Thursday, November 07, 2002
Copyright © Las Vegas Review-Journal

GAMBLING INDUSTRY: Gambling supporters succeed

Initiatives pass in five states

Pro-gaming forces were big winners in Tuesday's elections, proponents and opponents of expanded gambling and Wall Street analysts say.

"It was all about cross-border shopping," Deutsche Banc Securities' Andrew Zarnett said. "When budgets get difficult and governors see residents taking revenues out of state, they want to keep them at home."

Ballot initiatives to preserve or expand gambling were big winners in Iowa and Tennessee, each considered a bellwether state.

The referendum Tennesseans passed will delete a constitutional prohibition on lotteries and lays the groundwork for a state-run lottery. Funds generated from the games would be used for college scholarships and school construction under a plan already laid out by the Legislature.

"Tennessee shows that if you tie gambling to self-interest, you've got a real difficult issue for us to defeat," said gaming foe Tom Grey, executive director of the National Coalition Against Legalized Gambling. "The information was out there. We outnumbered them. We even outspent them for once. But people looked at it and said it's going to send my kids to school, I'm not going to do it, so what harm can it do?

"That leaves us with an issue for church and civic leaders. Do we want to take advantage of diseased people (who are vulnerable to addictive behavior) and the poor?" Grey said. "Given the economic times, the election (in terms of gaming) was a mere trickle. The problem is once gambling is in, it's very hard to get rid of. If people wanted to get rid of it, they couldn't because they're addicted to the tax revenues and if gambling was ended, they'd have to pay more in taxes."

American Gaming Association President Frank Fahrenkopf called the election "a ripple" in terms of the evolution of the gaming industry, but claimed victory in most major contests.

"The most important election was Iowa," he said, where 11 counties by state law have to reauthorize the operation of riverboat casinos every eight years.

Iowa became significant because a battle shaped up between anti-gaming and pro-gaming groups over the continuation of riverboat gambling after eight years of operation.

"Gaming opponents have been making the case for years that social costs clearly outweigh benefits. Over time, voters in Iowa have had a chance to judge for themselves and they overwhelmingly rejected the arguments," said Fahrenkopf, whose organization does not get involved in state or local contests.

In addition to Iowa and Tennessee, pro-gaming initiatives passed in Arizona, Idaho and North Carolina.

Gaming also emerged as an issue in 23 gubernatorial races with pro-gaming candidates nominated in 13 states.

Among bellwether gubernatorial contests, pro-gaming governors were elected in Maryland and Pennsylvania while an anti-gaming incumbent was re-elected in Ohio. Pro-gaming governors were also re-elected in California, Nevada and New York. In Oklahoma, newly elected Gov.-elect Brad Henry is also pro-gaming.

Among all states in which pro-gaming candidates ran for governor, seven won, five lost and one was still too close to call at press time.

"In the next couple of years, a few states will (now be able to) add to their mix of gaming. Movement will most likely come with racinos rather than widespread casino development," Fahrenkopf said. "Some other states may follow Tennessee with lotteries as long as (tax) money is earmarked for education, but a lot depends on the economy."

States collectively faced $50 billion in budget shortfalls at the beginning of the year and still face $17 billion in shortfalls. For fiscal 2003, they collectively face shortfalls of almost $40 billion.

Fundamentally, tax receipts remain short of projections and major services such as Medicaid and public education are experiencing higher enrollment and higher costs.

Bear, Stearns & Co. analyst Jason Ader said: "Given large shortfalls in many state budgets, the potential expansion of gaming to fund various state programs has become an important element of many politicians' platforms."

The election in Pennsylvania may have been the most important. Both candidates endorsed slots at racetracks, riverboats and video poker at bars, but Democrat Ed Rendell was seen as the most supportive of gaming because of his track record on riverboat gaming proposals as mayor of Philadelphia, analysts said.

As goes Pennsylvania, however, so goes neighboring Maryland which cannot afford not to follow suit. And that, in turn, sets up a series of dominos throughout the Northeast and Midwest.

The election should fuel gaming expansion in the Northeast, Ader said, and favor casino operators in the Midwest who are now less likely to face increased competition in the slots in Ohio.

In terms of gaming companies, Ader said the clear winners of the increased probability of gaming expansion will likely be equipment manufactures such as Alliance Gaming Corp., International Game Technology and WMS Industries.

Lottery operators such as IGT, GTECH Corp. and Scientific Games Corp. could benefit if Tennessee approves a state lottery.

And track operators such as Penn National Gaming and Magna Entertainment Corp. should benefit from the potential implementation of slots at tracks in Pennsylvania and Maryland.

The potential losers in the expansion could be Atlantic City operators who likely will face increased competition from slots in Maryland, New York and Pennsylvania, Ader said.

Said Grey: "The difficulty now is that (gaming proponents) will all be back again next year."

Zarnett said: "Looking ahead to 2003, those states which we believe have (the best) prospects for approval for gaming over the next 18 months include: Iowa, Kansas, Kentucky, Maryland, Nebraska, New York and Pennsylvania."

Companies whose competitive positions could be negatively affected the most by competition from new markets include: Argosy Gaming, Aztar Corp., Mohegan Tribal, Pinnacle Entertainment, Resorts International and Wheeling Island Gaming, he said.