Quick-takes: The month's trends in a glance - January 2003

A Mixed Message For Gaming Stocks.  It was a rough month for casino stocks, but a bullish month for equipment manufacturers, according to the Applied Analysis Gaming Index, a monthly weighted average of eight local gaming stocks developed by a Las Vegas-based financial consulting company.  …  However, the average daily price of gaming stocks included in the composite index dropped 11.3 points, or 5.1 percent.  Offsetting that decline, the manufacturers' component of the index, largely International Game Technology, increased 12.4 points, or 5.6 percent.  Rod Smith, Gaming Wire, Las Vegas Review-Journal, 2-3-03

The economy is the story in more than one industry and in more than one state.  The economy may be responsible for lower gaming revenues and lower gaming stock prices, but increasingly more important to the gaming industry, the economy has caused a budget crisis in most states.  A promise of new revenue from gaming drove election results in as many as 15 states.  In the post election world, the world of real politic, governors and legislators are starting to come to grips with the depth of the budget crises.

States' Budget Gaps Jumped 50 Pct.  The flood of red ink for state governments just keeps rising: Expected budget shortfalls jumped by close to 50 percent in the past three months, and the situation is expected to worsen, the National Conference of State Legislatures said Tuesday.  …The collective budget shortfall for state governments jumped nearly 50 percent between November…  Next year's projected shortfall is $68.5 billion now, but analysts said that probably will get higher as revenues continue sagging.  Robert Tanner, Associated Press, Yahoo Business, 2-5-03

California leads the way, if for no other reason than the size of the budget shortfall, but California is not alone in the seriousness of the problem.  Other states with smaller populations and smaller budgets are facing some difficult decisions.

Governor Warns Of `Hard Choices.'  In a somber and short State of the State address Wednesday, Gov. Gray Davis tried to brace Californians for what he promised will be "one of the toughest budgets ever" and pledged to end the boom and bust cycles that state finances have seen for decades.  Davis, who estimates a $35 billion budget shortfall, did not mention any specific tax increases or spending cuts that he will propose.  Lynda Gledhill, Mark Martin, San Francisco Chronicle, 1-9-03

Governing In Time Of Crisis.  Tomorrow, she will be sworn in as the state's 44th governor. But there will be no honeymoon, no time to ease into the job. Immediately after taking the oath of office, Sebelius will be forced to start dealing with the state's (Nebraska) worst budget crisis in more than 50 years.  Jim McLean, The Capital-Journal, 1-13-03

New Governor's Promises And Problems.  Democrat Rod Blagojevich steps into the Illinois governor's office Monday carrying a list of campaign promises and facing a lot of problems.  The most significant problem is the state budget, out of whack by almost $3 billion.  Southtown Daily, 1-11-03

As these and other states try to fix budgets, gaming will be increasingly affected.  New Jersey, Nevada, Illinois, California and more are looking for more taxes from gaming; other states will be exploring expansion of gaming to create gaming taxes.  There will be some opporutinty and some risk in this process. 

Proliferation Of Gaming Fueled By Momentum.  Big Mo -- momentum -- is driving the proliferation of gaming rapidly across the country.  And while the spread of gambling may give Las Vegas operators a kick in the pants, it will not be a panacea for their problems, analysts said.  At least 15 states already are moving ahead with legislation that could significantly affect gaming. A dozen of those states are moving to legalize new forms of gambling or liberalize existing regulations less than three months after the election of pro-gaming candidates. Three states also are considering raising gaming taxes.  Rod smith, Gaming Wire, Las Vegas Review-Journal, 1-28-03

Among other impacts, one can expect the prices of gaming stocks to go up and down on news of more tax and more slots.  When the governor of New Jersey suggested raising gaming taxes, stock prices plunged, losing $790,000,000 in two days, expensive news.

Top Exec Rips Governor, Tax Plan.  …Rubeli, chairman and chief executive of Tropicana parent Aztar Corp., on Wednesday worked himself into a 22-minute oratory ripping Gov. James E. McGreevey for his casino-tax proposals. He vowed to galvanize employees, politicians, unions, vendors and gamblers against the plan.  Rubeli squarely blamed the governor for Tuesday's meltdown of Atlantic City casino stocks, which lost more than $500 million in value. They lost another $290 million of value Wednesday.  Joe Weinert, The Press of Atlantic City, 2-6-03

The need for revenues by the states has produced a very wide variety of proposals.  There is pressure in Washington, California and even New Jersey to level the playing field and allow gaming to spread into other businesses, often that means non-Indian.

