaming within a community, but the Attorney General has ruled that communities may not totally exclude gaming through such ordinances.

Form of Regulation

Gaming licenses are granted only to private enterprise. The state delegates licensing and regulatory authority to the Mississippi Gaming Commission and the Mississippi State Tax Commission maintains limited authority over gaming through its authority to collect gaming fees and taxes. The Gaming Commission consists of three members appointed by the Governor with the advice and consent of the State Senate. Although the members hold four-year staggered terms, no member can serve for more than 10 years. The Commission holds monthly meetings. The three part-time members of the Commission are responsible for licensing, administering discipline to licensees, and adopting regulations. A full-time executive director (the "Executive Director") administers the gaming laws and regulations, and makes recommendations on licensing and other matters to the Commission. Four divisions report to the Executive Director: the Enforcement Division, the Investigations Division, the Compliance Division and the Bingo Division. The Executive Director hires necessary staff, but the Attorney General must approve the appointment of all legal staff. The Attorney General advises the Commission, and represents it in lawsuits.

The Gaming Commission adopts rules and regulations consistent with the gaming laws, while the State Tax Commission maintains concurrent jurisdiction for limited matters, such as internal controls, to insure proper collection of taxes. Among other subjects, the Gaming Commission rules may provide for the (a) forms and procedures used to apply for licenses, (b) procedures for all hearings, (c) payment of investigative costs of applicants, (d) permitted games, (e) the size of gaming area on a ship or vessel, and (f) procedures for issuing credit and collecting debt. The law permits gaming only by players who are present in the casino. Players must be at least 21 years old.

Local governments cannot issue licenses, and have limited ability to regulate gaming. The Mississippi Attorney General has opined that a local government can adopt zoning ordinances restricting gaming to certain areas within its city or county limits. However, a local government may not absolutely exclude or prohibit gaming.

Games Types

Only games that the statute specifies or the Commission approves may be played. The only prohibited games are raffle-type lotteries for non-charitable purposes. Statutorily, approved games include faro, monte, roulette, keno, fan-tan, twenty-one, blackjack, seven-and-a-half, big injun, klondike, craps, poker, chuck-a-luck (dai shu), wheel of fortune, chemin de fer, baccarat, pai gow, beat the banker, panguingui and slot machines.

Limits

Licensees set their own limits on wagers and payouts for all games. However, all gaming devices submitted to the Commission for approval must theoretically pay out a mathematically demonstrable percentage of all amounts wagered, which must not be less that eighty percent or greater than one hundred percent for each wager available for play on the device. Gaming devices that may be affected by player skill must meet this standard when using a method of play that will provide the greatest return to the player over a period of continuous play.

Rules

Generally, the licensee sets the rules of the games, which must be submitted to and approved by the Gaming Commission. This allows for variations among casinos.

Licensing Types

Gaming Operators. All persons engaged in gaming operations must obtain a license from the Gaming Commission. Application fees are $5,000 initially, and there is a $5,000 annual license fee thereafter. The Executive Director conducts a background investigation and makes a recommendation. If he recommends denial, the Gaming Commission may grant the license only with a unanimous vote of the three members. The Executive Director must complete his investigation within nine months of the filing date of the application. After a positive recommendation from the Executive Director, the Commission must act within 120 days or the license automatically issues. The licenses are revocable privileges. Commission actions are absolute and a denied applicant cannot appeal the Commission's denial. However, the Mississippi Supreme Court has ruled that an appeal of a decision to deny any aspect of a license may be taken and considered by the courts only if the Commission has exceeded its statutory authority under the Mississippi Gaming Control Act. Under these decisions, the courts may take appeals of Commission decisions in order to determine if the Commission in fact exceeded its statutory authority in making the challenged decisions.

Landlords. A landlord may not receive rental payments based on a percentage of earnings or profits from gaming unless first found suitable. Even if a landlord receives fixed rental payments, the Gaming Commission may call the landlord forward for a finding of suitability. Mississippi law imputes an automatic termination clause in a lease, without liability to the gaming licensee, upon a finding of landlord unsuitability.

Gaming Employees. For licensing purposes, there are two types of employees, each of which must be at least 21 years of age. The first type is the "key employee". This is an employee who can exercise significant influence over the licensee's operation of a gaming establishment, receives annual compensation of $30,000 or more, or should be listed in the annual employee report.

The second type is the "gaming employee." This includes boxmen, cashiers, change personnel, counting room personnel, dealers, floormen, hosts or other persons empowered to extend credit or complimentary services, keno runners, keno writers, machine mechanics, security personnel, shift or pit bosses, shills, supervisors or managers, and ticket writers. It does not include bartenders, table servers, or others involved in preparing or serving food and beverages unless acting in some other capacity. A person may not work as a gaming employee without a valid work permit issued by the Commission. State gaming regulators may object to the issuance of a work permit. Grounds for objection or refusal to issue a work permit include (a) failing to reveal or misstating information on the permit application, (b) knowingly failing to comply with the gaming laws at a prior job, (c) committing a crime involving dishonesty, (d) being identified by a government agency as a member or associate of organized crime, (e) being on probation or parole, or (f) having been previously denied a work permit. An applicant that has committed, attempted, or conspired to commit a felony is automatically disqualified from obtaining a work permit. A person denied a work permit may appeal the decision to a hearing examiner appointed by the Commission, request a Commission review of the hearing officer's decision, and ultimately appeal the decision to the courts.

