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Best of Howard Stutz

Gaming Guru

Howard Stutz

Hawaii casino proposal still an uphill battle

16 February 2010

HONOLULU, Hawaii -- Proposals allowing casinos inside hotels along Honolulu's Waikiki Beach have met the same fate for 40 years -- rejection.

So what's different about a bill being discussed in the Hawaii Legislature that would allow casino gambling on the islands?

Simple, the battered Hawaiian economy.

Hawaii has taken its share of hits this recession because of its reliance on tourism tax dollars, putting legalized gambling back on the table again.

Taxes from gambling revenues are attracting the notice of lawmakers nationwide. In the past year, states such as Ohio, Pennsylvania, West Virginia, Delaware and Maryland have expanded or enhanced gaming laws.

Hawaii and Utah are the only two states without any form of legalized gaming, including casinos and lotteries.

Still, many analysts make passage of a casino bill in Hawaii a long shot.

"I'd say it's a greater probability of not passing this year," Union Gaming Group principal Bill Lerner said.

One interested observer of what's happening in Hawaii is Boyd Gaming Corp. The company relies on the Hawaiian islands to provide a large base of customers to its Las Vegas casinos, especially its downtown hotel-casino.

Boyd Gaming founder Sam Boyd began tapping the Hawaiian market in the 1970s. On any given day, alohawear is the norm at the California Hotel, Fremont or Main Street Station. Boyd even imported Hawaiian favorites, such as a Lappert's Ice Cream and Coffee franchise to give Hawaiian customers a taste of home.

Company spokesman David Strow said Hawaii's gambling proposal is still in the early stages, but executives are watching the debate closely.

"It's something we'll monitor closely because Hawaii is a very significant market for our downtown casinos," Strow said. "We've had a strong relationship with our Hawaiian customers and it's a relationship we look forward to continuing."

The law was proposed earlier this month by a Hawaiian lawmaker, and the House Committee on Hawaiian Affairs passed the bill through to the entire legislative body.

The bill amends the Hawaiian Homes Commission Act to authorize casino gambling operations on Hawaiian homelands. It would establish a Hawaii Gaming Commission and now dictates that 80 percent of tax revenues generated from legalized gaming would be reserved for the Hawaiian Homelands Trust fund; the remaining 20 percent would go to the state's general fund.

Proponents believe Hawaii's fiscal crisis made lawmakers more supportive of casino gaming.

"I think when we have these economic hard times, things like this that people don't want to touch because of the politics, I think it's a great opportunity," said Rep. Mele Carroll, D, Lanai-Molokai, chairwoman of the Committee on Hawaiian Affairs.

A lobbyist said the state had proposed two casinos in 2000, one on the North Shore and one on Waikiki. If they were operating today, the casinos would have generated $712 million per year and employed 4,000 people.

Lerner said Boyd's downtown Las Vegas business from Hawaii is primarily based on travel through air charters.

"On the margin, there would be some convenience risk for their customers," Lerner said.

Downtown has had its issues, with gaming revenues off nearly double digits this year. Boyd's casinos generated net revenues of $54.9 million in the third quarter, a slight decline from a year ago.

The company said its cash flow downtown was up 26.1 percent in the latest quarter, which management attributed to the continued strength in the Hawaiian customer segment.

In a recent investors report on Boyd Gaming, Janney Montgomery Scott gaming analyst Brian McGill said the company is facing challenges in several markets, including disappointing results out of its regional properties.

The last thing Boyd Gaming needs is an event to hurt results from downtown.

"Boyd remains mired in many challenging markets, as it looks to see any signs of stabilization," McGill said. "We expect to see the results take another step down, when it reports its fourth-quarter results."