Casinos Coming to Cuba – Again

            “[T]oday, as in 1961, Cuba is governed by the Castros and the Communist party.  We cannot keep doing the same thing and expect a different result.”

                                                                        President Barack Obama[1]

Diplomatic relations have been restored and the U.S. embassy in Havana and the Cuban embassy in Washington, D.C., are being reopened.  Travel restrictions have been eased, though Americans without relatives in Cuba still have to be part of educational or similar programs to visit the island nation.  But Pres. Obama has done as much as he can on his own.  It may be difficult for Americans to travel to North Korea or Iran.  But Cuba is the only country in the world where American tourists and businesses bars are barred not by a declaration from the U.S. State Department, but by an act of Congress.  So Cuba will remain off-limits until Congress passes another act.

            Unfortunately for both Americans and Cubans, Congress is unlikely to act, until well after the 2016 election.

            The problem is purely political.  The Cuban revolution of January 1959 led to the communist dictatorship of Fidel Castro and the nationalization of all private industry and property.  The wealthy ruling class left with whatever they could carry.  Many ended up in the U.S., particularly Florida.  They naturally hated Castro.  For five decades, these Cuban refugees determined the direction of American policy.

            Cuban-Americans still exercise power much larger than their numbers.  Florida is a notorious swing state in presidential elections.  And voters with ties to Cuba have the money and numbers to swing the state.  Or at least they did, when they were all unified in their hatred of Castro.

            But to the children and grandchildren of those original imigrants to the U.S. the bad old days are sometimes only stories.  And other Cubans have come to America, including 125,000 in the Mariel Boat Lift of 1980.  Many have family members they left behind.  In fact, it is probably the billions of dollars Americans send their relatives in Cuba that kept that country from complete economic collapse.

            Cuba’s problem are not entirely the result of the U.S. embargo.  I was fortunately to be able to travel to Cuba, legally, a couple of years ago.  What I saw was not only a land frozen in 1959, but what happens to an economy when it is led by men who are completely nuts.

            We had a walking tour of Havana, led by an old revolutionary who had become a professor of architecture.  He was practically in tears over the state of decay of what were once magnificent buildings.  The problem, he explained, was that after the Revolution, Castro declared that everyone now owned the apartment they lived in.  Only nobody owned the building, not even the government.  Since the average income is $30 a month, tenants/owners could not afford to fix the roof when the buildings began to deteriorate.  Every day in Cuba buildings simply collapse due to lack of upkeep.

            And the new owners could not even sell their apartments.  It is against the law to buy or sell real estate.  So people actually get married and then divorced so that they can legally transfer property.

            Cuba is a massive island, by far the largest in the Western Hemisphere south of Canada.  At 760 miles in length, it is longer than Florida.  It is also the most populous, with 11 million people.

            Historically, it has always been of great strategic importance.  It is not a coincidence that Columbus spent so much time sailing around Cuba during his voyages of discovery to the New World.  The prevailing currents and tradewinds forced most shipping within range of the island.

            Cuba has always been tied politically and economically with the United States.  At its closest point, Cuba is only 90 miles from America.  Miami is as close to Havana as it is to Orlando.

            Prior to the development of air travel, Cuba's ties were mostly with the Southern states.  The island's economy boomed during the 18th and 19th century, built on sugar produced by slave labor.  So, it was naturally drawn to the Confederacy.  It is interesting to think how the U.S. Civil War would have turned out, if plans to buy Cuba from Spain and make it a state in the 1840s had been successful.

            But times are about to change.  First of all:  Fidel Castro is gone.

            He may not be dead.  I was told by both American and Cuban experts that he is beyond retired.  His image may be everywhere, but he no longer has a living influence.  Fidel has become to Cuba what Mao is to China.

            His younger brother, Raul, is still alive, but is 83 years old.  He has called for term limits, including his own.  He will not run for reelection as President in 2018.

            Since taking over from Fidel in 2007, Raul started introducing reforms.  He had to.

            When the Soviet Union collapsed in 1991, Cuba lost its primary means of support.  The country lost up to 80% of its imports and exports.   The Cubans calls the devastating economic depress that followed the "Special Period."  Recovery has been slow.  Without the economic aid supplied by oil-rich Venezuela, people would still be eating household pets.  But Venezuelan aid is over due to the passing of Hugo Chavez and the near-collapse of that country’s economy.

