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LAS VEGAS, Nevada -- Gaming has found a surprising benefit from the nation's continuing economic recession.
State legislators and governors, facing the daunting reality of fixing multibillion-dollar budget shortfalls, view legalized gaming revenues as a means to shore up their deteriorating tax bases.
Nearly a dozen states are considering proposals to add casinos or expand their current gaming structures. The situation is fluid in many statehouses where legislation, amendments and support change quickly. There is often a long lag time between approval and the first spin of a slot machine reel.
"Sometimes, the easiest part of the process is passage of the legislation," WMS Industries President Orrin Edidin said. "The infrastructure needs to be in place and regulations need to be written before the machines can go live. The process may take (as long as) two years."
But with the economy in a free fall, unemployment rising and tax dollars shrinking, even states that have traditionally shunned gaming expansion in the past are now in play.
State proposals include expanding or building regional casinos, adding slot machines to racetracks and other locations, and adding table games to markets once limited by law to offer only slot machines. The gaming initiatives range from ballot referendums to governor-enacted legislation.
"In tough economic times governors and legislators have hard decisions to make," said Frank Fahrenkopf Jr., chief executive officer of the Washington, D.C.-based American Gaming Association and the industry's top federal lobbyist. "When there is not a lot of money in the state treasury, do you cut spending on social services or raise taxes across the board? It's not an appetizing decision either way."
Which is why gaming expansion becomes a bit more palatable.
For Fahrenkopf, 2009 is turning into a case of déjá vu. Gaming expansion coinciding with the sour economy isn't new.
The recession of the 1990s gave birth to the nation's riverboat gaming industry, which expanded at supersonic rates in the Midwest and South when states saw gaming taxes as a fix for budget concerns. Since the American Gaming Association began keeping statistics in the late 1990s, 10 states joined Nevada and New Jersey by adding commercial or riverboat casinos. Twelve others added casinos at racetracks.
American Indian casinos, another offshoot of recessionary times, are in 29 states.
Commercial casinos accounted for $32.54 billion in gaming revenues in 2008, which returned $5.7 billion in taxes to state and local governments. As a comparison, commercial casinos brought in gaming revenues of $19.7 billion in 1998, which translated into $2.5 billion in gaming taxes.
"We have communities with 10 or 15 years of experience with gaming expansion, so there are case studies out there on how to make this work," Fahrenkopf said. "We're an environmentally clean industry. We're not a smokestack industry. We provide jobs and a steady tax base. We're also an industry that's a privileged industry. There is no right to conduct business. That must be granted by the states, which lawmakers like."
A beneficiary from these opportunities is the Nevada slot machine industry, which has been hampered by several years of reduced cash flows and profits from declining sales. Casinos have been hesitant to upgrade their slot machine floors while the recession played havoc with consumer spending.
In addition to reports that casino operators may finally be willing to fund capital expenditure budgets, new markets may be opening.
"The economy increased the (slot machine) replacement cycle in North America to something like 20 or 25 years," Jamie Odell, chief executive officer of Australia-based Aristocrat Leisure Ltd., which operates Las Vegas-based Aristocrat Technologies. "Would you own a car 25 years? We see things changing and that's good for all the slot makers."
A map of the United States in the office of Bally Technologies Chief Operating Officer Gavin Isaacs shows projected opportunities for slot machine developers.
States that have traditionally balked at gaming expansion are now viewed as potential growth opportunities by casino operators and slot machine manufacturers.
Ohio, where voters have failed to pass four different gaming referendums in the past 10 years, has two gaming initiatives. Voters are being asked on Nov. 3 to authorize Las Vegas-style casinos in Columbus, Toledo, Cleveland and Cincinnati. Gaming analysts give the measure a better-than-50 percent chance of passing.
In a second matter, Ohio's Supreme Court last month said a move by Gov. Ted Strickland to allow the state's seven racetrack casinos to operate 17,500 video lottery terminals must be approved by voters next year.
Pennsylvania lawmakers may allow casinos to add table games. In 2005, the state approved seven slot machine-only casinos with 61,000 games.
Massachusetts legislative leaders and Gov. Deval Patrick, in response to Connecticut Indian gambling halls, may push to legalize two regional casinos and allow racetracks to add slot machines to help keep tax dollars within the state.
Lately, the challenge is not passing the legislation, but finding casino operators with the capital needed to make a serious investment.
The credit-market crisis caused several of the top gaming operators to pull out of bids for casino expansion opportunities in Kansas. The credit crunch, along with a high tax rate, caused many potential bidders to shun chances to operate slot machine casinos in Maryland.
Penn National Gaming President Tim Wilmott said 2009 is starting to remind him of the 1990s because of the varying opportunities. The company is linked with potential casinos in Ohio, New York, Maryland and Kansas.
"We're kicking the tires in a lot of places," Wilmott said. "Each state has a different financial situation that needs to be addressed."
Some gaming companies employ lobbyists to help push matters through statehouses or advise the pro-gaming referendum campaigns. Other companies try and educate lawmakers on the pros and cons of gaming expansion.
Slot machine makers have their trade organization, the Association of Gaming Equipment Manufacturers, take on the lead lobbying role.
"We like to take on the role of Switzerland and let people make their own choices," Shuffle Master CEO Tim Parrott said. "When you start seeing all the different opportunities for gaming, it's kind of a silver lining in this terrible recession. States will focus on sin taxes as a way of rebuilding budgets."
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