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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

Gaming insiders welcome New York's approval of Las Vegas-style casinos

7 November 2013

The gaming industry’s batting order may have landed a new clean-up hitter.

The overwhelming approval by New York voters of a referendum on Tuesday that will add seven Las Vegas-style casinos to the Empire State was welcomed by gaming insiders and observers less than 24 hours after the votes were counted.

“We applaud the vote that will allow the expansion of gaming venues in New York,” American Gaming Association CEO Geoff Freeman said Wednesday in a statement that was emailed shortly after election officials called the race in favor of the pro-gaming side.

New York has five Indian casinos in the upstate region and the New York City metropolitan area is served by two racetrack casinos — Yonkers and the Resorts World New York, which is located at Aqueduct in Queens. Both facilities are electronic-only locations that utilize slot machinelike video lottery terminals. Live tables are not allowed.

Under terms of the referendum, which was backed by Gov. Andrew Cuomo and approved by a 57 percent to 43 percent margin, the initial four casinos will be located in upstate New York and the properties will have exclusive rights for seven years.

Afterward, three more casinos could be added. New York City and its suburbs will be off-limits for the first four casino licenses, which will be awarded within the first seven years.

In a report authored by Moody’s Investor Service, the New York vote was viewed as a “mixed bag” for Indian casinos because of the increased competition for several operators.

“Upstate operators will also face more competition because the first four casinos will open upstate in the Catskills, the Albany area and the state’s southern tier near the Pennsylvania border,” Moody’s Senior Vice President Keith Foley said in the report.

New York City’s race track casino market is protected because it won’t face competition for at least a decade.

RBC Capital Market gaming analyst John Kempf told investors a casino in the Catskills would not have a “significant impact” on gaming operations in Atlantic City or Pennsylvania.

“We believe the major developers will likely wait to focus on potential gaming opportunities closer to New York City,” Kempf said.

The New York casinos will have their slot machine revenues taxed in the range of 37 percent to 45 percent. Table game revenues will be taxed at 10 percent.

“These tax rates should make the casinos attractive enough so that there will be interest to move forward on them,” Janney Montgomery Scott gaming analyst Brian McGill told investors. “We think a 2016 opening is about the earliest that one could open and would bet that it will be later than that. There are always delays with any new casino properties.”

New York City is the key market in the referendum, according to Moody’s. It is expected to attract interest from most of the major casino operators.

“For the U.S. gaming industry, the Big Apple is the Holy Grail,” Foley said. “New York City’s status as a major global tourist destination and the metropolitan area’s high population density make it extremely attractive for gaming.”

Since 2010, Iowa, Maine, Maryland and Rhode Island have voted in favor of gaming expansion, either adding new casinos or expanding offerings beyond table games.

Foley said gaming revenues have increased in New York since the 2011 opening of Resorts World New York, which came at a time when many gaming markets have struggled.

“Even without table games, Yonkers and Resorts World have been very successful,” Foley said.

Initially, slot machine manufacturers could be the largest beneficiary from the New York market.

Eilers Research principal Todd Eilers told investors the state could add 4,000 to 5,000 slot machines through the end of the decade, benefiting all the major manufacturers.

“(International Game Technology) would likely garner the largest share on new openings given its broad product offering,” Eilers said. We note that Bally Technologies also does very well in the East Coast markets, so we would expect them to receive the next largest share.”

McGill estimated the state could add up to 8,000 slot machines but he anticipates the roll being slow-going and would not have any positive impact the slot machine replacement market.

“The belief is that the casinos could move through the regulatory process rather quickly, but that always seems to be wishful thinking at the start of any casino selection process,” McGill said. “Once again, this is not going to dramatically alter the slot pipeline, which continues to look rather bleak beginning in 2015.