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Arnold M. Knightly

Gaming industry not relying on Nevada

20 November 2009

LAS VEGAS, Nevada -- Las Vegas gaming companies will need to look for new markets to expand to because the building boom that took place locally over the past 20 years won't be replicated, Boyd Gaming Corp. Chief Executive Officer Keith Smith said Wednesday.

"If you look out over the next 10 years, you could probably count on one hand the number of new buildings we'll see on the Strip," Smith told those attending the Global Gaming Expo's "State of the Industry" roundtable. "Frankly, my crystal ball isn't that clear, but there will not be the tremendous amount of new buildings on the Strip."

Local and state governments, however, will need to take an active role in establishing viable new markets if they hope to attract gaming companies to boost their revenues, other industry executives said.

Foremost, states need to create favorable economic conditions -- low tax rates and low fees -- that will allow casino companies to succeed, said Virginia McDowell, president and chief operating officer of regional casino operator Isle of Capri Casinos.

"You can't have high license fees, you can't have high tax rates and expect for us to make significant investments in your states," McDowell said. "We are going to look at strategic capital going forward and sit there and say 'How can we leverage the least to get the highest return?' That may mean it may be difficult for us to look at expansion opportunities where there's going to be either significant cost or significant competition as a barrier to entry."

An active government role will be needed even in jurisdictions where gaming already exists.

Smith, whose company operates the Borgata in Atlantic City in a joint venture with MGM Mirage, pointed to New Jersey as an example of this.

The New Jersey shore gaming market has problems that go beyond lots of competition from surrounding states, and the state and local governments need to become involved if the market is to fulfill its potential.

"It has a bright future," Smith said. "But it needs some public support. We need the public sector to come to the table and clean up parts of Atlantic City."

Gaming has boomed in Las Vegas over the past 15 years because of the partnership between the casino industry and city and county governments to maintain and improve the local infrastructure, Smith said.

Atlantic City, in contrast, has changed very little since the 1980s, Smith said.

"There's a tremendous number of people we found when we built the Borgata that still do not visit Atlantic City (because) it doesn't have the product they want. They're not comfortable with the city," Smith said.

Guillermo Gabella, director of Bueno Aires-based gaming manufacturer Boldt S. A., said he sees great potential for expansion of the gaming market in South America and Latin America.

The economic downturn has not hit South America's casino industry as hard as it has elsewhere, he said.

"We are very encouraged for the growth we could achieve," Gabella said. "We can see these areas have had a significant growth even though there has been an (economic) crisis. It has not affected us in the same way it has affected Europe or the United States."

Further expansion of the South and Latin American gaming markets, however, will depend on the establishment of strong regulatory bodies and governments' willingness to fight illegal gambling in the region.

The gaming executives did see some positive things happening in the industry.

Capital markets, for instance, are opening again for the industry, meaning gaming companies are able to refinance their debts and issue new debts.

The gaming technology industry has also been doing more financing of slot machines, as well as granting new payment terms to maintain significant business with casinos, according to Nick Khin, president of slot maker Aristocrat Technologies.

"We've had to become more flexible in terms of doing business," Khin said.

Smith and MacDowell said the price of slot machines, which cost about $20,000 each, has made replenishing casino floors with new products prohibitive during the downturn.

"The price of slot machines has gone up quite dramatically over the years," Smith said. "That has quite naturally extended the replacement cycle because there's a finite amount of capital that can be reinvested in these operations."