Kansas wants owner’s role

September 25, 2007 6:51 AM
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The U.S. casino industry has long adhered to the "division of church and state" tenet in that state governments wouldn’t own casinos that they’re charged with regulating.

That will change as Kansas will soon become the first state to own and operate Las Vegas-like casino resorts.

While some states that allow slots at racetracks own the equipment and pay the operators, Kansas’ venture is the first to extend to large-scale casinos, said Brian Lehman, a spokesman for the American Gaming Association, which represents commercial casinos. The new Kansas law also puts slots at two existing racetracks, known as "racinos."

Private contractors, not the state, will manage the daily operations, but "Kansas will own the operation, including the buildings," said Keith Whyte, executive director of the National Council on Problem Gambling. "This is a radically different model for the United States," he said, although he added that government ownership of casinos is not that unusual in other countries, including Canada.

Whyte said Kansas’ move could foreshadow a new and possibly problematic trend: states getting too cozy with the casino operations they are supposed to regulate.

But Kansas Gov. Kathleen Sebelius told Stateline.org that the unique arrangement "ensures not only the highest possible financial return, but also the toughest regulation."

She stressed that casino managers and other workers will not be state employees, but will work for the gambling contractor. "We won’t have ”˜Bartending 101’" for casino workers, she said.

The amount of money a commercial casino can rake in for states varies widely depending on tax rates imposed on the operations.

Nevada casinos churned out $12 billion in total revenue in 2006 and 8 percent of that, or $1 billion, flowed to state and localities in taxes. State and local governments’ take in Mississippi came out to about 12 percent, or $300 million, of a total $2.6 billion in gross gambling revenue last year.

Once casinos are up and running in Kansas, the state will rake in 22 percent of each of the four new casinos’ annual revenue. That’s on top of the upfront, one-time "privilege fees" totaling $80.5 million that the state will pocket from private companies that win the right to manage the day-to-day operations.

The Kansas attorney general in August sought approval from the state’s highest court to make sure the law doesn’t run afoul of the state constitution.

A bigger piece of the pie

Kansas’ action is unprecedented, but other states also are aggressively tapping into one of the easiest ways to bring cash to their coffers: Let gamblers lose on slots, poker and roulette — and carve out a big take for state treasuries.

Commercial casinos, excluding American Indian casinos, brought in $5 billion to state and city governments in 2006. That was on top of states’ cut of $17 billion in lottery profits and more than $1 billion from American Indian casinos.

"It’s a painless source of revenue for states," said Richard McGowan, a professor at Boston College’s Carroll School of Management who has written several books on gambling. "I don’t know where it will stop."

He said one theory for Americans’ growing acceptance of an activity that many still consider a vice is that often states dedicate their share for education, programs for seniors or property-tax relief.

Thirty years ago, gamblers had to go to either Las Vegas or Atlantic City to bet legally. Today, every state except Hawaii and Utah has some form of gambling. Bettors last year could try their luck at 460 commercial casinos in 11 states or more than 370 American Indian casinos in 28 states. Lotteries flourish in all but eight states. And if poker is your game, five states offer a total of more than 700 card rooms.

Gambling is not without controversy, and the question of whether to bring in or expand gambling is still divisive.

Proponents say lotteries, slots and other games of chance are fun entertainment and create jobs and wealth for localities and states.

Foes counter that any gambling begets crime, gambling addictions and other social ills, which can end up costing the states more in the long run.