Junket Representatives. A junket representative is a collection representative or a person who contracts with a gaming licensee to provide services outside Mississippi consisting of arranging transportation or lodging for persons known as preferred guests at a licensed gaming establishment. A junket representative does not include actual suppliers of transportation, travel agencies that receive compensation based solely on the price of the transportation or lodging, or employees of licensees. A collection representative is any person who may approve or extend gaming credit or collects gaming credit instruments negotiated by a preferred guest. The term, however, excludes gaming licensees and their employees, bonded and licensed collection agencies and attorneys. A preferred guest is any person, 21 years of age or older, who receives complimentary transportation, food, lodging or other consideration with a retail price in excess of $1,000 per week as an inducement to wager at a licensed gaming establishment.

A junket representative does not need a license to bring junkets into Mississippi. However, a junket representative must register with the Commission and file the required information before being compensated by any Mississippi licensee. After registration, the Mississippi gaming authorities can require the junket representative to undergo a complete investigation and be found suitable by the Commission.

Service Industries. There are no licensing or registration requirements for industries which service Mississippi casinos. However, the Commission may investigate and decide the suitability of persons doing business with or doing business on the premises of a licensed gaming establishment.

Gaming Devices. Every manufacturer, seller or distributor of any gaming device or other piece of equipment or equipment components whose function determines the outcome of a game must obtain a license. Moreover, before a manufacturer or distributor of gaming devices can offer to distribute, operate, or sell a new gaming device, the Commission through its gaming laboratory must inspect and approve the device. The device must meet mathematical tests for randomness, not be susceptible to cheating, display resistance to electrical phenomena, and properly account for all gross revenue.

A person who manufactures, distributes or sells associated gaming equipment may be required by the Commission to submit an application for a finding of suitability and certain associated equipment must also be submitted to the Commission gaming lab for testing and approval. Generally, associated equipment is equipment used in gaming or a component in a gaming device that does not determine whether the person playing the device will win or lose. However, the Commission takes the position that some equipment normally considered as associated equipment may affect the outcome of a gambling game and requires licensure from the Commission for the manufacturer and approval of the item for use. The Commission requires licensure for cards, dice, big six wheels, roulette wheels, reel mechanisms, coin acceptors, keno balls, equipment used to select keno balls, hopper mechanisms, slot data systems, roulette wheel frets, progressive link meters, delaying shoes, chips and tokens. The Commission does not require licensure for other items traditionally considered associated gaming equipment, including drop boxes, tables, scales, felt, money counting machines and slot machine belly glass.

Lenders. Generally, a lender or holder of indebtedness of a gaming licensee need not obtain a license, but is subject to being called forward for licensing when, in the opinion of the Commission, the lender can exercise significant influence over the licensee's operation of a gaming establishment.

Casinos must report loans, mortgages, deeds of trust, capital contributions, lines of credit, certain accounts payable and capital leases. After an investigation, the Commission may order the transaction rescinded if it would be inimical to the public good or discredit Mississippi or its gaming industry.

Under Mississippi gaming law, security interests in certain items associated with gaming cannot be enforced without the prior approvals of the Mississippi Gaming Commission and compliance with its regulations. Such items include gaming devices, securities issued by a corporation which is the holder of a Mississippi gaming license and securities issued by a holding company of such a corporation other than a corporation whose stock is publicly traded.

Labor Organizations. Labor organizations representing gaming employees must register annually with the Commission and file a registration statement containing certain information required by the regulations. The registration statement must be approved by the Executive Director prior to the labor organization becoming the certified bargaining representative for employees holding work permits and employed by a licensee. Each labor organization is under a continuing duty to disclose to the Commission any change in the information in the registration statement. Every officer, agent and principal employee of a labor organization, union or affiliate thereof required to register with the Commission shall be qualified in accordance with criteria contained in the regulations, including the filing of a disclosure form.

Gaming Schools. Gaming schools that charge tuition must obtain a gaming school license issued by the Commission. The applicant must describe the training to be offered, including the title of the course, the number of instructors and students, tuition, and location where the training is to be conducted. Gaming school employees must also obtain a gaming school employee license.

Entities

Individuals. A gaming license may be issued to an individual.

Private Corporations. A gaming license may be issued to a privately-held corporation. If a private corporation applies for a license, then all officers, directors and shareholders of that corporation must also apply. The Commission has also interpreted the gaming statutes in a manner that permits similar licensing of limited liability companies.

If licensed, the corporation must maintain an office on the casino premises, comply with Mississippi corporate law, and maintain its stock ledger in its principal Mississippi office. The stock of the corporation must bear a legend stating that the sale, assignment, transfer, pledge or other disposition of the stock is void unless approved in advance by the Commission.

