Wednesday, September 29, 2004
Copyright © Las Vegas Review-Journal

GAMBLING BEYOND NEVADA: Gaming expansion likely to slow

Observers predict defeat for initiatives in several states

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With Election Day less than five weeks away, several ballot initiatives that once promised major expansion for the gaming industry are suddenly flaming out, industry experts said Tuesday.

Major initiatives in California, Florida, Nebraska and Oklahoma appear headed to defeat with only a plan for expansion in Washington state likely to pass. An anti-gaming measure in Michigan is also considered a shoo-in.

Across the board, gaming companies are simply not lobbying for ballot measures or expanded gaming they way they did in the 1980s and 1990s.

And in some states, such as California, voters seem to have stopped viewing expanded gaming as a solution to continuing budget crises, insiders said.

"If there are opportunities like Pennsylvania (where the Legislature is legalizing slots at tracks), public companies will fight for them, but the opportunities are drying up," Susquehanna Financial Group gaming analyst Eric Hausler said.

Instead, major gaming companies are turning to mergers and overseas markets for growth, he said.

"They're going to consolidate up the U.S. market and then look for green field opportunities overseas where you can put a big shovel in the ground and politicians and the public will support it," Hausler said.

Executives at MGM Mirage, which is buying Mandalay Resort Group for $7.9 billion, and Harrah's Entertainment, which is buying Caesars Entertainment for $9.4 billion, have said they will focus their growth plans on Las Vegas, Atlantic City and the Gulf Coast region rather than newer gambling jurisdictions.

Alan Feldman, senior vice president for public affairs at MGM Mirage who oversees the company's lobbying efforts, said the gaming industry has come to realize that expansion for its own sake is not necessarily desirable.

"It depends on what the motivation is. I'm not sure Pennsylvania with a 50 percent tax rate would be seen as a great opportunity (by any gaming company)," he said.

Unlike the early days of gaming proliferation, gaming companies are doing refined analyses of what is going on in each jurisdiction and where expansion can add to their bottom lines, Feldman said.

"When gaming is brought in purely to raise tax dollars, that doesn't play well (with voters or the companies). Think of the Illinois model," he said.

Illinois this year raised its highest incremental gaming tax rate to 70 percent, leading casinos there to cut back on operations and jobs.

University of Nevada, Las Vegas professor Bill Thompson, a specialist in gaming studies, said that gaming companies have been burned by higher taxes and tougher regulations in other states, and see Las Vegas as the place where the action will be.

"It's not worth it to them to build outside the state," he said. "They have a routine, they're making big bucks and they can make more money by expanding here than by pushing for expansion in other jurisdictions."

Tom Grey, executive director of the National Coalition Against Legalized Gambling, said the other side of the coin is voter resistance. With gambling now nationwide, it's harder to hide addiction problems and community costs, and the six initiatives on the ballot in November have brought out critics, he said.

Deutsche Bank analyst Andrew Zarnett said the four initiatives that appear headed for defeat, all of which are intended to generate tax revenues, were all once considered key referendums for expansion proponents.

The big enchilada is California where two referendums entail alternatives to compacts being negotiated between Gov. Arnold Schwarzenegger and several tribal casinos.

Hausler and Thompson said voters are just fed up and don't want to see slots at tracks or more Indian casinos.

In Nebraska, two proposals for expanded gambling supported by different casino groups are expected to sink under vigorous opposition from Berkshire Hathaway founder and billionaire Warren Buffett.

Florida has a referendum on the ballot to pave the way for slot machines at pre-existing pari-mutuel facilities, but it is being vigorously opposed by the 400,000-member state Humane Society and a strong antigambling coalition.

Michigan's initiative would require a subsequent ballot item before any gambling expansion. Grey said such measures have always passed in other states, and calls the issue "a no-brainer."

In Oklahoma, a measure to allow a state lottery is being vigorously contested by church groups which, for the moment, appear to have the upper hand, Grey said.

Voters seem to buying the argument that allowing expanded gambling tribal gaming in Washington state would help fund improved education since the initiative would simply move a share of the profits into state coffers, Grey said.

Opponents of a casino proposed for Washington, D.C., won a big victory Tuesday when a three-member federal appeals court panel upheld the city election board's decision to remove the casino initiative from November's ballot.