Tuesday, January 28, 2003
Copyright © Las Vegas Review-Journal

Proliferation of gaming fueled by momentum

Tom Grey Gambling foe says gaming proliferation "becoming epidemic."

Big Mo -- momentum -- is driving the proliferation of gaming rapidly across the country.

And while the spread of gambling may give Las Vegas operators a kick in the pants, it will not be a panacea for their problems, analysts said.

At least 15 states already are moving ahead with legislation that could significantly affect gaming. A dozen of those states are moving to legalize new forms of gambling or liberalize existing regulations less than three months after the election of pro-gaming candidates. Three states also are considering raising gaming taxes.

Tom Grey, executive director of the National Coalition Against Legalized Gambling, said gaming proponents will not win the battles for expansion in each state, but the proliferation of gaming is "on the cusp of becoming epidemic in proportion."

Growing budget deficits, coupled with the realization that residents under financial stress are crossing states lines to spend money gambling, are the primary factors behind the proliferation, analysts said.

"States need money to meet their financial obligations, but they see residents shopping for casino entertainment across borders. If they approve more gambling, they can tell taxpayers they won't have to feel the pinch," said Deutsche Bank Securities analyst Andrew Zarnett.

Together, the 12 states that are most likely to consider liberalized gambling this year have a combined population of 117.3 million.

Zarnett said the trend should generate added growth for the Las Vegas gaming industry because it will generate incremental gamblers.

"Proliferation creates new gamblers. After riverboat experiences, racetrack slots or VLTs (video lottery terminals), they always want to go to Las Vegas to see what the mecca of gambling looks like," he said.

Other analysts disagreed that such cross-pollination is likely from other markets or that the proliferation of gaming has ever had a positive effect on Las Vegas.

At Goldman Sachs, analyst Steve Kent said the growth of the gaming industry in Las Vegas will depend on local developments rather than on new gaming opportunities in regional markets.

"What happens in Las Vegas will depend on providing great entertainment, leisure opportunities and gaming product. Having people learn how to play games in other markets has not led to growth in Vegas," he said.

Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm, said: "Las Vegas would really be helped out more by an improvement in the economy and in table play. Those are what are holding back the domestic market," he said.

Even at Deutsche Bank, Zarnett said gaming proliferation will not help all casino operators, depending on where they operate and what added sources of gambling they face.

Still, the main negative effect on Nevada would come from a significant increase in gaming stations in California tribal casinos, he said.

Most California tribes are getting ready to renegotiate state compacts that allow them to operate two casinos each with 2,000 slot machines, and Gov. Gray Davis is asking them to contribute $1.5 billion to help balance the state's $34.6 billion shortfall.

Analysts said it is likely they will agree to a revenue-sharing agreement in return for a larger number of slots.

That likely would hurt casino operators in Reno, which has already felt the brunt of competition from American Indian casinos, but not Las Vegas, Zarnett said.

Florida will be a "driving state," he said, because of its size, as will New York and Pennsylvania.

In Pennsylvania, new Gov. Ed Rendell is pushing for slots at five racetracks to close a $41.8 billion budget gap. That legislation is expected to pass early this year, and should take a toll on Atlantic City.

In New York, Gov. George Pataki is proceeding with installing slot machines at race tracks, which likely will pinch Atlantic City and the Mohegan Sun and Foxwoods in Connecticut.

And in Florida, a bill has been introduced in the state Legislature to allow the operation of slots at pari-mutuel tracks. When installed, they are expected to take a toll on the Mississippi Gulf Coast where the likely victims will be Park Place Entertainment Corp. and MGM Mirage.

Other states where the governor has proposed expanded gaming or legislation already has been introduced, or both, include: Iowa, Kansas, Kentucky, Maine, Maryland, Missouri, Nebraska, Ohio and Rhode Island.

Whether current governors campaigned for expansion or not, gaming foe Grey said the process is inherently undemocratic.

"Especially when you think in terms of a product that is illegal for normal citizens, there are issues we just haven't dealt with. My sense has always been that gambling is driven by money and muscle, not people-pushing. George and Ethel never decide that their hometown needs a good casino and go to their elected reps to argue for one," Grey said.