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Quick-takes: The month's trends in a glance - June 2003

30 June 2003

The war is relegated to page 2, and it's the third or fourth story on the evening news.  The economy is improving, if slowly.  The feds have lowered interest rates to new 45-year lows, and the Dow Jones Industrial Average is back in the 9,000 range.  Things are looking up.

Or are they?  The news from the casino industry is mixed.  There are new taxes, most states reported a decline in win from the previous year, and significant expansion seems dead for the year.  Even on an annual basis the industry growth has slowed down dramatically, except for Indian gaming, which is driven by expansion in California and is still growing much faster.  Even the industry's 3 percent overall growth doesn't necessarily translate into increased profits.  Besides taxes, the cost of operating and competition is going up faster than revenue.

Revenue at tribal casinos grew nearly 11 percent last year to $14.1 billion - more than triple the growth rate of commercial casinos, according to a study by the Analysis Group Inc.  Revenue from commercial casinos in Nevada; Atlantic City, N.J.; along the Mississippi River and elsewhere rose 3 percent last year to $26.5 billion, according the American Gaming Association.  Doug Abrahms, Gannett News Service, Lansing State Journal, 6-14-03

Intense competition, lower gaming volume, higher operating costs such as taxes and insurance as well as adverse weather contributed to year-over-year decreases in cash flow for casino operators in the first quarter, Standard & Poor's said in an industry report card.  …Even so, the casino sector is expected to be a "relatively stable performer, with many markets experiencing flat to modest revenue growth," analysts said.  Liz Benston, Las Vegas Sun, 6-19-03

There are a couple of interesting surveys out this month.  The survey that received the most publicity reports that most Americans approve of gaming and would like a casino close enough to visit.  The other from Michigan is more revealing; it reports that fewer people actually gambled during the previous year but spent more.  Eight-five percent may approve of gaming, but not all of those people are making a bet.  To be healthy, the industry needs the opposite, more gamblers spending less but continuing to come back year-after-year.

Eighty-five percent of Americans view casino gambling as an acceptable form of entertainment, with adults 21 to 39 showing the highest acceptance…In a statement, Fahrenkopf said the survey findings "quantify our long-held assumption that the more familiar people are with the casino industry, the more likely they are to embrace and support it."  John Stearns, Arizona Republic, 6-24-03

Due partly to a choppy economy, 53 percent of Michiganians haven't bet on horses, visited a casino, played bingo, bought a lottery ticket or engaged in any other sort of gambling within the past year, a new study shows.  That's up from 43 percent last year and is the first time that Michigan's gambling abstention rate has exceeded 50 percent, the study's authors say.  The previous high mark was 49 percent in 1997, when Marketing Resource Group began tracking Michigan residents' gambling habits.  Becky Yerak, The Detroit News, 6-23-03

Dead and dying, the news on expansion is no expansion, except in Pennsylvania, where legislation is still creeping along.  Most state legislatures have gone home without passing any new enabling legislation on gaming.

The push to ask voters to approve casino gambling in Nebraska failed Friday when the Legislature adjourned -- but may be resurrected in January.  Las Vegas Sun, 6-2-03

The 2003 Oklahoma Legislature adjourned Friday as a budget fight fizzled and time ran out on a bill to expand Indian casino-type gambling to horse racetracks.  Ron Jenkins, Associated Press, Las Vegas Sun, 6-2-03

A last-minute push to put racetrack video slot machines on the November ballot fell apart in the Ohio Senate on Tuesday.  … "We just couldn't come to terms on how this money would be broken out," said Sen. Kevin Coughlin, R-Cuyahoga Falls, chairman of the State and Local Government Committee. "So we're pulling the plug."  Spencer Hunt, Cincinnati Enquirer, 6-25-03

One of the marquee bills (gaming) of this (Rhode Island) General Assembly session -- could be dead for the year, a victim of the legislature's annual last-minute rush toward adjournment.  Senate President William Irons said Tuesday that it is "very unlikely" that with barely a week left before lawmakers go home for the year, the Senate could properly consider and pass a major bill that it hasn't even seen yet.  Jim Baron, Providence Journal Register, 6-25-03

Round and round it goes, where it stops no one knows.  We know there are cycles in weather, business cycles, some say karma (what goes around comes around), but who, 10 or 20 years ago, imagined a cycle of casinos?  The cycle is starting afresh in Guam.  The poor island is losing tourists and the economy is struggling.  In a move of undoubted brilliance, they have found consultants who suggest casinos, well regulated of course, to solve the problem.

