New Ohio governor’s tax plans irk gaming giants

Ohio's path toward becoming gaming's next success story has been blocked by its new governor, who has chosen to pick a fight with two of the industry's largest companies -- including one that spent millions of dollars to convince the Buckeye State that adding casinos was in its best interest.

You can see where this is headed.

Plans by Gov. John Kasich to get more money out of Ohio's potential gaming operators have stalled two of the state's four casino projects, including a Caesars Entertainment Corp. development in Cincinnati.

Kasich's proposals could transform Ohio's gaming potential into a legal skirmish.

"We're very clear with the governor," Penn National Gaming President Tim Wilmott said. "There will be no tax increases or there will certainly be consequences that will hurt the state of Ohio."

The company funded the 2009 campaign in support of Issue 3, which Ohio voters approved with 53 percent of the vote. Issue 3 amended the Ohio constitution to authorize casinos in Columbus, Cleveland, Cincinnati and Toledo, setting a 33 percent tax rate on gaming revenues -- fourth highest in the country -- and outlining how the funds are to be distributed.

Kasich, a Republican, opposed Issue 3. He was elected governor last year, narrowly defeating incumbent Democrat Ted Strickland, the referendum's strongest backer.

Wilmott said it's clear where Ohio's voters stand.

"Issue 3 passed statewide by 200,000 votes," Wilmott said. "It passed with more votes than he got elected by."

After the casino measure was approved, gaming moved forward.

Caesars Entertainment signed joint-venture deals with a company controlled by businessman Dan Gilbert, owner of the NBA's Cleveland Cavaliers, to build Horseshoe-branded casinos in Cincinnati and Cleveland. Penn National moved ahead with $700 million worth of casino projects under the company's Hollywood brand in Columbus and Toledo.

Then Kasich was elected.

He decided to fill Ohio's budget deficit with more money from gaming. One of his proposals, backed by House Republicans, would effectively tax every dollar wagered, on top of the 33 percent gaming tax.

Kasich's proposal has been called unconstitutional. Every state where gaming is legal taxes gross gaming revenues, the money casinos keep after paying off winning wagers.

This concept looked to be dead last week, but was revived by the chairman of Ohio's House Finance Committee. It has gaming leaders seething.

"The voters of Ohio gave him a mandate, and now he wants to retrade the deal," Wilmott said. "We're telling him, and Caesars is telling him, no, this is the deal. This is the level of investment we will make."

Penn National began construction last year on the Hollywood Toledo. The project is expected to open in early 2012. The Hollywood Columbus had a groundbreaking last month. Caesars said in late April that it was delaying the opening of the $400 million Horseshoe Cincinnati by a year until 2013 while the tax matter is resolved.

Wall Street is nervous about a potential gaming gusher getting prematurely capped.

"Columbus is perhaps the most compelling new project in North America," said Credit Suisse gaming analyst Joel Simkins, adding that the casino's actual cash flow could double initial projections.

Wilmott said Kasich is jeopardizing 34,000 construction and full-time jobs.

"The governor has said he knows nothing about the gaming industry," said Wilmott, who was in Las Vegas last week for a regulatory hearing on Penn's purchase of M Resort.

Kasich recently hired gaming consultant Spectrum Gaming and Moelis & Co., a Los Angeles investment bank, to recommend potential regulations, licensing fees and a tax structure. An initial report is expected by the end of the month.

"I don't want any more hodgepodge of gaming," Kasich said. "It doesn't serve the people of this state."

Penn National, which also operates two racetracks in Ohio and is waiting for the state to act on previously approved plans to allow the facilities to open video lottery terminal casinos, is getting the legal team geared up for a fight.

Howard Stutz's Inside Gaming column appears Sundays. He can be reached at hstutz@reviewjournal.com or 702-477-3871. He blogs at lvrj.com/blogs/stutz. Follow him on Twitter @howardstutz.