            Cuba is a country where nuclear physicists drive taxis, because they can make more than their $40 per month government salaries.  The average Cuban does not have access to the Internet.  The government has published a list of only 100 for-profit businesses that are allowed in the country.

            Since there are no opportunities, young adults flee the country.  Many are willing to risk their lives on Styrofoam rafts to try to get to America.  Marrying tourists is a another, slightly less risky strategy.

            Change is coming to Cuba.  The big questions are whether it will be slow or fast, peaceful or violent.

            The old men who have led Cuba for the last 56 years – there have been 11 U.S. Presidents since Fidel took over – are survivors.  They know how to hang on to power.  If a charismatic leader arose who might one day challenge the Castro brothers, he was sent to work in the sugar fields.  So, there is no caudillo (strong man) to lead a second revolution. 

            But the old men also have to keep the disappointment and anger of the general population under control.  They are understandably scared by what they saw happen to dictators during the "Arab Spring."

            Under Fidel, Cuba had adopted the exit policies of the old Soviet Union and East Germany: The few Cubans, such as artists and athletes, who were allowed to visit other countries had to leave behind their spouses and children, to be held hostage to ensure their return.  On January 14, 2013, the government began allowing most Cubans to leave the country, without having to get approval or pay $400 for a visa.  Most importantly, they now do not forfeit their right of return. 

            This turned out to be like the fall of the Berlin Wall.  Average citizens visiting countries with more than four state-controlled television channels, let alone access to the Internet, were more frustrated upon their return, with their lack of just about everything.

            Cuba is locked into 1959.  The U.S. embargo, and the failures of communism, have prevented new developments.  Even the cars and buildings are the same.  And this may provide the solution to Cuba's problems.

            Classic 1950's Fords and Chevys are everywhere.  Imagine the reaction of a guy making $20 a month, after trade reopens with the U.S.: "I won't give you more than $40,000 for your car."

            During the 1950s Cuba was one of the leading gaming and tourist destinations of the world.  It started in the 1920s, when Havana assumed a role later taken by Las Vegas: a vacation spot where Americans could party in ways not allowed at home.  But it was not the gambling as much as it was the booze.  America was in the midst of the disastrous experiment known as Prohibition, which also created modern organized crime.  Cuba flourished with nightclubs, bordellos and casinos.

            World War II was a minor interruption.  Then the partying was reborn.  Havana became so notorious, that in 1950 a Broadway musical, "Guys and Dolls," could be built around its reputation.  The audience knew why Nathan Detroit (the Frank Sinatra character in the 1955 film) bet Sky Masterson (Marlon Brando) that Sky could not convince the Salvation Army "doll" (Jean Simmons) to go with him for "dinner in Havana."

            But it looked for a while like the good times might be coming to an end.  Cuban casinos had become so crooked that Americans were beginning to stay away.  They were saved when Fulgencio Batista became dictator in 1952.

            In an ironic twist, Batista called upon the mob, particularly Meyer Lansky, to clean things up.  And they did.  It is hard to believe organized crime syndicates would run completely honest games.  But Lansky realized they could make more money with magnificent hotel-casinos then if they cheated everyone.

            Throughout the 1950s, the American and Cuban mob families opened luxurious casino resorts, each one bigger and more successful than the last.  The money poured in.  Batista got a cut of everything.

            Three recent books, Offshore Vegas: How the Mob Brought Revolution to Cuba; Havana Before Castro: When Cuba was a Tropical Playground (great photos); and Havana Nocturne: How the Mob Owned Cuba...and Then Lost It to the Revolution, may overstate the importance of organized crime in the Communists coming to power.

            The economy under Batista was not that bad.  Cuba had a large middle class.  Lansky was, in fact, originally reluctant to open casinos, because labor unions were so strong.

            Still, most Cubans never shared the wealth they saw all around them, and corruption was rampant.  The result was revolution.

            When news hit the streets on New Year's Day, 1959, that Batista had fled the country, angry crowds poured into the casinos, destroying everything inside. 

