Kansas governor approves gambling; challenges loom

Kansas' governor signed into law legislation to allow up to four state-owned casinos and three racetrack slot machine parlors. But don't expect the casino industry's major operators to make an immediate beeline for the Sunflower state.

Local referendums in the cities and counties where the casinos will operate are still required. Meanwhile, Kansas' attorney general plans to seek a ruling from the state Supreme Court to determine if the law is constitutional.

Gaming analysts thought casino companies that operate casinos in neighboring Kansas City, Mo., might feel threatened by the prospects of competition across the Missouri River.

"While local voter referendums could be the final determinant of gaming expansion in Kansas, we would view that approval as a negative for operators with exposure to Kansas City," Deutsche Bank gaming analyst Bill Lerner said Thursday in a note to investors. Company's such as Las Vegas-based Harrah's Entertainment, Ameristar Casinos, Isle of Capri and Penn National Gaming operate in the Missouri city's market.

Harrah's Entertainment spokesman Alberto Lopez said the company was following the news out of Kansas, but the process is still early.

"We're concentrating more on our operations in Kansas City and St. Louis," Lopez said.

Harrah's manages a 297-room hotel-casino outside Topeka for the Prairie Band Potawatomi Nation, but recently announced it would turn over operation of the casino to the tribe in July.

Ameristar Casinos spokeswoman Karen Lynn said the company has made a commitment to growth initiatives, but does not comment on specific gaming jurisdictions.

Ameristar's Kansas City casino was the company's second-largest revenue producer in 2006 with $257 million in gaming revenues, 26 percent of Ameristar's companywide total.

Other Nevada casino operators, such MGM Mirage, Wynn Resorts Ltd. and Las Vegas Sands Corp., have expansive interests on the Strip and in the booming Chinese gaming enclave of Macau and would consider Kansas too small of an investment, analysts said.

The bill signed by Gov. Kathleen Sebelius calls for up to four state-owned casinos located in Kansas City, Wichita, Dodge City and southwestern Kansas.

An initial allotment of 2,200 slot machines would be divided between three racetracks near Kansas City, Wichita and Dodge City. Eventually the number of slot machines would increase to 2,800.

Gaming analysts said Kansas could have more than 10,000 slot machines once all the casinos and racetrack slot parlors are open. The move by the state is the most significant gaming shift nationally since Pennsylvania passed legislation allowing for 65,000 new slot machines.

The Kansas law calls for casinos to be taxed at 11 percent on their gross gaming revenues along with payment of a $25 million fee to the state. The casinos would pay an additional 5 percent to in taxes to cities, counties and to fund problem gambling initiatives. Gaming operators are required to make a minimum investment of at least $225 million in the casinos.

For racinos, slot revenue would be taxed at 40 percent with a $2,500 fee per slot machine.

Kansas plans to use the proceeds to fund debt reduction, infrastructure improvements, and property tax relief.

Lerner said the governor asked the attorney general to seek a Supreme Court ruling as a way to halt potential lawsuits that could delay gaming from proceeding.

The biggest boost by Kansas' new gaming law could be felt by slot makers, analysts said. The state was not on the radar in the manufacturing firms' future projections.