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Bad News Means Good News

Bad News Means Good News

It’s taken a while to materialize, but the old formula seems to still be working.

In past economic downturns, states and jurisdictions looking for new ways to raise tax revenues turned to gaming by either legalization or expansion. That was the case in Pennsylvania and Florida; in Kansas and Illinois; in Maryland and Oklahoma.

And judging by news reports from several gaming and non-gaming states, it appears the industry will soon spread in the United States from sea to shining sea, and into new countries and territories internationally.

Will this expansion bring a revival of the gaming industry overall? The chances are good, because it will grease the advancement skids at the top levels and open up positions all the way down the ladder.

On the manufacturing side, it becomes something of a boon because new properties will need new equipment. And at a time when most casinos plan to tough it out with the equipment they have on hand, this is good news for vendors. And once new equipment gets into the market in greater numbers, existing properties must respond to keep their current customers happy.

States are also beginning to realize that their residents are crossing borders to gamble, leaving their entertainment budget for casinos in other states (and the attendant taxation, as well). So now we see Ohio and Kentucky get serious about considering gaming.

Ohio as recently as last November rejected a gaming referendum. However, it appears Ohio voters were smart voters by understanding that last year’s referendum would only have benefited one company and city, while bringing only marginal tax revenue to the state. A recent proposal inked by Penn National Gaming would spread the benefits around the state and give all gaming companies a chance to benefit.

In Kentucky, the long-fought battle to rescue the state’s floundering but sacrosanct racing industry is coming to a head. Racing officials are finally seeing real problems on the horizon (as if they weren’t there before!). With the Maryland racing industry now propped up via slots, following Pennsylvania, Florida, Delaware, New Jersey, New York and others, there is now a sense of urgency in Lexington to get something accomplished so all segments of the racing industry will benefit.

Massachusetts, which last year saw the legislature dismiss a clever three-casino plan put forth by Governor Deval Patrick, is back at the table after enduring another brutal fiscal year. While it’s not clear if there’s enough willpower to pass it, a closer examination of the budget may force their hands.

In Delaware, the approval of slots in neighboring Maryland and Pennsylvania has hurt the racinos. A new pro-gaming governor will likely approve pseudo-sports betting (lottery-style) and table games, transforming their racinos into something special for the East Coast.

There are problems with this “good news” scenario, however.

First, the ridiculous restrictions put on new gaming industries usually means years of growing pains.

Taxes and fees are the first hurdle. New York established taxes on its racinos of close to 80 percent initially. When no one bit, the state reduced the rate slightly, but it is still the highest in the nation. Other states have similarly onerous tax rates that make taking full advantage of gaming impossible. With such high rates, companies are limited in how much they can invest to get a decent return. High tax rates generally mean lower tax revenues, lower investment and fewer jobs and other benefits, but for some reason, legislators can’t understand this.

Also a problem is the time it takes to get the industry off the ground. In Pennsylvania, it took four years to get the first racino opened. Compare this to New Jersey 30 years ago, which took less than 18 months to open its first casino. The politics involved with setting up an industry, establishing a regulatory scheme and making all the “appropriate” appointments is staggering.

Internationally, we witnessed a major move in Asia last month with the approval of gaming in Taiwan. Again, the major reason behind this legalization was the slumping economy. But Taiwan is following the Singapore model of a reasonable tax rate and high investment: more hotels, meeting and convention space and non-gaming amenities.

If only U.S. jurisdictions could get that message.

Roger Gros is publisher of Global Gaming Business, the industry's leading gaming trade publication, and all its related publications. Prior to joining Global Gaming Business, Gros was president of Inlet Communications, an independent consulting firm. He was vice president of Casino Journal Publishing Group from 1984-2000, and held virtually every editorial title during his tenure. Gros was editor of Casino Journal, the National Gaming Summary and the Atlantic City Insider, and was the founding editor of Casino Player magazine. He was a co-founder of the American Gaming Summit and the Southern Gaming Summit conferences and trade shows. He is the author of the best-selling book, How to Win at Casino Gambling (Carlton Books, 1995), now in its fourth edition. Gros was named "Businessman of the Year" for 1998 by the Greater Atlantic City Chamber of Commerce, and received the Lifetime Achievement Award from the American Gaming Association in 2012.

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