Guam may see fewer than a million visitor arrivals by the end of the year, tourism officials said at the Guam Visitors Bureau membership meeting yesterday.  …Since January, the island has averaged about 74 percent fewer visitors than it had in the same period during 2002, according to GVB figures. That would be about $69,872,400 less than what was spent on Guam by the 445,788 visitors who arrived in 2002.  Mark-Alexander Pieper, Pacific Daily News, 6-27-03

Gambling on Guam could be a successful and profitable venture as long as the proper mechanisms are in place to regulate it, according to an industry expert.  …A casino gaming initiative missed the ballot in the General Election last November because it missed the 90-day window between the time an initiative is certified and an election is held, as required by Guam law.  Citizens for Economic Diversity, which backed the initiative, stated it hopes to have a special election sometime this year. The initiative currently is scheduled to be on the ballot for the 2004 General Election.  Mark-Alexander Pieper, Pacific Daily News, 6-27-03

On the other side of the Pacific Ocean, the international dateline and the casino cycle is Reno.  Seventy years ago Reno embarked on the great casino adventure.  Now that casinos have spread everywhere, including neighboring California, Reno is going outside for adventure, inviting tourists to play in the great Nevada outdoors.  I wonder if Guam would lend Reno some sand and ocean in exchange for a couple of no longer viable casinos.

The Reno-Sparks Convention & Visitors Authority has an ambitious new $3.5 million marketing plan, which includes the leveraging of millions of dollars in what is effectively free regional advertising from ESPN as part of the upcoming Great Outdoor Games. "It's starting to work," he said about the area's new approach to tourism. "People are finally picking up on 'America's Adventure Place.' We want to stay the course." Thomas J. Walsh, Reno Gazette-Journal, 6-27-03

And in the cycle of things, let us not forget taxes, as if the gaming industry could forget them.  The cycle is simple; when encouraging new casinos and investment, legislatures and governors are "friendly" in their attitude toward casino taxation.  But as the industry grows and especially when the state's need for money increases, the attitude changes.  The casino industry becomes an easy target for increased taxation -- who better to step up to the plate and pay the bills, than a deep pocketed, cash rich industry?

The industry does not always go quietly into the dark night of increased taxes; in Illinois, Nevada and New Jersey in particular, there have been pretty intense wars.  The war is at the flash point in both Nevada and New Jersey.  It is over in Illinois, and the disastrous 70 percent rate passed.  The governors in both Nevada and New Jersey are threatening court action and government shut down.  In New Jersey the war has centered on the industry; both the governor and the industry have taken to the airwaves looking for support and attacking the opposition.  In Nevada, the industry has been less visible in the debate, although Stations withdrew from the local Chamber of Commerce over the Chamber's position on increased taxes.  The legislatures are meeting in special session and there will be increased taxes and fees for the industry in both states.  It is not just in the United States that this tax cycle exists. Club owners in Australia are predicting their own demise because of new and increased taxes.

Unable to agree on a budget for the fiscal year that begins Tuesday, state legislative leaders disbanded tonight, with bitter words and plans to meet on Saturday and Sunday.  Gov. James E. McGreevey called a special session of the Legislature to begin Saturday afternoon, accusing the Republicans of evading their responsibility to offer an alternative budget.  Laura Mansnerus, New York Times, 6-27-03

The defeat of the Democratic proposal means there currently is no tax proposal pending before either legislative chamber.  … Attorney General Brian Sandoval warned legislators Wednesday that they will be in dereliction of their constitutional duties if they do not pass a tax plan that provides enough money to support public schools and balance the state budget by Tuesday.  Sandoval said he is researching what action can be taken against legislators, but said they would not go to jail. Guinn has threatened to move the impasse into the state Supreme Court if legislators do not reach agreement by the end of the current special session.  Ed Vogel, Las Vegas Review-Journal, 6-28-03

