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In a Stumbling Economy the Worst-case Scenario for Casino Gambling
 in Kansas is No Casino Gambling in Kansas
By Rick Alm, The Kansas City Star, Mo.McClatchy-Tribune Regional News

Nov. 4, 2008 - In a stumbling economy the worst-case scenario for casino gambling in Kansas is no casino gambling in Kansas.

The notion is not unthinkable. Even before the credit market meltdown in September casino projects were being canceled, postponed or shoved to corporate back burners from Las Vegas to Atlantic City.

The casino industry is shedding customers and revenues and, for the first time, is failing to show its historic resilience to recession.

In Kansas it's time to worry.

Last year Kansas lawmakers' best-case scenario forecast as much as $200 million a year in new state tax revenues to be gleaned from four state-owned destination casinos plus "racino" slot machines at the state's three pari-mutuel race tracks.

You can scratch that scenario.

--Sedgwick County voters rejected slots at Wichita Greyhound Park and the place closed a few months later.

--Owners of the Camptown and Woodlands tracks threw in the towel over the state's mandatory minimum 60 percent bite from gross revenue. The Woodlands in Kansas City, Kan., closed this summer and Crawford County's Camptown -- closed for years anyway -- may never reopen.

So much for racino slots. Pari-mutuel dog and horse racing in Kansas is dead.

The law also created four gambling zones with one "state-owned" destination resort casino in each managed by a casino company that would be granted a virtual monopoly.

--The southeast zone includes the Joplin, Mo., area where Kansas awarded a contract to Penn National Gaming, which promptly turned it down.

Since Penn jumped into the fray in early 2007, Oklahoma's Quapaw Tribe broke ground, built and opened its Downstream Casino literally next door to Penn's site along Interstate 44. Penn couldn't stand the competitive heat and fled the Kansas casino kitchen.

The state has since reopened the bidding in the mostly rural southeast zone, which is saturated with other nearby, albeit smaller tribal casinos in northeast Oklahoma.

Don't expect many bidders, and maybe none. Penn was the lone bidder the first time around, and the economy has only worsened. The swooning U.S. banking industry isn't likely to jump at the opportunity to finance a casino in the middle of nowhere that faces formidable competition in a crowded market.

Worst case: No casino for the foreseeable future.

--Industry giant Harrah's Entertainment Inc. and its partners won the south-central zone bid that includes Wichita.

But a couple of pending lawsuits threaten the project while the private equity interests that own Harrah's are laying off workers and pinching pennies. Even before the current downturn the gambling industry widely anticipated a garage sale of underperforming Harrah's assets.

Could the Kansas project also be jettisoned in a bottom-line squeeze? The Wichita market is not exactly a gambling cash cow waiting to be milked. It is hemmed in by a half-dozen Oklahoma tribal casinos to the south and Kansas' five tribal casinos and Kansas City's four riverboats to the east. To the north and west, well, wheat fields and cattle don't gamble.

Worst case: Harrah's walks away.

--Farther west is the southwest zone and the Wild West town of Dodge City.

The proposed Boot Hill Casino there will be a modest operation with 875 slots, 20 table games, a small hotel and, to be sure, a great steakhouse in cattle country.

But Boot Hill is heavily dependent on financing from a consortium of national and local Kansas banks. Will those bankers get cold feet as global credit markets chill?

Worst case: Uncertain. The project could stumble and stall on financing issues.

--The casino partners at Kansas Speedway in Kansas City, Kan., were blindsided recently by a Unified Government proposal for a citywide smoking ban that would include the casino floor.

There's too much money at stake for the proposed Hard Rock Hotel & Casino to be abandoned. But that's exactly what speedway officials hinted at in arguing that a smoking ban would take a huge bite, perhaps as much as 20 percent, from the bottom line.

The threat to walk away may be all bluster aimed at pressuring the Unified Government to back off the ban. But the revenue threat is real.

Couple that double-digit revenue hit with tight credit, an increasingly frugal tourism market amid high fuel and travel costs, and a shrinking pool of casino gamblers amid worldwide recession, and the Hard Rock suddenly is between a rock and a very hard place.

Worst case: Uncertain. Even if the economic sky doesn't fall the project could be saddled with a smoking ban and downsize.

Worst case for the state's $200 million payday: $0.

To reach Rick Alm, call 816-234-4785 or send e-mail to ralm@kcstar.com.

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To see more of The Kansas City Star, or to subscribe to the newspaper, go to http://www.kansascity.com.

Copyright (c) 2008, The Kansas City Star, Mo.

Distributed by McClatchy-Tribune Information Services. For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA. NASDAQ-NMS:PENN,



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