Non-Tribal Coalition Will Push For Slots.  …A coalition of taverns, charity bingo halls, private minicasinos, race tracks and bowling alleys is lobbying to get the kind of video slot machines allowed only in tribal casinos.  The newly formed Entertainment Industry Coalition wants to install 18,900 video slot machines in non-tribal establishments, potentially giving Washington as many slot machines as Atlantic City.  A similar proposal died last year, but the state's $2 billion budget deficit has changed the odds, setting up a fresh fight between tribal and non-tribal interests.  Phuong Cat Le, Seattle Post-Intelligencer, 1-13-03

In the most unusual of suggestions, Massachusetts' politicians suggest charging neighboring states a 'protection' fee.  "You pay us and we won't let anyone open a casino and take your customers."  Did Tony Soprano say that?

Can Massachusetts Profit By Not Allowing Casinos?  Lawmakers toss around a pay-not-to-play proposal, which would help guarantee the near-monopoly status of gambling operations in nearby states.  …With gambling operations in Southern New England raking in more than $1 billion annually, casino owners and state officials in Connecticut and Rhode Island have a clear incentive to keep Bay Staters coming across their borders. …A kickback to keep casinos out of Massachusetts, whether it comes from the existing casinos themselves or the states in which they do business, would help guarantee their near-monopoly status in the region.  …Massachusetts residents account for 42 percent of money spent at casinos in Connecticut, Murray said.  – Jack Coleman, capecod.com, 1-21-03

And it is not just the states of the United States that are looking to gaming to increase government revenues, here for example, the governor of Tokyo thinks gaming might help balance the budget.

Desperate For Revenue, Tokyo Leads Push To Bring Casinos To Japan.  Tokyo (AP) - It was a rare taste of Las Vegas in Tokyo, and for two days the casino crowds hosted by Tokyo Gov. Shintaro Ishihara pumped the handles of slot machines and bet feverishly on the roulette wheel.  Although better known for his hawkish advocacy of building a stronger, more assertive Japan, Tokyo's often controversial leader has found a new cause celebre: legalized casino-style gambling.  … Japan's capital is badly in need of money. Tokyo has been losing money for four years in a row and suffered an $80.65 million deficit in fiscal 2001.  Mari Yamaguchi, Associated Press, 1-2-03

Cities, states and countries are not the only ones looking for money in slot machines and table games.  The Super Bowl may have been the big sports story of the month, however there was another sports story in January.  The other big sports story of the month happened in Connecticut when Mohegan Sun casino bought a Women National Basketball Association team.  Not to be outdone, a Canadian hockey team has decided it wants to buy a casino.

Mohegans To Own Team.  A WNBA team owned by the Mohegan tribe will play at the Mohegan Sun Arena in Montville this summer, sources said Wednesday.  The team would play one to three of its home games at the Hartford Civic Center - a disappointment to those who hoped for a full-time franchise in the city.  …The team would be called the Mohegan Suns.  Lori Riley, Hartford Courant, 1-16-03

Flames' Application for Casino License Criticized by Councilman.  Calgary Flames Limited Partners, which owns the team, is one of six groups that have applied for casino licenses, city and provincial officials said. The city already has five casinos, including two near the Saddledome arena where the team plays.  …Flames President Ken King said the proposed casino in the Saddledome would cost about $25 million to build and would generate up to $6 million a year in revenue.  Pete Coates, Bloomberg, 1-17-03

The press has been filled with articles questioning the purchase of the "Suns" by the Mohegan Sun.  The Christian Science Monitor went back to the 1919 World Series, pulled in Pete Rose and every possible link between gambling and sports in between the two, to make a case against such an unholy alliance.  Somehow, the Flames have escaped noticed, maybe it is because it is a Canadian team or that hockey players are less corruptible.  Whatever the case, casinos and sports teams are not so far apart as some of the reporters seem to think.  The same family that owns the Sacramento Kings of the NBA, for example, owns the Palms in Las Vegas.  Does that mean the Palms own the Kings or that the Kings own the Palms?  It does not matter, they are operated as separate businesses and both successfully.  No one has ever suggested that either the Kings or the Palms achieve success through any means other than hard work, talent and good thinking.  Recently the Palms announced the creation of special rooms for large professional athletes; this month they have special rooms for professionals with large pocketbooks.  Both the Mohegan Sun casino and the WNBA team, the Suns, will be fine, and neither will corrupt the other.  Though they may learn from each other as the Maloofs learned from professional athletes.

