Challenging Times: Specific Issues Facing the Gaming Industry During the Coronavirus Crisis

With nearly all (980 of 989) commercial and tribal casinos in the United States closed, affecting more than 650,000 directly employed persons during the novel coronavirus shutdown, there are specific sets of issues facing the gaming industry. We summarize some of the more important ones below.

Employee Issues

Many gaming industry employers have taken one of several general tracks with respect to their employees. Some have elected to pay their employees for a defined period of time, regardless of whether they are presently able to perform their jobs or not. Others have issued blanket temporary furloughs to employees or terminated the employees, hoping to rehire those employees when conditions improve in the future. The federal legislation will provide benefits to employees and/or their employers, depending on the choice of how to proceed and what path to take under the possible scenarios. Culture of the companies also impacts decisions on these points; some company executives are deferring cash salaries for stock to improve company cash positions and keep more employees on the payroll, while others are taking reduced salaries or working for free, while still others are taking a salary but donating it to an employee fund. Benefits available to employers and employees under pending federal legislation may significantly impact the decisions employers make with respect to their employees.

Credit Facility and Lease or Other Contractual Issues

Most companies in the gaming industry have credit facilities that include financial or operational covenants that are either immediately triggering events of default (unless cured) or will trigger such events in the near term. Major leases likely include provisions that should be reviewed in light of the shutdowns due to the coronavirus crisis. Accordingly, such companies should be discussing with their lenders or landlords appropriate covenant amendments or waivers and deferral of interest and principal payments. Also, borrowers need to be careful not to amend one credit facility or obtain a waiver in a way that triggers a problem or a default under another debt agreement or lease.

Of particular concern to members of the gaming industry is whether such credit facility amendments or other new financing arrangements require approvals, particularly prior approvals, with respect to such amendments and financings or whether any additional regulatory filings are necessary. If prior approvals are necessary, consideration must be given to the timing of meetings of regulatory bodies, especially in light of reduced schedules and staffing or closures of regulatory agencies, or the cancellation of scheduled commission meetings during the coronavirus outbreak.

While it is likely that current credit facilities and contracts do not have force majeure clauses that will excuse performance by gaming companies, the current COVID-19 pandemic certainly suggests that consideration should be given to those seeking to include such clauses in future agreements, particularly where such outbreaks result in a company’s business being shut down by a governmental authority.

Business Interruption Insurance Claims

Gaming companies should carefully review their insurance policies for the possibility of making claims for business interruption losses. Possible claims depend significantly on the specific policy language, including endorsements to the main policy, and often require an analysis of the language in multiple policies providing different layers of coverage. Possible claims also depend on the case law in the specific jurisdiction where the casino is located. Several lawsuits are pending around the country with respect to these issues. Timing and other requirements for making claims under the policies should receive careful attention.

Licensing Conditions

Some jurisdictions, particularly those limited license jurisdictions, legalized gaming for specific economic development reasons, including employment. Some licenses are issued with specific requirements, either by statute or regulation or stated license conditions, regarding employment of citizens and/or minimum purchases from suppliers or vendors within the state. With the casino shutdown, a review of those mandatory economic development requirements and a proactive approach with regulators may be prudent.

The attorneys on the Jones Walker LLP Gaming Industry Team stand ready to assist our clients with these and other issues brought about by the coronavirus crisis.

Louisiana Suspends Legislative Session

As confirmed by a spokesman for Speaker Schexnayder, the Louisiana legislature passed resolutions to suspend its business until March 31. This comes after a series of increasingly tough restrictions on public gatherings and commercial activity were announced including the closing of casinos and video poker truck stops until April 13.

This puts a hard stop on all bills until legislators come back later this spring. Once they return, they will immediately begin working through a large backlog of legislation, including the yet-to-be-finalized budget. With increased costs due to emergency responses and decreased revenues due to the economic impact of the pandemic and low oil prices, the budget debate will be particularly challenging this year. As a non-fiscal session, legislators will have limited options on increasing revenues, but many will be looking to grab every dollar possible.

The legislature might reconvene for an accelerated budget process and then adjourn, with a special session scheduled for later in the year to address remaining business (potentially including economic recovery). Should this be the case, there will almost certainly be a fight for control over the breadth of topics that can be covered. Both the legislature and the governor can call a special session though the legislature never has — and they will likely be approaching the call with differing priorities. A special session can last no more than 30 days, so whatever topics are included will have to move at breakneck speed.

In view of the foregoing, it currently is anyone’s guess as to whether the legislature will take up any of the sports betting and other gaming bills that have been introduced, much less adopt them.

Jones Walker is working to plan for all scenarios and will keep you updated on the status of the legislature as it changes. In the meantime, the firm has compiled resources and guidance to businesses impacted by COVID-19. Please contact us if you need answers to questions about extended legal deadlines, insurance, transactional matters, labor and employment relations, or any other issues.

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