Officers and directors taking office after the initial licensing of the corporation need not be found suitable by the Commission prior to the company appointing them, but must file an application within 30 days after assuming such positions.

A privately-traded holding company of a corporate gaming licensee, and all of the holding company's shareholders, officers, and directors, also must be found suitable.

For all private corporations, Commission approval is required in advance for any issuance or transfer of stock, pledge of the stock, negative pledge of stock (i.e., agreement not to sell), or grant of an option.

Publicly-Traded Corporations. A publicly-traded corporation cannot hold a gaming license, but may own a private corporation that does. A publicly-traded corporation is a corporation required under federal law to be registered with and regulated by the Securities and Exchange Commission. Foreign corporations can qualify if the foreign country has adequate regulatory controls. A public corporation approved to own the stock of a corporate gaming licensee must be registered with the Commission.

Under the gaming statutes, the Commission may require any shareholder of a registered public company to file an application and be found suitable when their ownership would be against public policy in the absence of a finding of suitability. Under this authority, the Commission has exercised its discretion to require shareholders of a registered public company to file an application and be found suitable if they own, directly or indirectly, 5% or more of any class of voting stock of such company. However, under a Commission policy, certain institutional investors that purchase stock in may own up to 10% of the shares of any class of voting stock of a registered public company without being required to file an application for a finding of suitability. Under the gaming statute, shareholders of a registered public company must be found suitable if they own, directly or indirectly, 10% or more of any class of voting stock. A person may acquire more than 10% of a registered public company before applying for a license, but must file within 30 days thereafter. However, a person must receive Commission approval before acquiring control of a registered public company. Failure to file an application when required is a crime.

Officers and directors of a registered public company may be appointed without prior approval of the Commission but their appointment must be reported to the Commission. The Commission must find suitable certain officers and directors, including the chairman of the board, any director owning more than 1% of the stock, all officers and directors engaged in gaming, and the president, chief accountant and secretary.

The stock of a registered public company must contain a legend stating that (a) the stock interest is subject to the Mississippi gaming laws, (b) if any beneficial owner is found unsuitable, he must dispose of his interest, and (c) Mississippi law may restrict dividends, voting rights and remuneration. However, since most public gaming companies issued shares to the public prior to applying for registration in Mississippi, the Commission routinely waives the legend requirement so long as similar restrictive language appears on the share certificates or other means are available for such shareholders to be notified of the restrictions.

A public offering by a registered public company must be approved in advance if the proceeds of the offering are to be used to pay for construction of, or to acquire any interest in, gaming facilities in Mississippi, to finance Mississippi gaming operations, or to retire obligations incurred for one of these purposes.

Partnerships. All partners in a general partnership must be licensed. The general partners of a limited partnership also must be licensed.

Limited partners may avoid licensing if the limited partnership qualifies for "delayed licensing." To qualify, the partnership must generally have more than 10 partners, and the limited partners must not manage, influence or control the partnership, or have any material relationship with the general partners. Even if the partnership is granted delayed licensing, any limited partner holding an interest of 10% or more must be licensed.

Foreign Investment. There are no restrictions on foreign investment in Mississippi gaming operations and a corporation that is not incorporated in Mississippi may obtain a license.

Qualifications

Character. An applicant for a license must be of good character, honesty and integrity. A person convicted of any felony or a gaming misdemeanor or a crime involving prostitution or the sale of alcoholic beverages to minors is not suitable. An application to receive a license, or be found suitable, shall not be granted unless the Commission is satisfied that the applicant is a person whose prior activities do not pose a threat to the public interest of Mississippi or to the effective regulation of gaming.

Financing. The applicant's financing of the entire operation must be from a suitable source. Financial arrangements must be adequate for the nature of the proposed operations. The Commission may find any lender or other source of money or credit who does not meet the standards relating to character to be unsuitable.

Business Competency. The applicant must have adequate business probity, competence and experience in gaming or generally.

Location. Gaming activities may be conducted only upon a vessel located upon the legally designated waters of a county that has authorized gaming. (See prior discussion) In connection with a site approval consideration, the Commission may find unsuitable those premises: (a) near a residential area, church, school or playground, (b) where gaming is contrary to any county or city ordinance, including but not limited to any zoning ordinance restricting permissible locations for gaming facilities so as long as such ordinances do not have the effect of absolutely excluding or prohibiting legal gaming, (c) that fail to meet federal, state or local health and safety standards or other applicable laws or regulations including Coast Guard regulations, (d) frequented by minors, (e) lacking adequate supervision or surveillance, (f) difficult to police or where adequate fire protection may be difficult, (g) where conduct of gaming would be inconsistent to the public policy of the State of Mississippi. Under this authority, the Commission has denied sites on the western shores of the Mississippi River since the sites would be difficult to police and most of the economic development benefits from gaming would accrue to the other states which are located physically closer to the sites. The Mississippi Supreme Court has held that property owners in Mississippi do not have a statutory right to appeal a site request denial of the Commission so long as the Commission acts within its statutory framework. However, the court has also stated (in dicta) that the Commission may not deny site approval for proper, legal areas, and has held that the Commission may not approve sites in areas not legally designated for casino development.

