Northeast Struck by Casino Fever

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A bus sits parked at the Foxwoods Resort Casino in Mashantucket, Connecticut, on Sunday, Jan. 13, 2008. Bondholders in Connecticut's Mohegan Sun and Foxwoods Resort Casino, the nation's two biggest casinos, may be the losers and shareholders in Las Vegas Sands Corp. the winners if Marilyn Souza has a choice. Photographer: Douglas Healey/Bloomberg News

Casino dominoes are toppling in the Northeast as states scramble to obtain or preserve gambling revenue, often packaging the initiatives as job creation in a shaky economy.

Massachusetts, many of whose residents have flocked across state lines to gamble, approved casino games two months ago, prompting countermoves in Rhode Island. New York Gov. Andrew Cuomo in last week's state of the state address called for a constitutional amendment to allow non-Indian gaming.

The Internet also looms, notably after last month's U.S. Department of Justice ruling allowing the expansion of online gambling. New Jersey and Connecticut, among others, have their eyes on Internet wagering.

"The Northeast gaming market has become a lot more competitive," said Standard & Poor's analyst Melissa Long. "The amount of dollars available for gaming in the region is finite, however, and what we see are states trying to get their share of the pie."

In Massachusetts, Gov. Deval Patrick on Nov. 22 signed a law that authorizes up to three licenses for resort-style casinos — one for each of three regions, including the southeast, bordering Rhode Island. That state will hold a November referendum on adding table games to its Twin River Casino parlor in Lincoln. Nearly half of its clientele is said to come from Massachusetts. Some Rhode Island lawmakers also want a casino for the site of a former Naval air base at Quonset Point in North Kingstown.

"What's happening in Rhode Island is seen as a defensive play against Massachusetts, adding table games to offset competition against resort-style casinos," Long said.

Gaming operators and other marquee private business and sporting interests have their eyes on Massachusetts. "You have this dynamic at work, combining private interests with an enormous amount to gain with the promise of jobs and economic development, which is popular in this kind of economic climate," said Heywood Sanders, a public administration professor at the University of Texas at San Antonio.

One gaming lawyer, speaking anonymously, said job creation is a major driver. "The powers that be were convinced that Massachusetts had to jump in," he said. "They looked at the license plates at Mohegan and Foxwoods [both in eastern Connecticut] and saw they were all Massachusetts plates. That was the tipping point."

But pushback surfaced in Foxborough, Mass., where the Board of Selectmen voted 3 to 2 last week — though the vote was non-binding — against allowing casino gambling near Gillette Stadium. Las Vegas casino mogul Steve Wynn's Wynn Resorts Ltd. and Robert Kraft, owner of the National Football League's New England Patriots, are pushing for a townwide vote to approve their joint venture.

Caesars Entertainment Corp. has allied with Suffolk Downs raceway in East Boston — within Boston's city limits — to bid for the license in the eastern region, while Penn National Gaming Inc. and Las Vegas Sands Corp., while now unaligned, may join the fray.

Elsewhere in the state, Ameristar Casinos Inc., maneuvering for a western region license, announced an agreement last fall to buy land in Springfield for $16 million, while Seminole Hard Rock International LLC and Paper City Development have an alliance and are eyeballing Holyoke, north of Springfield. The Mohegan Tribal Gaming Authority, which operates Mohegan Sun in Uncasville, Conn., has its sights on Palmer, Mass.

Moody's Investors Service said the addition of a casino in Massachusetts would be a long-term credit positive. It rates Ameristar B1, while Standard & Poor's assign BB-minus, both with a stable outlook.

"Massachusetts is fertile ground for casino gambling. Its lottery is one of the best-run in the country. And tons of numbers running has existed over the years in places like South Boston," said the gaming lawyer. Casinos will mark the first major expansion of gambling in the state since the legislature created the lottery in 1971.

In Massachusetts, a new commission will determine the minimum licensing fee and capital investment for each region, although the legislature has set a floor of $85 million for the license fee and a $500 million capital investment for the resort casinos. They will pay a 25% tax on gross gaming revenues, compared with 33% in Ohio, whose law otherwise loosely parallels the Bay State's. But the closest direct resort-style competitors to casinos in Massachusetts — Foxwoods and Mohegan Sun — pay a 25% exclusivity fee to the state on slot revenues only.

The bill also authorizes a slot-machines- only casino with minimal amenities. The minimum licensing fee is set at $25 million. S&P believes the impact on operators in Rhode Island and Connecticut, especially Mohegan and Twin River, is several years away. "We don't expect any of the resort casinos to open before 2015, at the earliest," the rating agency said.

The need for voter approval in host communities could also delay the process in Massachusetts. Secretary of State William Galvin, who anticipates expensive public-relations fights in referendums, proposed reporting all related spending to the Office of Campaign and Political Finance, which administers campaign finance law.

Cuomo said New York could generate $1 billion of economic activity through legalizing casino gaming. He has also proposed a convention center for New York City's Queens borough at the site of Aqueduct Racetrack, which last fall added slot machines.

Genting Malaysia Bhd has agreed to fund the Queens project for at least $4 billion. On Friday, the New York Post, citing sources, reported that in exchange for getting the project, Genting is demanding that the state award it exclusive rights to casino operations throughout the city.

Cuomo's father, Mario, had strongly opposed casino gambling while serving as the state's governor from 1983 to 1994. But today, ethical and religious taboos provide less of an obstacle.

"Look, in the '50s, '60s and '70s, there were very strong moral and religious convictions against gambling. Now 80% of the population doesn't care. They just want economic traction and jobs," said the gaming lawyer. Some advocates, though, argue that gambling amounts to a de-facto regressive tax against poor people.

Atlantic City, N.J., which approved casinos in 1976, could take a further hit should a Queens facility materialize. "This would keep a lot of New Yorkers from going to Atlantic City," said Mitchell Moss, director of the Rudin Center at New York University.

Pennsylvania has already struck a blow. Atlantic City, according to the gaming lawyer, had a $6 billion market in 2006. It since has fallen to a projected $2.5 billion to $2.8 billion by 2015. "That money won't come back," he said.

Gov. Chris Christie said last week he would support Internet gambling if it's constitutional and focused on Atlantic City.

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