            Cuba's 1950's hotels are still standing.  More importantly, so are its casinos.  Although now dark and empty, nothing else has changed; even the chandeliers are the same.  You swear you hear the ghost whispering of long-gone slot machines and crap tables, when you walk around the Riviera casino.

            Many of the bars and nightclubs are still open.  The largest showroom of them all, the Tropicana with its multi-level, outdoor stage, sells out every night.  The extravaganza features statuesque showgirls with feathered headdresses and sexy dancing, or at least what would have been considered sexy in 1959.

            Before the Revolution, Havana competed with Las Vegas and Monte Carlo as the gambling and entertainment capitol of the world.

            Fidel Castro, through his hand-picked provisional president, Manuel Urrutia, closed the casinos immediately after seizing power on January 1, 1959, just as he canceled the national lottery.  But this threw thousands of Cubans out of work.  They made their complaints public, marching through the streets in protest.  Castro's own economic advisors told him that the country's economy would collapse unless the casinos were reopened.

            They proved to be right, but too late.  Castro relented and allowed the casinos to reopen.  But tourists, especially Americans, stayed away in droves.  And the economy did collapse.

            The Soviet bloc never could supply enough tourists to make up for being isolated from the U.S.  I remember seeing faded posters for Havana vacations in a tourist bureau in Prague, shortly after the Velvet Revolution.  But the other store windows were practically empty, since there was little to buy and few people had any money, or the right to fly over the barbed wire and minefields that had surrounded Communist Czechoslovakia.

            The fall of the Iron Curtain shows what we can expect for Cuba:  A combination of two of the greatest expansions of legal gaming in the last 40 years.

            The dissolution of the Soviet Union and the replacement of communism with capitalism lead to an explosion of casinos throughout Eastern Europe and Russia. 

            And the death of the dictator Francisco Franco led to an explosion of slot machines and other legal gaming throughout Spain.

            Although Franco was strongly anti-communist, the comparison with Castro is apt.  The Iberian peninsula and Latin America have a long tradition of strongmen, "caudilhos" in Portuguese, in Spanish "caudillos."  Franco ruled from 1936 to 1975, and even called himself "Caudillo de España, por la gracia de Dios;" which Wikipedia translates as "Leader of Spain, by the grace of God." 

            Castro has been the caudillo since 1959, first as Prime Minister, then President and now as First Secretary of the Communist Party of Cuba.  Due to illness, he turned over much of his power to his younger brother Raúl, on July 31, 2006. 

            Raúl has shown some independence.  He doesn't really have what it takes to be a caudillo.  So he might start true liberalization as soon as the sickly Fidel.  Raúl is also in his 80's, so both Castro brothers will probably be gone within the next 10 years.

            The caudillo tradition seems to be coming to an end.  The U.S. will drop its economic embargo when democracy and capitalism come to Cuba, in whatever form they take.  In fact, as we know from Macau, democracy is not the essential part of the equation.  China is still Marxist, but it is hard to call it communist.

            The initial breakthrough will probably take place on cruise ships, with casinos, returning to the Port of Havana.  Initially, gaming will only be permitted on the high seas.  But it is a short step from there to allowing the casinos to be open while the ships are docked.

            Bingo machines are sweeping Latin America.  These are often called Class II.  Of course, there is no Class I or Class III, since the categories were created by, and apply only to, the U.S. Indian Gaming Regulatory Act.  But, it is an easy way to distinguish these gaming devices from true slot machines, at least for political cover.

            True casinos, with true slots and table games, are also common in much of Central and South America.  But even more so in the Caribbean.  A free Cuba will quickly allow casinos to reopen, in high-quality hotels designed for, and possibly even limited to, tourists.

            At the moment, Cuba has no legal gambling.  But other communist nations have had casinos and lotteries for decades.

            Casinos in particular were seen as a way of extracting hard currency from tourists and from the underground economy.  I played in a casino in Hungary when it was still communist, with all transactions in Deutsche Marks (this was before the euro).  Gaming was often limited to resorts, with locals barred from betting, or even entering.

            The Socialist Republic of Vietnam still has casinos.  Surprisingly, so, too, does North Korea.