Application
Each license applicant must complete the following forms:

(a) Application Form: This document identifies the applicant, the location of the place of business, games to be offered, gaming devises or slot machines to be operated and the type of license or approvals sought.

(b) Personal History Record. This document provides basic personal information, such as the applicant's marital history, identification of family members, educational background, criminal record, civil litigation, character references, licensing history, business activities, financial affairs and business associates for the past ten years. The document also provides the applicant's employment record and place of residence for the last twenty years.

(c) Personal Financial Questionnaire. This document requires the applicant to disclose the amount and source of his investment in the operation, his most recent federal income tax filing, any bankruptcy disclosures, his salary, and his financial statement and supporting schedules.

The applicant must also sign (a) an affidavit affirming that he is fully disclosing all information requested, (b) a release of the State of Mississippi and its gaming authorities from all lawsuits or other claims arising out of the investigation, and (c) a request to third parties to release any information requested by the gaming authorities. The applicant also must file fingerprint cards. After filing the application, but before the start of the investigation, an individual applicant must provide his birth certificate, his last five federal income tax returns, and savings passbooks, bank statements, canceled checks, deposit slips, escrow documents for all real estate purchases and sales, and other records to substantiate or verify income for the past five to 15 years.

Besides personal applications, the applicant for a license to operate a gaming vessel must submit the $5,000 application fee for a license. The applicant for a license must also file (a) actual establishment, vessel, or cruise vessel blueprints, including a layout of each deck stating the projected use of each area, (b) whether the vessel has been or will be certified by the U.S. Coast Guard, if applicable, (c) the proposed route to be taken, identifying the body of water, (d) total estimated cost of construction or renovation of the vessel and its shore and dock facilities, separately identifying all expenses and costs, (e) construction schedule proposed for completion of the facility, including an estimated date of project completion, (f) sources of funds for the construction of the facility, (g) distance from nearest population center, (h) casino size and configuration of slot machines and table games, (i) on-shore facilities and type of construction, (j) availability of fire protection and adequacy of law enforcement, both at docking facilities and on the proposed excursion route, (k) parking lot capacity and description, (l) arrangements for food and drink concessions, (m) type of slot machines and video games to be used, (n) physical location, size and floor plan of section of the excursion gaming establishment reserved for patrons under 21 years of age, (o) days and periods of time that gaming areas will be in operation, (p) management of the facility, (q) feasibility studies, (r) procurement policies emphasizing utilization of Mississippi employees, resources, goods and services, (s) information that a permanently-moored establishment meets fire safety standards, and (t) surveillance system plans.

An applicant for a corporate gaming license must be incorporated in the state of Mississippi, or be qualified to do business in Mississippi. The corporation must maintain an office on the licensed premises, comply with all requirements of laws of Mississippi pertaining to corporations, maintain its ledger in the principal office of the corporation in Mississippi which shall reflect the ownership of every class of security issued by the corporation and be available for inspection by the Commission. The corporation must be in good standing in the state of Mississippi. No foreign corporation is eligible to receive the gaming license unless it qualifies to do business in Mississippi. The corporation which applies for a state gaming license shall register as a corporation with the Commission and shall provide the following information: (a) organization, financial structure, nature of the business to be operated, including the names, personal history and fingerprints of all officers, directors, key employees and the names, addresses and number of shares held by all shareholders, (b) the rights and privileges acquired by the holders of different classes of the authorized securities, (c) terms on which the securities are to be offered, (d) terms and conditions of all outstanding loans, mortgages, trusts, deeds, pledges or any other indebtedness or security device, (e) the extent of equity security holding in the corporation of all officers, directors and underwriters, and their remuneration as compensation for services in the form of salary, wages, fees or otherwise, (f) remuneration of persons other than the directors and officers exceeding $30,000 per year, (g) bonus and profit sharing arrangements, (h) management and service contracts, (i) options existing or to be created, (j) balance sheets for at least three preceding fiscal years or from the time of its incorporation, (k) profit and loss statements for at least the three preceding fiscal years or from time of its incorporation, both certified by independent public accountant certified in Mississippi, and (l) any other financial data which the Commission deems necessary for the protection of the state of Mississippi or licensed gambling.

All officers and directors of the corporation which holds or applies for a license must file individual applications and be found suitable. In the interest of the public, the Commission may require all the corporation's individual stockholders, lenders, creditors, key executives, agents or employees to file individual applications and be found suitable. The Commission has established a policy requiring that all shareholders in a privately-held corporation file an application for a finding of suitability; however, only shareholders owning 5% or more of such shares must be investigated and found suitable unless the Executive Director determines that others should be found suitable as well. Similar information is required for a limited partnership applicant for a license.

Holding companies and intermediary companies of licensees must provide substantially the same information as is required of the licensee and must also qualify to do business in Mississippi, register with the Commission and furnish the Executive Director a complete list of all stockholders showing the number of shares held by each, and the names of all corporate officers and directors. A publicly-traded corporation owning or controlling a licensed corporation or limited partnership must provide substantially the same information as is required of a corporate licensee.

