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AMA VP: Gaming Industry Has Mixed Fortunes

15 December 2005

by Jennifer Robinson

LAS VEGAS --The gaming industry has experienced mixed fortunes this year.

Walton Chalmers, vice president of government affairs for the American Gaming Industry, called 2005 a year of "triumph and tragedy," with big jumps in gaming's overall financial performance and natural disasters that devastated casinos in the Southeast.

Speaking to attendees at the Governor's Conference on Tourism earlier this week in Las Vegas, Chalmers cited numerous industry positives: The nation's 445 commercial casinos posted a combined $29 billion in gross revenue in 2004, an increase of about 7 percent over 2003. The industry now employs about 350,000 workers and pays wages totaling more than $12 billion. In addition, American casinos paid nearly $5 billion in gaming taxes last year.

Gaming also took steps in 2005 toward expanding.

Earlier this year, residents of Broward County, Fla., voted to allow slot machines at four pari-mutuels there; the county's racetracks will add 6,000 slot machines by next summer, Chalmers said. New developments such as MGM Mirage's Project CityCenter and expansions of existing properties in Las Vegas and Atlantic City also underline the industry's health, he said.

What's more, the diversification in attractions that Las Vegas casinos mastered in the last decade has "taken the industry by storm," Chalmers said, as properties nationwide add spas, concerts and upscale restaurants.

"Casinos are attracting visitors for more than gambling," Chalmers said, noting that more than half of MGM Mirage's revenue comes from nongaming activities.

Gaming analysts agreed that the industry enjoyed a strong start to 2005.

Rod Petrik, managing director of Stiefel, Nicolaus & Co. in Baltimore, called 2005 a "net-positive year," with pro-gaming legislation introduced in states such as New York and Pennsylvania and continued expansion in states that already have gaming operations.

But 2005 also brought tragedy -- what Chalmers called the "twin disasters" of hurricanes Katrina and Rita. The storms destroyed 13 casinos along the Gulf Coast and displaced 17,000 industry workers. Some of the industry's biggest players, including MGM Mirage, Harrah's Entertainment and Boyd Gaming Corp., suffered major losses in the Gulf region.

Steven Kroll Jr., an analyst with Monness, Crespi, Hardt & Co. in New York, said the industry had a "very strong year" until the storms "really threw a loop" into operators' third- and fourth-quarter earnings.

In addition to suppressing revenue and creating Herculean reconstruction tasks for casino operators, the aftermath of the hurricanes also illustrated how controversial gaming remains in some quarters.

Gambling foes assembled a coalition of House conservatives who excluded casinos from earning corporate tax credits to rebuild in the Gulf Opportunity Zone. The measure frustrated industry members, but the Senate version of the bill includes the gaming industry, and Chalmers said association officials expect the final edition will give operators credits for reconstruction.

Kroll agreed that legislators will likely extend tax credits to the industry.

"Considering that Mississippi and Louisiana garner a ton of their state revenues from gaming, I think regulators would probably want to work with the gaming operators (to rebuild) as much as possible," Kroll said.

Chalmers said the American Gaming Association is also watching U.S. legislation related to Web gambling. A bill that Rep. Jim Leach, R-Iowa, recently introduced in the House, for example, would prohibit use of credit cards to gamble online but has exemptions for Indian casinos and interstate pari-mutuel betting.

Chalmers said the association is also monitoring activities on Indian casinos and rules for withholding taxes from poker winnings.

In addition, the association is eyeing the increasing popularity of smoking bans, as municipalities around the nation prohibit smoking in public areas such as bars and restaurants. Chalmers said the trade group's officials are working with members of the American Society of Heating, Refrigerating and Air-Conditioning Engineers to develop new design guidelines for indoor air quality.

"We support science-based solutions to indoor air quality," Chalmers said, noting that the air inside Wynn Las Vegas, where the session was held, is probably better than the air outside even though Wynn isn't smoke-free.

Chalmers said the prevention of problem gambling also remains near the top of the association's agenda. Through its sale of orange "Keep It Fun" bracelets, the organization has raised $120,000 for the National Center for Responsible Gaming. The association is also running public-service announcements in hotels and on cable television to raise responsible-gaming awareness.

Finally, the association will boost efforts to increase diversity in the industry. Officials have met with members of the Congressional Black Caucus to discuss diversity, and the association will launch an e-mail newsletter next year revolving around the topic. Plus, PricewaterhouseCoopers is conducting a study for the association on diversity in purchasing and contracting; the results, scheduled for release in 2006, will serve as a "benchmark for future diversity activities," Chalmers said.

Chalmers said he was optimistic about gaming's prospects in coming years. He reported "strikingly positive" numbers from association surveys of politicians and civic leaders in jurisdictions that recently added gaming. More than 90 percent of leaders believe casinos have met or exceeded their expectations for economic growth, and 73 percent of them say gaming revenue has allowed them to build infrastructure and other projects that otherwise wouldn't have materialized. More than 80 percent of survey respondents said casinos are good corporate citizens. Such feedback bodes well for the future expansion of gaming, Chalmers said.

William Schmitt, a gaming analyst with CIBC World Markets in New York, said industry members have other reasons to expect a bright future. The sector's core customer base -- affluent consumers between the ages of 45 and 65 -- is growing faster than any other population segment in the country.

"That's a fairly strong demographic trend that benefits not only the gaming industry but other leisure industries as well," Schmitt said.

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