            And then, of course, there is Macau.  The casinos there win more than all of the privately owned casinos in Nevada, New Jersey, Mississippi and the rest of the United States – combined. 

            Macau, like Hong Kong, is a Special Administrative Region of the People's Republic of China.  The PRC is still technically a communist country, although it would be more accurate to describe it as Marxist: widespread free enterprise capitalism flourishing under a totalitarian, one party dictatorship.

            The bureaucrats who run Cuba can find a partial solution to the country's present economic catastrophe and its pending political crisis by looking east – far east.  Cuba needs to pull a Macau.

            Resort casinos create jobs and bring in much needed revenue.  They could ease Cuba's transition out of the economic stagnation created by pure communism, as they did in China.

            Of course, Cuba does not have hundreds of millions of middle-class residents with few other legal outlets for gambling.  In fact, the people are so poor that it is one of the few countries where it actually is to the advantage of casino operators that locals would not be allowed to enter. 

            But, Cuba already attracts large numbers of tourists from Canada, Europe and Latin America; tourism is the nation's leading industry.  The spectacular success of Havana's casinos in the 1950's show what legal gaming could do, especially once Americans can visit without restrictions.

            The major problem is political.  The Revolution unleashed a deeply buried hatred of the casinos.  The millions living in poverty resented the ostentatious displays of wealth, well-known to be owned by Meyer Lansky and other leaders of American organized crime.  This antipathy was exacerbated by the non-casino slot machines that were found all over the island.  It was also common knowledge that the money from those gaming devices, like the centavos deposited into the omnipresent parking meters, ended up in the bank accounts of Roberto Fernández Miranda, the brother-in-law of the dictator, Fulgencio Batista.

            As T.J. English put it, "There were many reasons to dislike Batista – his shameless coup, violent repression, censorship, corruption, obsequious relationship with gangsters and embezzlers – but in the end the hotel-casinos came to symbolize all of the above."  When Batista fled the island, the people took out their rage on these symbols, burning slot machines and trashing parking meters.  Symbolism works both ways.  Castro's men brought pigs with them from the countryside.  They released them "in the lobby of the [Riviera] hotel and casino, squealing, tracking mud across the floor, shitting and peeing all over Lansky's pride and joy, one of the most famous mobster gambling emporiums in all the world."

            When asked about the Americans who ran Cuba's gambling, Fidel said, "We are not only disposed to deport the gangsters, but to shoot them."

            In the early 1960s, children could get cartoon trading cards with purchases of Felices [Spanish for happy] Frutas's canned fruit.  They would glue them into their "Album de la Revolucion Cubana."  One shows an angry crowd storming the Deauville Casino, with this label: "El pueblo destroza algunos casinos y casas de juegos," "The people destroy some casinos and gambling houses."

            Still, this was half a century ago.  Times change.  Fifty years before Macau became the top casino market in the world, gambling in China was punishable by death.

            Cuba already has tourist zones, where locals are not allowed to enter, except for work.  Canadian tourists already fly directly to resorts on the southern coast of Cuba, just to go to the beach.  The natural spot for the first Cuban casino-resort is, ironically, the Bay of Pigs.  The scene of the disastrous failed invasion of 1961 is now a thriving resort, especially for Europeans.

            But there is another spot, where a casino would be even more of a positive political statement by the Cuban government:  Guantanamo Bay.  It is isolated from the vast majority of the population; at more than 500 miles from Havana, it is actually closer to Miami.  There are beaches and an airport and one of the largest sea ports in the world for cruise ships, if the U.S. will allow free passage.

            Cuba could set up another tourist zone, with legal gambling, on the Cuban side of Guantanamo Bay.  Local residents would be barred.  But visitors from every other country, including the United States, would be welcome.

            Americans can travel to Macau without even having to get a visa.  Wouldn't it be great if Guantanamo Bay became better known for its hotel-casino resorts than for its prison?

                                                  

© Copyright 2015.  Professor I. Nelson Rose is recognized as one of the world’s leading experts on gambling law, and is a consultant and expert witness for governments and industry.  His latest books, Gaming Law in a Nutshell; Internet Gaming Law (1st and 2nd editions), Blackjack and the Law and Gaming Law: Cases and Materials, are available through his website, www.GamblingAndTheLaw.com.