Even after the recession and credit lockdown that has plummeted the casino industry ends, the business faces a new approach that will feature more competition for wagering dollars and the likelihood that enthusiastic lenders who fronted huge projects are a thing of the past, industry leaders said Wednesday.
During the annual Southern Gaming Summit on the casino strip of the Mississippi Gulf Coast, officials also said that money-pinched state governments might be tempted to raise taxes - a move that will limit new investments by casino companies.
"We've been growing our markets based on building and expansion and hiring new employees," said John Payne, central division president for Las Vegas-based Harrah's Entertainment Inc. "We're going to have to learn how to attract new customers without building because the capital markets aren't going to be there."
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New casino projects have come to a virtual halt since the economic meltdown last year, with companies saying that credit would come at prohibitive double digit interest rates - if it could be obtained at all. At the same time, gambling revenue is down in virtually all U.S. markets from a year ago.
Industry officials said the credit situation has created a double-fold problem: companies cannot even obtain financing to add non-gambling amenities while those features are needed to attract more customers.
Chevis Swetman, chief executive of Mississippi-based Peoples Bank, said casino projects, especially those handled through syndicates of banks, will eventually be financed again - but with less money offered at higher interest rates and much-tighter default terms.
In the meantime, there could be pressure to raise state gambling taxes. Pennsylvania, which has established slot machines, has a 50 percent rate. Maryland, which recently approved slot machines, will get about half of the proceeds.
Although some operators will take those rates, the amount of investment put into a project in those states - and the number of people hired - will be limited, said Virginia McDowell, president and chief operating officer of St. Louis-based Isle of Capri Casinos Inc.
"When we look at a state, we're going to invest where we can get the best return on our investment," she said.
"Gaming is a competitive business," Swetman said. "A state that raises its gaming tax is going to put itself at a competitive disadvantage in attracting investment."
Recently, Mississippi approved a law allowing tax breaks for building tourist-related attractions - including non-gambling amenities by casinos.
"The Legislature and the governor sent the signal that they want the gaming industry to grow and make the Gulf Coast a destination point," said gaming attorney Sam Begley.
But established casino states are likely to face more competition as other states either expand or legalize gambling, officials said.
One of those established states is Louisiana, said Tim Wilmott, president and chief operating officer of Wyomissing, Pa.-based Penn National Gaming Inc. Texas is currently considering a wide-ranging gambling bill, but it has been bogged down in the Legislature.
"Eventually, something is going to happen in Texas," Wilmott said. "Right now, you have too many hands in the pot and a bill that is trying to do too much."
Several officials also said additional expansion in Florida - especially by the Seminole Indian tribe - could chop away drive-in business to the Mississippi Gulf Coast. At the same time, Arkansas casino proposals pose a threat to the established business in Mississippi's Tunica country near Memphis, Tenn.
Most agreed that Las Vegas would regain its luster - Wilmott said Penn National wants to add a casino on the Vegas strip to its contingent - but the future of Atlantic City, which has been cut into by smoking bans, Pennsylvania slots and the prospect of slots in New York, is questionable.
"That market is in a death spiral," Wilmott said. "The next two to three years are going to be awful."
McDowell said there was a lesson from Atlantic City: By not developing non-gambling attractions - as those in Las Vegas - the New Jersey city turned itself into a "convenience gaming market" that has become exceedingly vulnerable to nearby competition.
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