States look to casinos for revenue as economy sags

By Deena Beasley - Analysis

LOS ANGELES (Reuters) - Poker players may be hedging their bets as the economy slides, but U.S. states are still asking voters to loosen restrictions on gambling in order to raise revenue and help stem growing budget deficits.

Voters are set to decide next month on gambling referendums in Colorado, Maryland, Missouri and Ohio that range from ending loss limits to opening new territories for casinos.

"The November ballot initiatives probably have a better chance than ever of passing, simply because of high voter turnout," said Nicholas Danna, equity analyst at Sterne Agee, referring to the U.S. presidential contest.

"Also, in tougher times gaming either gets approved or gets expanded," he said.

Analysts said the biggest beneficiary of this year's initiatives would be Ameristar Casinos Inc (ASCA.O: Quote, Profile, Research, Stock Buzz), which operates two casinos in Missouri and the largest casino in Colorado.

"On the other hand, Penn National Gaming (PENN.O: Quote, Profile, Research, Stock Buzz) has the most to lose if gaming is legalized in Maryland and Ohio, as its two most profitable casinos are across the border from those states," Keybanc analyst Dennis Forst said in a research note.

Shares of casino companies have plummeted, with the Dow Jones U.S. Gambling Index .DJUSCA now trading 75 percent lower than its lifetime high of 895 set a year ago.

Shares of Las Vegas-based casino operators MGM Mirage (MGM.N: Quote, Profile, Research, Stock Buzz) and Las Vegas Sands Corp (LVS.N: Quote, Profile, Research, Stock Buzz) have fallen 86 percent and 91 percent, respectively, over the same period.

Gambling revenue has fallen this year in most U.S. jurisdictions as strapped consumers cut back on spending while housing and stock values drop, labor markets weaken and access to credit remains blocked.

"After the recession of the early 1990s eleven states rolled out gaming and after the early 2000's recession another three states rolled out gaming," Goldman Sachs analyst Steven Kent said in a recent research note.

Nevada has seen one of the steepest drops in gambling revenue this year -- down 6.8 percent through August -- and analysts say a "destination" market like Las Vegas is likely to continue to underperform regional casinos where gamblers do not have to pony up for an airline ticket or hotel.

"For the next two or three years, we expect to see more business shift to regional markets," Danna said.

The city council in Atlantic City, New Jersey voted to delay for a year a full ban on smoking in casinos after operators said the change would be devastating if put in place amid a sinking economy and competition from Pennsylvania and New York. A final vote on the ordinance is expected later this month.

A referendum on Colorado ballots would, if passed in November, increase maximum betting limits in the state's card rooms and casinos from $5 to $100, extend casino hours and allow the addition of games like roulette and craps.

According to the state, implementing the higher bet limit would raise about $300 million in revenue over the first five years for things like Colorado community colleges.  Continued...