Investigation

Agents of the Commission conduct the investigation. An investigative team can consist of as few as one agent or several agents. The agents investigate the applicant's current financial status, past financial activities, and overall business probity, and the financial status of the proposed gaming operation. Agents also investigate the applicant's background, general reputation, and personal and business associates.

The investigation generally consists of interviews of the applicant, a review of his financial records, a check of his police records, a review of his civil and criminal court records, interviews of his business and personal associates, and an examination of his methods of doing business. At the conclusion of the investigation, a report is prepared for the Executive Director in order to make a recommendation to the Commission.

An applicant must pay for all investigative fees and costs (including travel and other expenses) and must deposit with the Commission an amount equal to the Commission's estimate of the fees and expenses necessary to conduct the investigation.

Approval Process

The burden of proving his qualification to receive any license or be found suitable is on the applicant. With respect to any position which cannot be held pending licensure or approval by the Commission, the Executive Director must use his best efforts to make a recommendation to the Commission concerning the application not longer than nine (9) months after the application and supporting data are completed and filed with the Executive Director.

The Executive Director presents his recommendation upon an application to the Commission at the next meeting of the Commission. If denial of the application is recommended, the Executive Director must prepare and file with the Commission a written report of reasons upon which the recommendation is based.

The Commission, after considering the recommendation of the Executive Director, may issue or deny a gaming license or finding of suitability. The Commission may, if necessary, issue a probationary license or limit or place such conditions on a license, finding of suitability, registration or approval as it may deem necessary in the public interest. If the Executive Director recommends denial of an application, the Commission, after considering the Director's recommendation, may deny the application, remand the matter to the Executive Director for such further investigation and reconsideration as the Commission may order, or by unanimous vote of the members present, grant the application for a license, registration, finding of suitability or approval. If the Commission is not satisfied with an applicant recommended by the Executive Director, the Commission may require additional investigation or conduct further hearings on the qualifications of the applicant. Final action by the Commission must be taken with one hundred twenty (120) days after the Executive Director presents the recommendation to the Commission. Failure to take action within this period constitutes approval of the applicant by the Commission and a license must be issued forthwith upon compliance by the applicant.

The Commission has full and absolute power and authority to deny an application for any cause it deems reasonable. If an application is denied, the Commission shall prepare and file its written decision upon which its order denying the application is based. The Commission will notify the applicant in writing of the disposition of the application.

Judicial or Other Review

Generally, the Mississippi Gaming Control Act provides that a denied applicant has no recourse to the courts and the decision of the Commission is final. However, the Mississippi Supreme Court has held that a court may consider the appeal of any decision to grant a license (including site approval) because the Commission may have acted in excess of its statutory authority in issuing the license or granting the approval (such as site approval in an illegal location). In addition, the Supreme Court has ruled that an appeal of a decision to deny any aspect of a license (including the denial of a site approval request) may be taken and considered by the courts only if the Commission has exceeded its statutory authority under the Mississippi Gaming Control Act. Under these Supreme Court cases, the courts may take appeals of such decisions in order to determine if the Commission in fact exceeded its statutory authority in making the challenged decisions.

Accounting Record Keeping

Licensees must generate and maintain records sufficient to accurately show gross revenue and expenses related to their gaming operations. Licensees must use a double-entry system of accounting with supporting records to identify (a) revenues, expenses, assets, liabilities, and shareholders equity for each establishment; and (b) all markers, IOU's, returned and hold checks, and similar credit instruments. Licensees must also generate "statistical drop" and "statistical win" records for all casino games. Additionally, they must keep all records required by the minimum standards for internal control. Licensees must maintain their records for three years, and provide them to the Commission upon request.

Reports

The Commission requires periodic financial reports from each licensee, and specifies standard forms for reporting financial condition, results of operations and other relevant financial information. The Commission also formulates a uniform code of accounts and accounting classifications to assure consistency, comparability, and effective disclosure of financial information, and prescribes the intervals at which such information may be furnished. Licensees must prepare financial statements covering all financial activities of the licensees' establishment for the business year, including rooms and food and beverage facilities, if any. The statements must be submitted to the State Tax Commission within three months following the end of the business year.

The Commission also requires casinos to file with the Commission copies of all reports which must be filed with the Internal Revenue Service under federal currency transaction reporting laws.

Internal Controls

Each licensee must follow written internal control procedures. These are administrative and accounting procedures which are utilized to ensure the accurate determination of the licensee's liability for taxes and fees, and to maintain effective control over the licensee's internal fiscal affairs. Each licensee must submit to the Commission and comply with a written internal control system that meets or exceeds minimum standards adopted by the Commission. These standards apply to the following principal areas of casino operations: table games, slots, manual and computerized keno, card games, cage and credit and internal audit. The minimum standards are designed to specifically ensure that assets are safeguarded; records are accurate and reliable; transactions are performed only in accordance with management's general or specific authorization; fees, taxes, and revenues are properly reported; access to assets is permitted only in accordance with management's specific authorization; recorded accountability for assets is compared with actual assets at reasonable intervals; and functions, duties, and responsibilities are appropriately segregated and performed by competent and qualified personnel.

