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Rod Smith

Spread of Gambling Loses Steam

3 March 2006

UNITED STATES – After years of heady campaigns to spread legal, commercial gambling to new jurisdictions in the United States, proliferation has ground to a halt in 2006.

Deutsche Bank analyst Andrew Zarnett called current chances for proliferation in the near term "nominal to nonexistent."

"Within the U.S., there's very little proliferation except for Pennsylvania, where slots at tracks are planned, and Florida, where any impact would be nominal since the market is not destination-based and would not compete for visitors," he said.

Gaming foe Tom Grey, executive director of the National Coalition Against Legalized Gambling, said no statewide referendums to expand gambling are likely in 2006 or in the next two years, although there is limited discussion of a referendum in Kentucky.

"It won't happen in an election year or with all the campaign financing scandals," Grey said. "It would be like Pickett's Charge," referring to the ill-fated Confederate attack on the final day of the Battle of Gettysburg.

A local group has proposed a casino one mile from the Civil War battlefield, but it is given very little chance of being approved, he said.

Politicians want campaign contributions in nonelection years, but do not want the onus of gambling proposals and the organized opposition they bring in election years, Grey said.

"A decade ago, all states were in play, in a feeding frenzy for gaming revenues," Grey said.

As recently as the 2000 and 2002 election cycles, a majority of states had serious proposals pending to legalize casinos, slots at tracks and new riverboats, most of which ultimately proved illusory.

Just three years ago, a dozen states were moving to legalize new forms of gambling or liberalize existing regulations and three states were also considering raising gaming taxes. Six months later, insiders and analysts at the Global Gaming Expo in Las Vegas declared proliferation the name of the game in casino development.

They said gambling's spread is the best hope Nevada-based operators and slot machine manufacturers have to boost revenues and profitability in the next few years.

Two years ago, local fiscal concerns were touching off another battle between the states for gaming revenues, just when it seemed as if the economic recovery might lead the industry into a period of consolidation rather than more proliferation.

Deutsche Bank analyst Marc Falcone said that drive for proliferation was expected to be a big boost for slot makers in Nevada, especially Reno-based International Game Technology, Alliance Gaming Corp. and WMS Industries.

According to Deutsche Bank, jurisdictions seriously considering expanded gambling included Arkansas, California, Delaware, Florida, Illinois, Kansas, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, Pennsylvania, Ohio, Oklahoma, Rhode Island and Washington.

Last year, only eight states still had good prospects for expanding gaming, analysts said.

And today, industry experts say the proliferation of gambling has run its course, with 90 percent of the American people now living within two hours of legitimate casinos.

"Basically, the country is covered," said University of Nevada, Las Vegas professor Bill Thompson, who specializes in gaming studies. "The issues of legalizing (gambling) have been resolved. The political disputes instead are over taxes and regulations."

There is also a drive to increase the size and number of tribal casinos, from which some gaming operators such as Station Casinos are profiting, rather than increasing the number of areas in which commercial casinos are permitted, Thompson said.

Operators instead are focused on established jurisdictions that favor their operations, such as Nevada, New Jersey and the Gulf Coast area, and on the spread of gambling overseas.

"The industry is content with the spread of gambling to date. Now, they just want more facilities (in jurisdictions where gambling already is legal," Thompson said.

Political candidates are shying away from supporting new casinos because the budget morass motivating them in recent years has subsided, gambling is not in the same favor with voters it has been in the past, and gaming foes have been mounting successful campaigns.

Brian Gordon, a partner in Las Vegas-based financial consultants Applied Analysis, said political pressures outweigh the fiscal benefits a state might get.

In addition, the budget crises many states faced only a few years ago have improved.

Grey's group and other antigambling organizations are going on the attack with television and radio advertisements and local organizing efforts to build public sentiment against the gaming industry, Gordon said.

They are also pushing for increased gaming taxes to cover the cost of the social consequences of gambling, to enact prohibitions on markers in Illinois and to promote self-exclusion programs for problem gamblers, Grey said.

"Polls show people think there is enough gambling, operators have not delivered on their promises of economic development and the climate today is much better for fighting (proliferation) than ever before in memory," he said.