The Palms Casino Resort…today unveils the ultimate playrooms for bad boys -- two luxury suites specifically designed for private bachelor (or bachelorette) parties. These bachelor suites are located on the 28th floor of the Palms Casino Resort, adjacent to the Real World Suite, which has quickly become one of the most coveted party spots in Las Vegas and recent host to private events held for celebrities such as Leonardo DiCaprio, Avril Lavigne and Jamie Foxx.  "These suites provide the perfect atmosphere for people who want to celebrate their last days of freedom in the ultimate bachelor pad," explains George Maloof, president and owner of the Palms Casino Resort.  PRNewswire, Yahoo Business, 1-7-03

January is Super Bowl month.  Since the early 1980s the Super Bowl has been especially good for casino revenues, an unofficial holiday sandwiched between New Years and Presidents Day.  Casinos around the country market the game as a special event; the Super Bowl is a great opportunity to get your best customer together for a party. In Nevada, it is traditionally the biggest wagering event of the year. 

This year the Super Bowl provided even more entertainment, much of it off the field of play.  Las Vegas had just produced a new series of commercials intended to broaden the appeal of "Jewel of the Desert."  And where better to test a new ad than the Super Bowl of Advertising, the Super Bowl of Football?

New Ads Center On `Vegas Stories'.  …local tourism officials are betting big that retelling a handful of entertaining "Vegas Stories," naked or otherwise, is the best way to market the destination to would-be travelers.  …Dubbed "Vegas Stories," the campaign includes a mix of television and print ads as well as Internet-based content centered on the personal experiences of hundreds of local visitors.  Using a mixture of the city's inherent mystery, sex appeal and sense of debauchery….the $58 million television and print ad campaign should differentiate Las Vegas from other gaming-themed destinations.  Chris Jones, Gaming Wire, Las Vegas Review-Journal, 1-15-03

However, the NFL has decided, and put into its television contracts, that Las Vegas, casinos and all gambling are unclean and cannot be associated with the fine game of football, especially in its super form.

NFL Won't Air Las Vegas Commercial During Super Bowl.  The National Football League has refused to accept a Super Bowl commercial from the Las Vegas Convention and Visitors Authority.  …"The NFL has a long-standing policy that prohibits the acceptance of any message that makes reference to or mention of sports betting."  Associated Press, Reno Gazette-Journal, 1-14-03

The NFL seems to believe that if people associate football with betting that the integrity of the game itself will be called into question.  Now, it is well known that no red-blooded American would ever bet on a football game if Las Vegas did not exist.  And the level of betting in Vegas does seem to be leveling off.  This year in a game that should have produced record results, Nevada books were well below the best year.

Competition Cuts Into LV Betting.  Increased popularity of tribal casinos, Internet sports betting and a struggling U.S. economy dampened business at Nevada's sports books over Super Bowl weekend….this year's Super Bowl also exposed a number of potential problems facing the state's gaming industry, most notably increased competition from Indian gaming and Internet-based sports wagering services.  Chris Jones, Gaming Wire, Las Vegas Review-Journal, 1-30-03

The books of Nevada complained it was the competition.  What competition one asks?  How about the thousands of offices pools (one estimate held that every American had a opportunity to bet on the Super Bowl in an at-work-pool) and the illegal books that exist in every major city?  Restaurants, manufacturing plants, storefronts and runners -- all places to make a bet.  Not everyone can buy the argument that office pools affected Vegas, since office pools have existed since Christ was a corporal.  Still, pools are part of the competition and the more other competition that exists the more impact exists it total.

Derryfield Restaurant Cited For Gambling.  The Derryfield Restaurant — the bar/restaurant that wants to partner with the city to build a new $2.2 million clubhouse at the Derryfield Country Club — was cited for two gambling-related violations on Super Bowl Sunday, authorities said yesterday.  …The citations came after Liquor Commission officers seized $1,550 in cash and a pool sheet from a Derryfield patron. Mark Hayward, Union Leader, 1-29-03

Man Jailed In Gambling Case.   Warren man was sentenced Monday to serve four months in jail and four months house arrest for his involvement in an illegal gambling ring out of General Motors Corp.'s Lordstown fabricating plant.  …A federal grand jury indicted the four men in early October, accusing them of running the bookmaking and numbers operation out of the plant from 1996 to November 2001. The scheme included setting up football pools and a lottery numbers racket with fabricating plant employees.  .  Justin Post, Tribune Chronicle, 1-29-03

In case you think illegal gambling is minor, insignificant and would have no impact on Las Vegas or any other legal jurisdiction, here are a couple of examples that show the scope of illegal operations.  The mob may be aging, but illegal gambling still produces lots of cold, hard cash. 