Licensees must submit annual financial statements to the Commission and an audit report of its financial statements prepared by independent accountants. Each report must detail the licensee's compliance with its system of internal controls. Only independent accountants holding permits to practice public accounting in Mississippi may conduct these audits. The audit must disclose whether the accounts, records and control procedures maintained by the licensee are as required by the regulations promulgated by the Commission.

Audits

While the gaming statutes prohibit the Commission from having an audit division, the Commission is permitted to establish a Compliance Division, which is tasked with the responsibility to review or investigate licensees at any time. Typically, the division conducts periodic reviews in connection with applications for registrations and licenses and initiates other reviews only in response to specific complaints or concerns. Procedures may include reviews of accounting procedures, count procedures, cash, chip, token and credit instrument transaction procedures, statutory and regulatory compliance, and accounting and bookkeeping records. Reports of such investigations or reviews may result in disciplinary action taken against the casino or a request for corrective action.

Taxes and Fees Types

State License Fees. Periodic percentage fees are the largest source of tax revenues. The fees, payable monthly, are 4% of gross gaming revenue from $0 to $50,000 per calendar month, 6% of gross revenue from $50,000 to $134,000 per calendar month, and 8% of gross revenue in excess of $134,000 per month. "Gross revenue" is generally the difference between sums taken in by the casino and sums paid out as losses. Sums taken in include cash winnings, cash received in payment of credit, and any percentages taken in by the house as a condition of operating a game (i.e., "rakes"). Cash or the value of noncash prizes awarded to patrons in a contest or tournament are not deductible as losses. Percentage fees paid as set forth above shall be allowed as a credit against the income tax liability of the licensee for that taxable year.

Local License Fees Imposed by Municipalities and Counties. Municipalities may impose a fee upon a licensee located within the municipality for carrying on or operating of any gambling game, slot machine or other game of chance based on the number of games operated by the licensee and based on the gross revenue of the licensee derived from this establishment in the municipality. These taxes and fees are usually permitted in accordance with local and private legislation adopted by the Mississippi Legislature for such municipality.

A county may impose a fee upon a licensee located within the unincorporated area of the county for conducting, carrying on or operating any gambling game, slot machine or other game of chance based on all the gross revenue of the licenses derived within his establishment within that unincorporated area of the county as follows:

(i) .4% of all gross revenue which does not exceed $50,000 per calendar month;
(ii) .6% of all gross revenue which exceeds $50,000 per calendar month and does not exceed $134,000 per calendar month;
(iii) .8% of all gross revenue of the licensee which exceeds $134,000 per calendar month.

Table Game Fees

An annual license fee based on the number of games must be paid on or before filing the application for issuance of a gaming license, and is to be paid annually thereafter for continuation of the gaming license. The following are annual fees for table games:

Casinos having 10 or fewer games:
One game - $50 total.
Two games - $100 total.
Three games - $200 total.
Four games - $375 total.
Five games - $875 total.
Six or seven games - $1,500 total.
Eight, nine, or 10 games - $3,000 total.

Casinos having more than 10 games;
The first 16 games - $500 per game.
The 17th through 26th game - $4,800 per game.
The 27th through 35th game - $2,800 per game.
Each game over 35 - $100 per game.

Card games and slot machines, when not used as an adjunct to or a unit of any banking, percentage or mechanical device or machine, are not gambling games under the provisions of this section.

Annual License Fee. In addition to quarterly fees, each casino must pay an annual license fee of $5,000 and annual license fees imposed by the local municipality (if any) based on the number of games.

Gaming Equipment Chips and Tokens

A casino must receive approval in writing by the Executive Director of the Commission before issuing chips or tokens. Chips and tokens must meet shape, composition, thickness and diameter specifications. They must bear the name and location of the casino, the name of the manufacturer, and, except for roulette chips, their value. Tokens must not have metallic properties that allow them to be accepted by coin-operated machines other than slot machines.

Chips and tokens cannot be used for any purpose other than gaming. A casino cannot use the chips or tokens of another casino.

There are specified procedures for the discontinuation and redemption of chips and tokens. If a casino discontinues the use of chips or tokens, it must honor them for at least one hundred twenty (120) days thereafter, during which time notice of the discontinuance must be given to the public.

Dice

There are no specifications for dice.

Cards

There are no specifications for cards.

Operational Requirements Hours

There are no restrictions on the number of hours a gaming establishment may remain open. Traditionally, all Mississippi casinos are open 24 hours a day.

Facilities

A casino must be located on a vessel or a cruise vessel as described in the Mississippi Gaming Control Act. The Commission also requires the casino to use an approved surveillance system comprised of cameras, monitors, videotape recorders and a video printer.

Advertising

Regulations of the Commission provide that licensees must conduct advertising and public relations activities in accordance with decency, dignity, good taste, honesty and inoffensiveness and must not reflect poorly upon the industry.

Entertainment

There are no regulations governing casino entertainment.

