|NEW YORK - Nov. 2, 1998-- The direction of the U.S. gaming
industry is at stake Tuesday as voters head to the polls to act on gaming
ballot initiatives in four key states - and to elect governors in three
other states where gaming is an issue high on the public agenda, according
to a timely report from Bear, Stearns Co. Inc.
"California, Missouri, New Jersey and Arizona voters will decide gaming ballot measures as Maryland, New Hampshire and Massachusetts residents choose governors who'll likely face key gaming issues in office," says New York-based Bear Stearns senior managing director Jason Ader. "Overall, Tuesday's polling has the power to change materially the face of U.S. gaming," he predicts.
California: High Stakes
At stake in California is the fate of Ballot Proposition 5, the Indian Self-Reliance Initiative, which if passed would permit extensive gaming expansion in California - and deprive Nevada gaming operators in the lower- and middle-markets of as much as $425 million in annual revenues, according to Bear Stearns.
"Proposition 5 would replace the existing Pala compact that allows only limited Indian gaming in California," Ader explains. "`Five' would bring more Indian gaming to the state, effectively cutting revenue in the southern Nevada gaming market by approximately 7 percent annually, or $300 million," he adds. "Revenue in the northern Nevada gaming market would be reduced by about 15 percent, or $125 million, initially on an annual basis," Ader says.
Furthermore, California's horse racing and card club industries will likely push for approval of slot machines at the state's race tracks if Prop 5 passes, Bear Stearns predicts. Slots at the readily accessible tracks would only compound trouble for Nevada gaming firms, Bear Stearns says. But Hollywood Park (NYSE: HPK) is one California company that could benefit from such a scenario, according to Ader.
"Under Pala or Prop 5, some companies, including gaming equipment makers such as International Gaming Technologies (NYSE: IGT), Alliance Gaming (NASDAQ: ALLY) and Anchor Gaming (NASDAQ: SLOT) appear likely to benefit, as demand for new gaming equipment can be expected to swell under either arrangement," Ader says.
Issue-oriented campaign ad spending by Prop 5 advocates (tribes) and opponents (Nevada gaming operators) could total $75 million by Election Day, Ader says, with advocates outspending opponents two-to one. The measure is closely contested.
Missouri Votes on "Boats in Moats"
Missouri voters will decide state constitutional Amendment 9 on Tuesday. Passage would allow continuation of games of chance, including slot machines, on boats located on man-made water bodies in the state, Bear Stearns says. Amendment 9 stems from a 1997 state Supreme Court ruling that said boats did not comply with Missouri gaming law.
"If Amendment 9 fails, those affected would be Harrah's Entertainment (NYSE: HET) with four boats, Players International (NASDAQ: PLAY) with two boats, Station Casinos (NYSE: STN) with two boats and Hilton Hotels Corp. (NYSE: HLT) with one boat," Ader explains. "Together, these vessels generate an estimated $450 million in annual revenues for these four companies."
Voting on gaming matters in Missouri is notoriously difficult to predict, the Bear Stearns report says. But even if Amendment 9 fails, legal challenge to the court ruling or physical changes to affected gaming sites would be alternate routes to resolving the boats on moats issue, Ader notes.
Arizona Decides Lottery's Future
Arizonans will decide whether to extend the state's lottery through 2003 by voting on Proposition 304 on Tuesday, according to Bear Stearns. The lottery will otherwise expire on July 1, 1999.
Lottery extension would benefit G-Tech Holdings, the company that currently has the Arizona Lottery operating contract, according to Ader. Conversely, lottery expiration would likely bring new business to Arizona's Class III Native American casinos. That could mean more management fee income for Harrah's Entertainment (NYSE: HET), the only public company operating an Arizona tribal casino, Ader observes.
Maryland Governor To Face Gaming Issues
In Maryland, incumbent Governor Parris Glendenning (D) opposes race track slot machines, while challenger Ellen Sauerbrey (R), has said she'd consider slots to aid the state's racing industry, according to the report. Maryland's racing companies want slots in order to compete with Delaware and West Virginia tracks, where slots are legal.
"If Maryland slots are approved, we estimate the revenue potential of those operations to be $775 million to $900 million annually," Ader says. "Further, we expect tracks at Charles Town, West Virginia and in Delaware would take a revenue hit, and that the potential for revenue growth in Atlantic City -- already hampered by Delaware tracks' popularity would be further limited," he adds.
Massachusetts Chief Executive Has Gaming Impact
The Massachusetts gubernatorial battle between incumbent Paul Cellucci (R) and challenger Scott Harshbarger (D) will help determine the fate of the long-awaited Wampanoag Native American casino -- and potential legalization of slots at Bay State racetracks, according to Bear Stearns. The issues are linked in the Massachusetts legislature.
While Acting Governor Cellucci has not been a vocal gaming proponent, as Lieutenant Governor he aided then-chief executive William Weld's efforts to establish the Wampanoag casino, Ader notes. By contrast, State Attorney General and governor candidate Harshbarger is a gaming opponent.
"A Wampanoag casino like slots at Massachusetts racetracks would negatively impact revenues at Foxwoods and the Mohegan Sun property of Sun International (NYSE: SIH), both located in Connecticut," Ader says. "These casinos draw heavily from the greater Boston area and generate revenues estimated at more than $1.5 billion annually."
New Hampshire Race Has Gaming Implications
The gubernatorial election in New Hampshire is likely to influence the potential legalization of either video lottery terminals or slot machines at tracks in the state, according to Bear Stearns.
Incumbent New Hampshire Governor Jeanne Shaheen (D), running for re-election, has in the past considered gaming devices at race tracks as a funding device for education programs. By contrast, her opponent, Jay Lucas (R), is a gaming opponent.
However the gubernatorial election turns out, it is possible the New
Hampshire state legislature will remain Republican - and antigaming, according
to Ader. "Legislation clearing the way for racetrack slots was defeated
in the Republican legislature both 1995 and 1996," he notes.
New Jersey Acts on Question 2
In New Jersey, voters will act on Public Question 2, a constitutional amendment to grant the state legislature decision-making power over now-illegal off-track betting and telephone wagering. That would eliminate the need public referenda on these matters.
"Ultimate approval of off-track betting and phone wagering would have little impact on Atlantic City's casinos," Ader explains. "The more consequential issue of slot machines at New Jersey race tracks would still require a public referendum in order to move forward," he added, "and there is no such measure on the ballot this Election Day."
Bear, Stearns Co. Inc., a leading worldwide investment banking and securities trading and brokerage firm, is a major subsidiary of The Bear Stearns Companies Inc. (NYSE: BSC). With approximately $18.4 billion in total capital, Bear Stearns serves governments, corporations, institutions and individuals worldwide. The company's business includes corporate finance and mergers and acquisitions, institutional equities and fixed income sales and trading, private client services, derivatives, asset management, correspondent clearing, securities lending and custody services. Headquartered in New York City, the company has approximately 9,400 employees located in domestic offices in Atlanta, Boston, Chicago, Dallas, Los Angeles and San Francisco; and an international presence in Beijing, Buenos Aires, Dublin, Geneva, Hong Kong, London, Lugano, Paris, Sao Paulo, Shanghai, Singapore and Tokyo.
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