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Best of Liz Benston

Gaming Guru

Liz Benston

U.K. Casinos May Be Limited to Remote, Poor Regions

22 February 2005

UK -- Even if Great Britain allows new casinos to be built under a pending overhaul of the nation's gambling rules, they might not open until at least 2008 and be restricted to remote or downtrodden areas where U.S. casino operators wouldn't want to develop, one consultant told a group of U.S. investors last week.

"There are areas in need of regeneration around the country. The trouble for operators is that these aren't really places you want to go," said Steve Donoughue, chief executive officer of The Gambling Consultancy Ltd. and a former gambling analyst for accounting firm KPMG in the United Kingdom.

Donoughue, who has advised U.K. gambling regulators, spoke to investors during a conference call hosted by investment bank Bear, Stearns & Co., which does business with casino operators hoping to capitalize on the deregulation of gambling in Britain.

Casino operators probably wouldn't be able to apply for licenses until 2006 or 2007 after an independent government panel determines which areas will be appropriate for casino development, he said.

U.S. casino operators including Las Vegas-based MGM Mirage, Las Vegas Sands Corp., Harrah's Entertainment Inc. and Ameristar Casinos Inc. have designs on bringing Las Vegas-style resorts to the United Kingdom.

Some British casino operators have opposed the bill, saying it will favor Las Vegas and other foreign investors with deep pockets and hurt their businesses. Concerns about problem gambling have forced lawmakers to severely limit the number of small, large and resort destination casinos to eight each.

The pullback -- which killed early, optimistic projections of as many as 100 new casinos and 100,000 slot machines -- led Harrah's to pull out of a deal to build smaller casinos with British bingo hall operator Gala Group Ltd. Harrah's is still considering building larger resorts.

Even more important, casino companies face significant hurdles in the approval process because they must be licensed by local officials as well as by national gambling regulators, Donoughue said.

"The impact of the local authorities is going to be huge and we are dealing with the people who know the least about gaming and also probably have the most prejudices against gaming," he said. "It's going to be a hell of an uphill struggle."

In a flurry of deals announced over the past couple of years, U.S. companies have linked up with British partners to develop casino sites across the United Kingdom. They include MGM Mirage's project at the the Millennium Dome attraction in London and Caesars Entertainment Inc.'s deal at Wembley Stadium, also in London. Ameristar has signed an agreement to build a casino with an arena and entertainment center in the city of Southampton and the Sands has discussed several deals with soccer teams for casinos near team stadiums, including the home grounds of the Glasgow Rangers and Sheffield United. MGM Mirage also is looking at developments in Bristol, Sheffield and Newcastle, where the company has an agreement with the Newcastle United soccer team.

London may allow up to two casino sites, led by the Millennium Dome and Wembley Stadium proposals, Donoughue said. But the locations of many other potential casinos proposed by U.S. operators will likely be "dead in the water" because they aren't located in economically depressed cities -- a significant factor in the legalization of new casinos.

"There will be a big chunk of (allowed regions) that only the very bravest will go to," he said.

In addition, Donoughue called the deals with soccer teams "ridiculous" and said British "football fans" -- as well as the families the teams have been trying to lure to games in recent years -- don't necessarily make good casino customers.

"U.K. football fans, for a large majority of places, are escorted to the grounds by riot police, helicopters, police with dogs, police with full riot gear," he said. "It is traditional that the fans go to the pub first and drink as much as they possibly can. It is also traditional that after the match they go and have a punch up with the away fans therefore the police remove the away fans. So home fans will be made to sit in the football grounds sometimes for up to an hour while the away fans are escorted onto trains and coaches and make sure they get out of the city."

"Even in well-behaved clubs you still have the issue that in order to get rid of the hooliganism they've gone for families," he said. "Families are not going to go to the casino and drunken hooligans are not going to be allowed in the casino."

Soccer stadiums are filled about twenty times a year but not regularly enough to support a year-round resort operation, Donoughue said. Many of the proposals at stadiums probably won't get passed in any case because they're not economically depressed, he said.

Skyrocketing salaries for soccer stars are hurting team profit and leading them to seek all kinds of deals, he said.

"You could have gone in there and offered them a magic bean shop and they would have bitten your arm off."