Exclusion

Minors. A person must be 21 years of age or older to play or be allowed to play any licensed game or slot machine, or to loiter in any licensed premises.

Mandatory Exclusions. A licensed gaming establishment must deny entry to any person included in Mississippi's list of excluded persons. This list is compiled by the Commission and distributed to all casino licensees. The list contains names of persons associated with criminal activities. Persons put on the list must be notified and given an opportunity to be heard by the Commission. An operator will be fined, and may have his license revoked if the operator permits an excluded person to gamble in its casino.

No owner, director, officer or key employee of any licensed gaming operation, nor any gaming employee, may gamble in the casino where such person is so licensed or employed.

Discretionary Exclusions. Mississippi casinos are not required to serve the general public. Accordingly, they may exclude person for any reason that does not violate civil rights laws. Therefore, a casino may exclude card counters, suspected cheaters, unruly patrons, and others.

Gaming Contracts
Enforcement of Gaming Debts. A gaming credit instrument is enforceable in Mississippi courts only if the casino extended the credit according to Commission rules. A gaming credit instrument is an instrument that represents a debt owed to a casino and includes any writing taken in consolidation, redemption, or payment of a prior credit instrument.

Credit Controls. The Commission has not adopted regulations governing the extension of gaming credit by a Mississippi licensee or affiliated company with the licensee. The Commission can adopt regulations prescribing the conditions under which a credit instrument may be redeemed or presented to a bank for payment. A licensee or person acting on behalf of a licensee may accept a credit instrument that is payable to an affiliated company if the records of the affiliated company to the credit instrument are made available to the Executive Director on request. An "affiliated company" means an entity that controls or is controlled by the licensee and involved in gaming activities in the state or owns the property upon which gaming is conducted.

Credit Collection. The only persons or entities who may collect gaming credit are (a) bonded, duly licensed collection agencies, (b) a licensee's employees, junket representatives, and attorneys, and (c) affiliated or wholly-owned corporations of a licensee and their employees. However, no licensee shall permit any person who has been found unsuitable, or who has been denied a gaming license or work permit, or who has had a work permit revoked, to collect, on the licensee's behalf, gaming credits extended by the licensee. Generally, gaming credits may be collected for any consideration.

Player Disputes

The Executive Director is responsible for resolving disputes initiated by a patron's claim to unpaid winnings. If a player claims unpaid winnings of less than $500, then the licensee must inform the patron of his right to ask the Executive Director to investigate the dispute. If the amount in dispute is $500 or more, then the licensee must immediately notify the Executive Director. The Executive Director will investigate the dispute and, within 30 days, notify the licensee and patron of its written decision.

Within 20 days after receipt of the Executive Director's decision, the aggrieved party may request a hearing before a hearing examiner appointed by the Commission to reconsider the decision. At the hearing, either party may call witnesses, introduce evidence, cross-examine any adverse witness, and offer rebuttal evidence. After the hearing, the hearing examiner will sustain, modify, or reverse the Executive Director's decision. The decision of the hearing examiner must be in writing and include findings of fact. The Commission may review the hearing officer's decision as in other matters.

The decision is subject to judicial review by a state circuit court regardless of whether it favors the patron or licensee. Any party aggrieved by the decision of the circuit court, after a review of the decision and order of the Commission, may appeal to the Mississippi Supreme Court.

Foreign Gaming

A licensee must obtain the approval of the Commission before engaging in gaming in another jurisdiction. There is a waiver provision if the licensees' interest in the outside gaming venture is less than 5% of any class of securities of a publicly traded corporation and the licensee is not able to significantly control or influence the corporation. In assessing an application for approval to participate in foreign gaming, the Commission will consider whether Mississippi's right to collect fees and taxes from the Mississippi gaming operation will be endangered by the foreign operation. The Commission also will consider whether there is a system that guarantees an adequate exchange of information between the two jurisdictions, whether any associations of the Mississippi licensee in the foreign jurisdiction will threaten the interests of Mississippi and the regulation of its gaming industry, and any other factor deemed relevant to the adequate protection of state-regulated gaming in Mississippi.

Disciplinary Action

The Commission has full and absolute power to revoke, suspend, limit or condition any gaming license, and to fine any gaming licensee for any cause deemed reasonable. This includes the violation by a licensee's agent or employee of any provision of the Mississippi Gaming Control Act or the Regulations of the Commission.

Licensees have been subjected to disciplinary action for failure to follow internal controls, failure to report patron disputes as required by law, violations of regulations related to surveillance cameras and retention of surveillance tapes and the like.

The Executive Director will investigate the grounds for a potential disciplinary action and often will issue a "show cause" letter to the licensee, seeking to have the licensee meet with the Commission staff to present facts and further explanation regarding the Commission's concerns. Often, this show cause meeting results in the staff and the licensee reaching a negotiated settlement of the issues along with a proposed assessment of a fine or administrative penalty. The settlement agreement is then submitted to the Commission for approval.

