U.S. states losing bets on casinos, other gambling

By Karen Pierog and Jim Christie
Thomson Financial News

CHICAGO/SAN FRANCISCO, Jan 15 (Reuters) – A number of U.S. states this decade bet the house on winning a share of legalized gambling’s swelling jackpot.

Industry revenues reached $91 billion in 2006, the latest year for which data is available from the American Gaming Association, thanks to a spree of casino openings beyond Nevada and New Jersey, states that long ago opted to sanction casinos.

But with the U.S. economy in a year-long recession and consumers hoarding cash should hard times continue, casinos may no longer prove cash cows for state coffers — as Kansas can attest.

Kansas enacted a law for the first state-owned casinos in the U.S. in April, 2007, betting that $200 million could be raised annually for debt reduction, capital improvements and property tax relief.

Now nearly two years later, private casino developers such as Penn National Gaming, LLC, and International Speedway Corp have dropped their plans for three out of the four casino sites, citing ailing economic conditions world wide.

The Kansas Lottery, which is overseeing the state’s foray into gambling, has reopened the bidding process but Keith Kocher, the state’s gaming facilities director, doubts Kansas will meet the $200 million estimate.

‘We feel certain we’ll have bidders but probably for more scaled-down projects than before,’ he said.

With the U.S. economy in recession, consumers are reining in spending, including dollars many would have feverishly gambled in better times. States that had bet on the casino boom earlier this decade helping fill their coffers may be in store for a losing streak.

‘This is not a long-term budget balancer,’ said Robert Ward, deputy director of the Rockefeller Institute, which studies state and local government. ‘There is a danger that the big growth period (for casinos) may be coming to an end.’


In Illinois, officials had planned on pulling in $575 million from the sale of the state’s long-dormant 10th casino license to help balance its fiscal 2009 budget, which is at least $2 billion in the red.

But none of the three bidder finalists offered that much and the Illinois Gaming Board last month tapped the lowest bidder, Midwest Gaming & Entertainment LLC. It bid $125 million for a casino in the Chicago suburb of Des Plaines, along with a pledge of $10 million annually over 30 years. None of that money is expected to flow to the state in time to help the current budget, according to a legislative financial commission.

Meanwhile, state tax revenue from the nine existing casinos dropped 32 percent to $46 million in December compared to $67.6 million in December 2007.

California is likewise collecting weaker-than-expected revenue from the state’s Indian casinos.

Gov. Arnold Schwarzenegger early in his administration touted tribal casinos as an important source of new revenue for the state government. Today, however, tribal leaders fear hard times are in store for their casinos.

One tribe recently wrote to Schwarzenegger to inform him it would halt an expansion of its gambling operations, which had held the promise of additional revenue for the state.

‘Tribal casinos and other casinos nationwide are experiencing a lot of issues with relation to the pullback in consumer spending,’ said Jason Dickerson, gambling policy analyst at the California Legislative Analyst’s Office.

‘There seems to be a broad consumer pullback on gambling,’ Dickerson said. ‘There was among some a view that casino gambling was this endless source of revenue that would never stop growing. But what we’ve seen in this recession is that that’s just not true.’

The recession has also deflated expectations in Ohio, where the state introduced Keno in August to raise money for primary and secondary schools.

So far the wagering game has generated $45.6 million in sales, raising about $11.4 million for education. That is below projections it would achieve $292 million in sales its first full year with $73 million earmarked for schools.

‘Those initial projections are high considering what the economy is at this point,’ said Marie Kilbane, a spokeswoman for the Ohio Lottery.

(Reporting by Karen Pierog in Chicago and Jim Christie in San Francisco, Editing by Chizu Nomiyama) Keywords: MUNICIPALS CASINOS/

(karen.pierog@thomsonreuters.com; 1 312 408 8647; Reuters Messaging: karen.pierog.reuters.com@reuters.net)

Copyright Thomson Reuters 2009. All rights reserved.

WHYY is your source for fact-based, in-depth journalism and information. As a nonprofit organization, we rely on financial support from readers like you. Please give today.

Want a digest of WHYY’s programs, events & stories? Sign up for our weekly newsletter.

Together we can reach 100% of WHYY’s fiscal year goal