Several rugby league clubs would not be able to field teams in the NRL competition if the NSW Government's proposed new gaming tax regime was introduced, NSW Chief Executive David Costello said today.  "I think the NRL is looking at a competition that may have a significantly reduced number of teams," Mr. Costello said.  … "We're very confident of being able to prove this industry can't sustain the rate of tax that (Treasurer) Michael Egan foreshadowed on Tuesday."  The new tax scales, to be phased in over seven years, would eventually result in clubs paying 40 percent tax on gaming profits once they reach $10 million a year, from 2010. The Australian, 6-27-03

There are a couple of unintended and ironic consequences in all of this.  First, in New Jersey, the law requires casinos to have state regulators on site at all times.  If the legislature does not pass the budget, including a tax package, the state may be forced to shut down some departments.  Emergency and essential departments would be safe, but casino regulation is not considered essential.  Atlantic City could end up with closed casinos, resulting in less revenue for casinos, but also less tax revenue for the state.  And though not as dramatic, in Australia the casino clubs sponsor athletic teams; therefore, closing clubs could reduce the number of teams in the National Rugby League. 

Most state government operations would stop if Republicans and Democrats can't reach agreement on Gov. James E. McGreevey's proposed $24.1 billion budget by midnight Monday.  … While State Police, hospital and care workers, and prison guards would be required to report to work… many of the state's 77,000 employees would be told to stay home.  That could include workers for the Casino Control Commission and state Division of Gaming Enforcement.  Thomas Barlas, Press of Atlantic City, 6-27-03

There is some tax news that may be good news for the casino industry and its investors: federal dividend taxes.  The expansion bubble seems to have burst, at least for this year, so it may be better to distribute some of the extra cash instead of holding it for expansion, especially with the dividend tax change.

The centerpiece of President Bush's stimulus package is a reduction in the taxes investors pay on stock dividends, a measure aimed at helping make stocks attractive investments again.  …Currently, investors who hold stocks in taxable accounts must pay income tax on dividends at rates ranging from 10 percent to 38.6 percent. Under the new law, the top rate was dropped to 15 percent through 2008.  Wendy Tanaka, Knight Rider Newspapers, Indianapolis Star, 6-29-03

Casino operators and Wall Street analysts on Thursday predicted dividend payments likely will be the wave of the future for the gaming industry.  The predictions were spurred by International Game Technology's decision Wednesday to institute an annual dividend policy of 30 cents per share.  "We believe this may represent the first of a series of similar moves by other well-capitalized industry players," Deutsche Bank analyst Marc Falcone said.  Gaming operators will be prodded toward dividend payouts by the "virtual expropriation" of earnings in states such as Illinois and the limited prospects for high return growth, a key sign of a maturing industry, he said.  "We believe this (combination of factors) may lead casino operators and suppliers to re-evaluate their dividend policy and distribution of excess free cash flow to shareholders, especially in light of the recent changes in the federal tax code lowering the tax on dividends to 15 percent," Falcone said.  Rod Smith, Gaming Wire, Las Vegas Review-Journal, 6-6-03

Mandalay Resort Group Thursday initiated a policy of paying quarterly cash dividends to shareholders, the second major gaming company to do so following International Game Technology's announcement earlier this month.  "For us, the inauguration of dividends is a response to the historic tax reform," said Mandalay President Glenn Schaeffer.  Las Vegas Review-Journal, 6-13-03

Smoking is not a new issue, but there is more smoke and, therefore, there must be more fire.  Up to this point, there has been little impact on the casino industry from most non-smoking legislation.  There are, of course, no smoking areas in most casino restaurants and some casinos have non-smoking areas.  But there is a change in the air.  In some jurisdictions in Australia, parts of Canada and at racetracks in Delaware, smoking is already banned.  In July it will take hold in Florida at tracks, but there are other states such as Maine and New York with pending anti-smoking legislation that have implications for casinos. In some places, like Halifax, the casinos have given in.  In others such as New York and Maine, special interests, that could include gaming, are seeking special exceptions.  The trend is gaining steam; it is certainly time to watch your state legislature for non-smoking legislation in your state. The one real wild card is Indian gaming.  Indian casinos will be exempt from state legislation, unless it precedes compact negotiation and is included in the compact.