Fourteen Arrested In Alleged Gambling Ring. ALBANY, N.Y.  State prosecutors said Tuesday they had shut down a Mafia gambling operation that used retired men in their 70s to collect bets totaling nearly $3 million a year across the New York City region.  …employed about 90 runners, including several retired men with thick glasses, noticeable limps and walking canes, to collect on the bets. … Winnie Hu, New York Times News Service, Las Vegas Sun, 1-29-03

Man Jailed Until Trial On Gambling Charges.  Alleged operation produced $60Million. Philip George Jr. came to court wearing a nice suit Wednesday to face charges that his gambling operation diverted as much as $60 million from a sham charity.  …netted as much as $70,000 per week for the pair and the Hamilton County bars and businesses where the pull tabs were sold.  …Prosecutors have some powerful evidence, including $4.8 million seized when the pair was arrested -- $3.25 million of it stuffed into duffel bags found in Jackson's home freezer…  Kimball Perry, Cincinnati Post, 1-17-03

The most serious competition is not from illegal books or from office pools, however.  The Internet with it ubiquitous presence is a much greater threat.  But is that illegal in the United States?  A question far to complicated to answer in one sentence, but legal or not, Internet sports betting is alive and well; and in one case taking a million dollar bet, that's right, ONE MILLION DOLLARS bets.

Bet up to $1 Million on Super Bowl. St. John's, Antigua. While garnering one of the largest television audiences for a sporting event, the Super Bowl has also become one of the most heavily bet games each year. Realizing that bettors demand the most from their sports book, BetWWTS.com today announced that the company will accept individual wagers of up to $1 million on Super Bowl XXXVII.   A leading offshore gaming company for over 10 years, BetWWTS.com will cater to both large and small bettors alike by accepting wagers on the game ranging from $10 to $1 million on a single bet.  PRNewswire, 1-20-03

Nevada is not alone in finding difficulty coping with ambiguous regulations and unregulated competitors, Saul Kerzner, founder of Sun International and partner in Mohegan Sun, bagged his Internet site over just those issues.

Kerzner Gives Up On Isle Of Man Web Site.  Kerzner International Ltd., one of the two big league players in online gaming, announced Wednesday it is abandoning Internet gambling operations.  …began operating its online casino in December 2001.  …the cost of running a highly regulated site put it at a competitive disadvantage to the vast majority of Internet gaming sites that were not strictly regulated. Rod Smith, Gaming Wire, Las Vegas Review-Journal, 1-30-03

The Internet is having more of an impact on casinos than merely through sports wagering.  The Internet is becoming a vehicle for significant competition for the discretionary dollar of regular players.  But even more than that, the Internet is changing all business in some fundamental ways.  The Internet is a price sensitive market place; products and services available online have become commodities and are traded on price basis.

Under the Internet rules, an airline or hotel, for example, does not control its own pricing.  In the 'old' economy pricing was controlled by an individual business according to its business model, competition and consumer demand.  Hotels and airlines typically were able to charge premium prices at periods of peak demand or limited inventory.  In this 'new' economy, the individual business has lost control of pricing, instead, the Internet business model controls the price.  This year, Las Vegas did not sell out early for New Year's holiday, nor did the rooms sell at the higher holiday rates of the past.  This year people waited until much later and then purchased rooms online based on price.  The seller, unlike the operating business, is motivated to sell before the prepaid commodity (rooms) become stale, and uses a constantly lowering price to dump the inventory.

Record Sales Year For Hotwire Hotels.  Discount travel site Hotwire today announced its hotel sales grew nearly fivefold in 2002, up 360%… Hotwire is headed into 2003 with a string of record sales days, selling more hotel room nights the week of January 12 than any week in the site's two-year history.  Hotwire launched its hotel product two years ago this week, growing from 25 cities in January 2001 to nearly 400 cities today, covering the U.S., Canada, Caribbean and Mexico. In this time, Hotwire sold 1.8 million room nights, with hotel gross bookings of more than $130 million.  Business Wire, Hotel Online, 1-24-03

Both the airline industry and the hotel industry have struggled since September 2001.  Less people are traveling, particularly on business, and those traveling are going shorter distances.  But that only partially explains the problems of those industries.  The Internet, where rooms and seats are traded as commodities, is also part of the explanation.  Travel may return to its previous levels, but if hotels and airlines do not regain control of their own inventories and pricing, more travelers will not solve the deeper problems of those industries.  And for the casinos it takes healthy airlines and successful hotels, whether their own or independent hotels, to fill the slots, table games, restaurants and, as in the case of Las Vegas, sports books.

