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Rod Smith

Gambling Expansion Slowing Down

5 December 2003

LAS VEGAS -- The apparent economic recovery now under way may be lining some U.S. consumers' pockets with extra cash, but it's also slowing the spread of gaming around the country.

On this, at least, American Gaming Association President Frank Fahrenkopf and the Rev. Tom Grey, a top gambling opponent and executive director of the National Coalition Against Legalized Gambling, agree: State budget deficits are receding, and with them, so is the tide to expand gaming to raise government revenues.

But that is not necessarily good news for local gaming operators. While it may spell limited competition, Deutsche Bank analyst Marc Falcone said further proliferation would be a positive for Las Vegas.

"Gaming proliferation is a positive for Nevada because it spreads the distribution of gaming and introduces it to more (consumers). It makes it more accessible, it makes it more acceptable and it makes more people accustomed to it," he said.

Nevertheless, there is also a growing consensus that several states are shaping up as major battlefields for gaming fights heading into 2004.

Industry experts believe the outcome of those battles will be a bellwether for how quickly the current cycle of gaming expansion turns downhill.

University of Nevada, Las Vegas professor and casino industry expert Bill Thompson said current developments are reminiscent of the early 1990s, when an economic slump hit states hard and led several to embrace riverboat casinos.

However, when the economy and state tax collections picked up, the pressure to expand gaming dissipated, he said.

The National Conference of State Legislatures, in a state budget update, recently reported states have closed a cumulative $200 billion budget shortfall since fiscal 2001, with the cumulative gap now estimated at $2.8 billion. Only 10 states were reported to still have budget gaps, compared with 31 states a year ago.

"If the economy is coming back, there'll be less of a driving force, but usually when the national economy starts cooking, there is a lag (of several years before expansion slows down)," Fahrenkopf said.

Grey said the major battleground states in 2004 -- Kentucky, Ohio, Rhode Island and possibly Florida -- will have initiatives on their ballots left over from legislative efforts to expand gambling that failed.

"In the early 1990s, opponents used initiatives to protect themselves. Now, proponents will have to wage battles and it costs more for them to buy a whole state than to buy a state legislature," he said.

Analysts have singled out Florida and Ohio as key states politically in the battles over the spread of gambling.

"Even though a proposal to allow slots at racetracks was defeated (in the Florida Legislature) a year ago, the issue is once again in the spotlight," Falcone said. Still, he said expanded gaming faces an uphill battle there because of opposition from Gov. Jeb Bush.

Falcone said there is a major tussle over gambling in Ohio, where a Wednesday deadline passed for reaching a legislative compromise on a proposal to allow slots at the state's seven racetracks.

Recently, however, the racetracks embraced an initiative for a November ballot, which Grey said may prove to be the biggest fight of all in 2004.

Fahrenkopf singled out Maryland, Pennsylvania and possibly Massachusetts as places where border wars are likely to break out with neighboring states that are picking up tax revenues from local residents who are crossing state lines to gamble.

And he predicted continued skirmishes to gradually expand gambling in Arkansas, California, New Jersey and New York.

Fahrenkopf predicted that over the next four or five years, if the steam dissipates for expansion in the United States, Las Vegas operators will expand primarily through management contracts with tribal casinos, the expansion of slots at race tracks and international expansion, especially in Great Britain.