Changes ahead for casino operators

May 19, 2009 5:08 PM
Staff & Wire Reports |

In recent weeks, some gaming industry experts and analysts have suggested there are signs the effects of the recession might be softening.

And, while predicting a recovery might be premature, some industry leaders are suggesting the face of casino gaming might be permanently altered, even after the recession ends.

For one, the credit lockdown that has wreaked havoc with casino developers may continue making deep-pocketed lenders who fronted huge projects a thing of the past.

This is one of several key suggestions made by casino industry leaders at the recent Southern Gaming Summit.

Experts also suggested 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."

New casino projects have come to a virtual standstill 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.

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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.

Although some operators will accept 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.

Most industry experts 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 by not developing non-gambling attractions – as those in Vegas – that New Jersey became vulnerable to nearby competition.

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