The Bush administration is pushing a new government assisted collection strategy.  Years ago, the IRS began requiring casinos to collect income taxes on gaming winnings.  Then the treasury decided that casinos should help track cash transactions and submit the names and social security numbers of players that played cash.  Now the government would like casinos to collect overdue child support payments.  Actually, the government wants more than that, it would like casinos to withhold winnings of the deadbeat dads, except Indian casinos.

Gambling Proceeds Of Deadbeat Dads Targeted In Budget.  The Bush administration wants to expand the collection of overdue child support payments by making it legal for the government to intercept winnings from casinos, racetracks and other forms of gambling.  …plans…will include about $40 million over five years to set up a data system to link the names of parents who owe child support with the names of gambling winners.  Amy Goldstein, Washington Post, 1-14-03

Child-Support Plan Spares Tribe Casinos.  Arizona's 22 Indian casinos likely will be exempted in a Bush administration proposal that seeks to deduct overdue child-support payments from a gambler's winnings.  The plan targets casinos…but provides an exemption for Indian casinos whose tribes have not applied for federal grants, to operate child-support enforcement programs…  "We didn't want to have the proposal run into sovereignty objections," Heller said.  None of Arizona's gambling tribes apparently has applied for such funding.  John Stearns, The Arizona Republic, 1-16-03

Taxes and budget shortfalls are not the only threats to the gaming industry.  The industry is heavily regulated and the economies of operation are often altered by the court system.  Suits that find casinos at fault for the actions or activities of customers force casinos to change policies and add layers of policy and bureaucracy to protect them from other suits.  Drunken driving liability is not a new issue to any business that serves alcohol, but this Illinois case appears to be unique.  A larger threat is coming from the efforts to hold casinos responsible for the gambling and subsequent activities of customers with alcohol or gambling problems.

Driver Sues Casino In Suburban Crash.  A…woman is claiming the Grand Victoria Casino in Elgin served too many drinks to a Rockford lawyer last year, after which he plowed his law firm's Mercedes into her car.  …suffers "permanent pain and numbness in her shoulder and arm" from the crash.  …Drunken driving around casinos has been a nationwide concern. Illinois casinos agreed two years ago to cut off liquor sales at 4 a.m. in response to concerns raised by anti-drunken driving groups.  The suit is believed to be the first such case filed against the casino.  Chris Fusco, Chicago Sun Times, 1-29-03

Gambler Sues Casino Over Losses.  Evansville, Indiana - David N. Williams, an Evansville accountant, lost his life savings at Casino Aztar's slot machines.  He blames the casino -- and now argues that it should compensate him.  In an unusual suit filed in U.S. District Court in Evansville last year, Williams, 53, accuses Aztar of targeting him as a compulsive gambler after it received information that he was depressed and suicidal.  The case raises a pivotal legal question: What responsibility -- if any -- does a casino have to stop a compulsive gambler from gambling?  Grace Schneider, Courier-Journal, 12-24-02

A much broader issue that is ultimately in the hands of the Supreme Court is that of franchise, or the right to participate in the democratic process.  Many legislators have thought that gaming money makes good taxes, but is too corrupt to be used to finance campaigns.  The extreme of this position is found in Colorado, where licensed casino employees are not allowed to hold public office.  The Supreme Court of the United States is set to rule on the constitutionality of prohibiting casinos from participating in the political process.  Especially in light of the spread of gaming driven by the need for individual states to raise revenues, it is bizarre if nothing else to deny gaming interests the right to participate in the democratic process.

High Court Eyes Casino Donor Ban.  A Louisiana law banning campaign contributions from the casino gambling industry is getting a good look from the U.S. Supreme Court.  The Casino Association of Louisiana wants the nation's top court to take up its challenge of the state law.  Now, the U.S. Supreme Court has mandated that the state Board of Ethics, operating as the state's Supervisory Committee on Campaign Finance Disclosure, file opposition arguments.  …The Louisiana Supreme Court last year upheld the constitutionality of a state law banning riverboat and land-based casino interests from making contributions to political campaigns.  Marsha Shuler, The Baton Rouge Advocate, 1-21-03