The governor approved a law Tuesday that will ban people from lighting up in bars.  (The) new law will move Maine closer to banning smoking in all indoor public places. Smoking is already prohibited in restaurants in Maine, and the law makes it illegal to smoke in lounges and taverns, pool halls and certain off-track betting sites.  Associated Press, CNN.com, 6-24-03

The law, which takes effect July 1, bans smoking at all Florida workplaces except so-called "stand alone" bars that serve "incidental" snacks, on outdoor patios at restaurants, at membership associations and at designated smoking areas at airports.  Associated Press, Macon Telegraph, 6-23-03

Loto-Québec has announced that, starting in the month of July, its three casinos will be non-smoking establishments. This new policy will place the corporation in the avant-garde, as its gaming houses will be among the very few in North America to offer a totally smoke-free environment. "This initiative is being implemented in response to requests expressed by a large portion of our clientele and employees," explained Mr. Claude Poisson, president of operations for the Société des casinos du Québec and Resto-Casino." CNW Telbec, 6-26-03

The woman who became the poster child for a smoke-free workplace in Nova Scotia says she's delighted the province's two casinos will abide by municipal smoking bans.  …Casinos have decided to abide by the public smoking ban that comes into full effect in Sydney July 7 and a couple of weeks later in Halifax.  Beverly Ware, Halifax Herald, 6-17-03

The fight by bar and restaurant owners against the state law passed in May that prohibits smoking in virtually all indoor public places has been well documented. Bowling proprietors, too, will continue to seek relief from the law that takes effect July 24.  While the bar and restaurant groups generally marshaled their efforts to repeal the law, bowling proprietors are more inclined to seek amendments to the legislation to permit smoking in separate ventilated rooms.  Norm Warner, Buffalo News, 6-28-03

Non-smoking legislation will certainly change the industry.  At this point the cost of that change is purely speculative.  Cost that is not speculative, however, is the cost of competition.  Here is an interesting study on hotel occupancy; the bottom line of the survey is simple.  In a slow economy, lowering rates lowers income but increases occupancy, a lesson that both Atlantic City and Reno paid a great deal more than the cost of this survey to learn.

Rather than boosting occupancy during slow periods, discount rates simply hurt revenue, the study by Cornell University's School of Hotel Administration said. That is especially true as more consumers use the Internet to find travel and reservation sites offering the cheapest rooms whenever they want. Inexpensive rooms do not entice people to travel but only give cheaper accommodations to those who are on the road anyway, the study showed. When hotels offered discounts of up to 20 percent, room occupancy increased only slightly while revenue fell by about the same percentage.  "Our data are clear, the demand boost will not be large, but the loss of revenue will be painful," Cathy Enz, executive director of Cornell's Center for Hospitality Research, said in the report.  Mark Johnson, Associated Press, Hotel Online, 6-22-03

Attitudes toward drinking and driving, like smoking, reflect changing social mores.  As the attitudes change, the law usually changes.  T. G. I. Friday's paid the new price.  In the story quoted below, a patron was served "too" much.  T. G. I. Friday's was not the last business to serve the patron a drink before he killed someone; they did, however, have the deepest pockets.  This is another lesson for casinos.  The rule of deep pockets: The person with the most pays the most, and casinos always have the most.  And in a twist of fate that defines my ability to understand, the restaurant had to agree to remove television coverage of horse races.

The company that owns a T.G..I. Friday's franchise restaurant has agreed to pay $21 million to settle a lawsuit filed by the parents of two teenagers killed by a drunken driver.  The agreement is one of the largest reported settlements or damage awards against establishments that served alcohol to customers who later injured or killed others, according to Mothers Against Drunk Driving.  Associated Press, 06/20/03

(The) company also agreed to remove anyone suspected of illegal gambling and to unsubscribe to a horse racing television network at the restaurant.  The families had sought those stipulations at all of the 30 T.G.I. Friday's restaurants owned by Ohio Valley Bistros, but the settlement applies only to the Louisville-area restaurant.  Another Louisville bar-restaurant that served a beer to Eberenz after he left Friday's restaurant agreed to pay $650,000.  Associated Press, 06/20/03

