Elections could spur racino development

September 24, 2002 8:03 AM
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   From Pennsylvania and Maryland to Ohio and Kentucky, the best prospects for casino expansion appear to be at horse tracks.

   For the first time in recent history, both gubernatorial candidates in Pennsylvania are actively supporting gaming projects. Other states are also eyeing gambling ventures as a pain-free way to plug big revenue gaps.

   But full-scale, Las Vegas-style casinos are unlikely, at least in the near term, experts say. Instead, the installation of slots and table games at existing race-tracks appears to be a winning combination.

   “Racinos are hot,’’ says David Anders of Merrill Lynch.

   “There’s a sense that (horse track) customers are losing their souls anyway, so why not put in slots,’’ adds J.P. Morgan gaming analyst Harry Curtis.

   That model has paid off for Penn National Gaming and the state of West Virginia, where the Charles Town racino is booming.

   “We took a track that was losing money and turned it into a winner,’’ says Penn National Chairman and CEO Peter Carlino, noting a 50 percent jump in revenue there.

   Penn National figures to have the inside-track in its home state after this fall’s elections. As an increasingly diversified gaming conglomerate, Penn says it also expects to be in the running for any riverboat franchises that may be awarded in Philadelphia and Pittsburgh.

   Nearby Maryland is also edging toward racino action as Delaware tracks continue to siphon dollars across the border. Likewise, Kentucky and Ohio are eager to stem the hemorrhage of entertainment dollars being lost to Indiana and Illinois riverboats.

   “The sucking sound you hear is states losing revenue to their neighbors,’’ says Steve Rittvo of the Innovation Group.

   Harrah’s and Isle of Capri, along with Penn National, are poised to pitch racinos as a quick fix for the budget blues. “Gaming at racetracks is far more likely than brand new casinos,’’ Curtis predicts.

   Racinos’ track record is certainly encouraging. Earlier this year, Boyd Gaming opened Delta Downs Racetrack and Casino in Louisiana and initial results have exceeded expectations, generating an average of $287 per machine during the first three months.

   Penn, once a traditional horse track operator, has quickly built its cash flow to become the sixth largest gaming company in just four years. With an aggressive series of acquisitions, Penn is one of the few gaming companies to earn a glowing “outperform” ranking from Goldman Sachs’ John Kempf. Its recent purchase of Hollywood Casino Corp. will put its annual revenues past $1 billion.

   Bill Clifford, Penn’s chief financial officer, reports that the live handle at the Charles Town track has grown along with slots. But he cautions that race-tracks and even OTB parlors cannot rival casino slots for revenue production.

   “Our customers at Charles Town come to gamble. There is no confusion about that,’’ he says.

   Whenever and wherever it happens, the evolution of racetracks toward casinos is also good news to supplies. Anders, for one, figures that IGT and Alliance stand to pick up sizable chunks of new business as states open the gate for casino gambling.

   But there could be losers, too. “It may hurt companies like Argosy,’’ which are heavily invested in riverboats, Anders theorized. As one wag put it: “I don’t see too many riverboats popping up in Arizona.’’