Moody’s sees payoff for Las Vegas companies if Massachusetts legalizes casino gaming

Moody's Investors Service said in a report that the potential for casino expansion in Massachusetts could prove to be a winning gamble for a few Las Vegas-based companies, notably Caesars Entertainment Corp. and International Game Technology.

The bond rating company told investors that a long-awaited deal that could lead to full-scale casino gambling in the state could have a ripple effect. If Massachusetts legalizes casinos, it could spur surrounding states, such as Rhode Island, to also consider new gaming legislation.

That might not be a good thing for the market, Moody's gaming analyst Keith Foley warned investors.

"We think this 'keeping up with the Joneses' mindset will only further deluge a market that is already saturated and forced to reach out to farther distances to attract the same number of customers," Foley said in a report.

Last week, Massachusetts Gov. Deval Patrick and leaders of the state's House and Senate reached an agreement to expand gaming in the state. The effort is being touted as a way to create jobs and help close a $1.8 billion budget shortfall.

The move needs to be approved by the Legislature and faces several state-specific legal hurdles, social considerations and political and economic decisions.

Under the deal, Massachusetts would have three stand-alone Las Vegas-style casinos and a fourth slot machine-only casino with as many as 1,250 games.

The casinos' gross gaming revenues would be taxed at
25 percent and the slot machine casino would pay the state 40 percent. An additional 9 percent tax would subsidize the horse racing industry.

Foley told investors that the bill stands a strong chance of passage. But its success doesn't mean more gamblers would be created. Instead, Massachusetts gamblers who flock to casino in neighboring Connecticut might be more likely to remain home. Also, the state of the economy will play a role on consumer spending.

"Unlike the pre-Great Recession years, we do not believe further expansion of gambling will necessarily be accompanied by a material increase in consumer spending on gaming," Foley said. "This could increase pressure on existing operators in the Northeast as well as the U.S. gaming sector as a whole."

Foley said Caesars Entertainment, whose Chairman Gary Loveman lives in the Boston area and has long-standing ties to the state, would be a winner. The company has a deal in place with the owner of the Suffolk Downs racetrack to manage a casino if the duo can land one of the casino licenses.

Foley said the casinos could create the need to add 10,000 slot machines, would help the bottom line of Nevada-based gaming equipment providers, such as IGT.

Las Vegas Sands Corp., whose chairman, Sheldon Adelson, is from the Boston area, is also expected to seek one of the casino licenses.

The three resort casino licenses would be auctioned for at least $85 million and would require developers to invest $500 million in each project. The slot machine casino license would be auctioned for at least $25 million and would require a minimum capital investment of $125 million.

All facilities would be allowed to operate 24 hours a day and would be smoke-free.

"While some companies are hedging their bets and appear well positioned to capitalize on opportunities by entering into contracts to option land and manage casinos, there are no guarantees these companies will ultimately be successful in obtaining licenses," Foley said.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871. Follow @howardstutz on Twitter.