The world of gaming is becoming increasingly international.  Steve Wynn and Sheldon Adelson made news last year when they won licenses in Macau.  This year the jurisdiction of lust is the UK.  Although the rush to the Channel Isles and the Internet seems to have been a false start, the promise of new regulation in Britain has the major companies drooling and chasing opportunity.  As with every new jurisdiction in the United States the same names continually pop up, and just as in the United States, Harrah's seems to be a good bet to be first in line. Steve Wynn has found a new partner, who, besides putting money into the newly renamed Wynn Vegas is going to be offering management expertise and cross marketing.  And finally in the International scene, Antigua and Barbuda are taking on the United State's Internet gaming stance.

U.S. casino operator Harrah's Entertainment Inc. and Gala Group of Britain are in talks on a joint venture to build several British casinos in an investment worth several hundred million pounds, a source familiar with the matter said on Thursday.  …The venture would build several casinos -- more than five and fewer than a dozen -- that would be bigger, flashier and offer more gambling options than casinos operated by Gala, the source said. Gala has about 30 casinos in Britain.  Reuters, Forbes.com, 6-13-02

Wynn Resorts Ltd. and Societe des Bains de Mer announced on Thursday a strategic business alliance under which the Monte Carlo casino owner will pay $45 million, or $15 a share, for 3 million shares of Wynn Resorts…  The strategic alliance includes an exchange of management expertise and the development of cross-marketing initiatives between Wynn Resorts and SBM.  Reuters, Yahoo Finance, 6-13-03

The tiny Caribbean islands of Antigua and Barbuda took on the United States at the World Trade Organization (WTO) Tuesday, seeking a ruling on Washington's ban on cross-border Internet gambling. The twin-island state, which has developed online gaming services to earn revenue, said that the U.S. action broke WTO rules on open markets for services.  The United States, where gaming is a multibillion-dollar industry, denies that free-trade rules apply to gambling and says the cross border ban protects its citizens from the financial and social risks of betting. Reuters, CNET.com. 6-25-03

Ken Adams

Ken Adams is the principal in the gaming consulting firm, Ken Adams and Associates. Formed in 1990, Ken Adams and Associates specializes in information, analysis, and strategic planning for Indian tribes, casino operations and gaming manufacturers.

Ken spent over 20 years in the hotel-casino industry, prior to founding Ken Adams and Associates. He held the positions of: Director of Casino Operations, Casino Manager, and Keno Department Manager. During this time, he developed numerous innovative marketing and customer development programs and systems for evaluating casino performance. Some of those programs, such as slot clubs and tournaments, have become industry standards.

Ken is also actively involved in gathering and disseminating information that is important to the gaming industry. He is editor and publisher of and the Adams' Report, a monthly newsletter specializing in identifying trends in casino gaming, regulation and manufacturing, the Adams Daily Report, an electronic newsletter that provides electronic links to the key gaming stories of the day, and the Adams Review, a special report distributed by Compton Dancer Consulting that provides editorial commentary on gaming trends.
Ken Adams
Ken Adams is the principal in the gaming consulting firm, Ken Adams and Associates. Formed in 1990, Ken Adams and Associates specializes in information, analysis, and strategic planning for Indian tribes, casino operations and gaming manufacturers.

Ken spent over 20 years in the hotel-casino industry, prior to founding Ken Adams and Associates. He held the positions of: Director of Casino Operations, Casino Manager, and Keno Department Manager. During this time, he developed numerous innovative marketing and customer development programs and systems for evaluating casino performance. Some of those programs, such as slot clubs and tournaments, have become industry standards.

Ken is also actively involved in gathering and disseminating information that is important to the gaming industry. He is editor and publisher of and the Adams' Report, a monthly newsletter specializing in identifying trends in casino gaming, regulation and manufacturing, the Adams Daily Report, an electronic newsletter that provides electronic links to the key gaming stories of the day, and the Adams Review, a special report distributed by Compton Dancer Consulting that provides editorial commentary on gaming trends.