The U.S. gaming industry expects to lose $43.5 billion over the next month due to the COVID-19 pandemic. In spite of that, companies find that unlike many other businesses, they’re not allowed to apply for loans being offered by the Small Business Association.
The CARES Act was designed as an economic stimulus package to help keep the economy afloat in the wake of the virus. In the bill, $350 billion was set aside to provide businesses with loans that could be forgiven if companies used them to cover payroll costs. The U.S. Small Business Administration (SBA) manages that fund and issued temporary guidelines for the loan program this past week. The issue is that while Congress stated gaming companies would be included in the CARES Act, they let the SBA actually fill in the details. Rather than revising for the current situation, the SBA went back to its traditional rules on who can apply.
“Businesses that are not eligible for PPP [Payroll Protection Program] loans are identified in 13 CFR 120.110,” the SBA’s interim guidelines read in part. If you go to that section of the Code of Federal Regulations, you’ll find companies “deriving more than one-third of gross annual revenue from legal gambling activities” are not eligible for any economic injury disaster loans. That does not sit well with the American Gaming Association.
“The AGA is deeply concerned with the interim regulatory guidelines issued by the Small Business Administration,” AGA President and CEO Bill Miller said in a statement. “In SBA’s efforts to quickly issue guidance on the PPP, they relied on antiquated, discriminatory regulations that ignore today’s economic reality and the congressional intent behind the CARES Act, which states that any business concern shall be eligible to receive an SBA loan if they meet specific qualifications regarding their number of employees.”
The employee qualifications are pretty simple. First, a small business is classified as one with 500 or fewer employees. If you have 501, you still might qualify for an exemption, based on the SBA’s ‘size standards’ for different industries. Second, in order to qualify you need to have payroll and tax records, documenting how many employees are on staff and how much each is paid. Gaming companies meet all of those requirements, yet they still find themselves unable to apply.
It’s not the first time casinos were told to rebuild on their own. In the aftermath of Hurricane Katrina, casinos in places like Gulfport, Mississippi were destroyed by the storm but federal officials denied their requests for an economic injury disaster loan. That’s why it came as a surprise when Congress announced gaming companies would be included in the CARES Act.
Under the Payroll Protection Program, companies can apply for up to 2.5 times their average monthly payroll costs for the last 12 months. If that money is used specifically to keep paying employees at their current rate, then it can be forgiven. That means companies may not have to pay a dime back to the government, as long as they spend the money on their employees.
Tribes Also Unable To Apply
This isn’t just limited to smaller family-owned companies. Native tribes are also fighting the SBA’s ruling, due to a second red flag in the guidelines. Again referring to the Code of Federal Regulations, the document states among those companies not allowed to apply for economic injury disaster loans are “businesses owned or controlled by a Native American tribe.” The stated reason for that is because Indian tribes are sovereign nations
In an April 3 letter to all members of the National Indian Gaming Association, NIGA Chairman Ernie Stevens Jr. condemned the SBA for using the older rules.
“The SBA’s guidance fails to recognize the importance of the survival of Tribal Government Gaming for its citizens and non-tribal neighboring residents. We are working expeditiously to respond and urge the SBA to remove these restrictions,” Stevens said.
NIGA officials point out that on the reservations, casinos make up more than 90 percent of commercial revenue in some cases. That’s why the organization had originally asked the federal government for $18 billion in aid when they shut down casinos in early March. Writing to members of the U.S. House of Representatives in March, the organization said in a letter that without some loans or federal support, tribes won’t be able to provide health and education services.
“Providing the means for tribal governments to continue paying all employees’ salaries and benefits will immensely help this country recover,” NIGA officials said in the letter sent to Rep. Tom Cole and Deb Haaland of the House Native American Caucus.
There are currently 460 Native American casinos on reservations across the country, providing 559,000 jobs between them. If they were allowed to apply, more than half would meet the qualifications for a Payroll Protection Program loan.
The Clock Is Ticking
Companies and tribes are calling on Congress and even sending letters to the president because of the deadline involved. These loans are given out on a first come, first serve basis, with casinos competing with 30 million other small businesses for a piece of the pie. Over the last two weeks, members of Congress have debated adding more money to the fund, out of concern that it’s already running out. According to information provided by the National Economic Council, a total of 130,000 loans worth $38 billion had been approved as of April 6. That is 10 percent of the total $350 billion fund.
Beyond the shrinking amount of money, there’s also a ticking clock involved. Companies can only apply for a Payroll Protection loan through June 30.