If, however, the show cause meeting results in the Commission staff reaching the conclusion that serious violations have occurred or the parties are unable to reach a negotiated settlement, the Executive Director will proceed to file a disciplinary complaint with the Commission. During the proceedings, the Executive Director acts as prosecutor, and a hearing examiner appointed by the Commission acts as judge and jury. In the hearing before the hearing examiner, the licensee has the right to examine witnesses, introduce exhibits, cross-examine opposing witnesses, impeach witnesses, and offer rebuttal evidence. After the hearing, the hearing examiner renders a written decision on the merits and a recommended penalty to be imposed, if any.

The Commission, upon motion by a party or its own motion, may order a hearing before the Commission to review the decision and recommended action and thereafter reverse, modify or affirm the hearing examiner's decision. Otherwise, the hearing officer's decision becomes final in thirty (30) days.

If the hearing examiner decides that the licensee has violated a statute or regulation, then it may impose a penalty of up to $100,000 for each separate violation of the act or regulations which is the subject of the initial complaint, and not more than $250,000 for each separate violation which the subject of any subsequent complaint. In addition, the hearing examiner may suspend, revoke, limit, or condition the license. A licensee may seek judicial review in state circuit court of any penalty imposed by the Commission, and ultimately, judicial review of the circuit court's decision by the Mississippi Supreme Court.

Gaming Crimes

Generally. It is unlawful for any person:

(a) To alter or misrepresent the outcome of a game or other event on which wagers have been made after the outcome is made sure but before it is revealed to the players. For example, it is unlawful to switch cards with another player during the course of a card game.

(b) To place, increase or decrease a bet, or determine the course of play after acquiring knowledge that is not available to all players on the outcome of the game or an event that affects the outcome of the game.

(c) To claim or collect or attempt to claim or collect money from a game with the intent to defraud without having made a wager contingent thereon.

(d) Knowingly to induce another to go to any place where an illegal gambling game is being conducted with the intent that the other person participate in the gambling game.

(e) To place or increase a bet after acquiring knowledge of the outcome of the game or other event that is the subject of the bet, including past-posting and pressing bets.

(f) To reduce the amount wagered or cancel the bet after acquiring knowledge of the outcome of the game or other event that is the subject of the bet, including pinching bets.

(g) To manipulate a slot machines in a manner contrary to the way it was designed for purposes of affecting the outcome of the game.

Use or possession of certain devices. It is unlawful to use, or to possess with the intent to use, most devices that assist in projecting the outcome of the game, keeping track of the cards played, analyzing the probability of the occurrence of an event relating to the game, or analyzing betting or playing strategy. However, the Commission can permit the use of certain devices.

Card Marking. It is unlawful for any person to mark the cards used for playing a card game.

Slugs, counterfeit chips or tokens and illegal devices. It is unlawful to use any tokens that have not been approved by the Commission or are counterfeit. It is unlawful for any unauthorized individual to possess or use any key or device to effect the outcome of a game or to open a slot machine to extract money. It is unlawful to possess any paraphernalia for manufacturing slugs.

Gaming materials intended for illegal use. It is illegal to manufacture, sell or distribute any cards, chips, dice, game or device that is intended to be used to violate the gaming statutes, or to mark or modify any associated equipment or gaming device in a manner that affects the result of a wager, or alters the normal criteria of random selection, which affects the operation of a game or which determines the outcome of a game. It is unlawful for any person to instruct another in cheating or in the use of any device for that purpose,.

Immunity from Civil Liability. If a casino suspects someone of cheating or any other gaming crime, it may take that person into custody and detain and question him with immunity from civil liability for false arrest, false imprisonment, slander, or unlawful detention. However, to be granted this immunity, the casino or its agent must have acted in good faith and upon reasonable grounds to believe that the person questioned committed or attempted to commit a violation of the statutes.

Thomas B. Shepherd III

Thomas B. Shepherd III is a shareholder in the Jackson, Mississippi law firm of Watkins Ludlam Winter & Stennis, P.A., one of the oldest and largest law firms in Mississippi. Mr. Shepherd is a graduate of the University of Mississippi (B.B.A., cum laude, 1980), and the Washington and Lee University School of Law (J.D., cum laude, 1984) where he was a member of the Washington and Lee Law Review. He is a past chairman of both the Business Law Section and the Gaming Law Section of The Mississippi Bar. Mr. Shepherd is also a member of the Business Law Section of the American Bar Association and the International Association of Gaming Attorneys. He has represented both public and private gaming companies before the Mississippi Gaming Commission since 1992.

The following copyrighted information is from International Casino Law, Third Edition, and is used with the permission of the publisher: Institute for The Study of Gambling and Commercial Gaming, 1999, Editors/Anthony N. Cabot, William N. Thompson, Andrew Tottenham & Carl Braunlich; Author: Thomas B. Shepherd III and Cheryn L. Netz. These materials are designed to provide general information prepared by professionals in regard to the subject matter covered. The information is provided with the understanding that the authors are not engaged in rendering legal, accounting or other professional services through these materials. Although prepared by professionals, these materials should not be utilized as a substitute for professional services in specific situations or cases. If legal advise or other expert assistance is required, the service of a professional should be sought.