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Gaming Guru

Rod Smith
 

Gaming Operators More Likely to Bet on Las Vegas

27 July 2004

LAS VEGAS -- Gaming operators are beating a fast retreat from expansion across the country and returning their focus for investments back to Las Vegas, where gaming is not only legal, but casino companies enjoy the friendliest regulatory and tax environment in the country, industry insiders said.

Gaming operators have lost their zeal to push politicians for authority to open casinos or to invest in areas where they've discovered they're not likely to be anything more than tax bait to fill public coffers.

And efforts to legalize expanded gaming are moving ahead in a only handful of jurisdictions and faltering everywhere else as governors and state legislators win reprieves from the budget crises that have plagued them since 2000.

UBS Warburg, which tracks the chances of gaming proliferation, reports that efforts to expand gaming are still under way in 22 states, but only gives even odds in seven of the states (California, Iowa, Maine, Michigan, Nebraska, Oklahoma and Pennsylvania).

"The states are recovering (economically), so governors and state legislators don't have a gun to their heads the way they have," said American Gaming Association President Frank Fahrenkopf.

A year ago, Deutsche Bank reported the chances were better than even that gaming would be expanded in 18 states (Arkansas, California, Delaware, Florida, Illinois, Kansas, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, Pennsylvania, Ohio, Oklahoma, Rhode Island and Washington), although all of those withered as the 2004 election season approached.

That represented a tidal change in attitudes since 2002, when pro-gaming candidates for governor were elected in 23 states, and industry insiders and Wall Street analysts said the expansion of gaming options was more likely than at any time in the past decade because of mounting fiscal deficits.

Fahrenkopf said he's sure gaming will keep expanding to new jurisdictions, but that most of the proliferation will focus on slots at tracks, which avoid zoning and not-in-my-backyard issues.

That means the jurisdictions with added gaming will miss out on the job creation and other economic impacts new casinos can bring.

Moreover, jurisdictions most serious about raising revenues through gaming are engaged in just "dumb economics," Fahrenkopf said, noting that many states raised taxes to unreasonable or confiscatory levels and ended up chasing away major gaming operators and the investments they otherwise might make.

MGM Mirage Chairman Terry Lanni said for just this reason his company is limiting its "investment horizon" to Nevada, Mississippi and New Jersey, "states that have seen this as an important industry."

He said most of the other expansion under way involves legalizing slots at race tracks, as in Pennsylvania, where legislators are just looking for quick fixes to budget problems, which beg the issue of raising taxes.

"I'm not sure that's an appropriate approach to long-term development for a large industry with jobs (to offer)," Lanni said.

Hal Rothman, chairman of the history department at the University of Nevada, Las Vegas, said the trends are simply part of the maturing of the casino industry.

"They no longer need to expand everywhere. It's a big business and people cross state lines. Why should they go into new jurisdictions that may be hostile when they don't need to anymore?" he said.

Fahrenkopf and other industry insiders said the phenomenon of Indian casinos is separate from the spread of gaming to new states and jurisdictions, and will continue, especially in California where it endangers Northern Nevada, whatever happens in the rest of the country.

Harrah's Entertainment's recent bid to buy Caesars Entertainment, however, is a perfect example of how many gaming companies are refocusing on Las Vegas.

The Las Vegas-based company entered its merger agreement largely to expand its presence on the Strip, just as other operators are targeting expansion here rather than in new or problem jurisdictions.

Harrah's President Gary Loveman said in a recent conference call with analysts that his company "needs to evolve toward a greater concentration of assets in markets with regulatory and fiscally lower risks (such as Nevada)."

Thompson said the strategy suggests "the company is more likely to use the power of its conglomerate size to build -- not destroy -- Las Vegas," Thompson said.

And in the process, it will join the other major operators in more Las Vegas-centric expansion than the industry or Nevada have experienced since New Jersey legalized gambling a quarter of a century ago, he said.