Don't bet on Texas gambling expansion

4 April 2011

AUSTIN, Texas -- The phrase, "all hat, no cattle" depicts someone who is big on talk but little on substance.

The term also best describes the prospects for gaming expansion in Texas.

Gambling proponents have put forward a multitude of ideas over the past decade. But they have nothing to show for their efforts.

The 2011 Texas Legislature is no different. Last week, lawmakers considered 17 gaming proposals, everything from building eight Las Vegas-style hotel-casinos to adding slot machines at racetracks.

Dozens of gambling proponents spoke in favor of the activity. Opponents told legislators gaming was not the remedy to solve the state's projected $27 billion budget shortfall.

In end, gaming expansion will fail. Again.

"While Texas approved a lottery in 1992, it has not been the panacea for public education as promised," said Union Gaming Group principal Bill Lerner. "Various gaming expansion attempts have been foiled by the reality of this experience."

Visions of a Venetian Houston, MGM Grand Dallas or Caesars San Antonio give analysts and investors dreams of revenue projections surpassing most regional markets. With 25.1 million residents, Texas is the second-most populous state behind California, according to figures from the U.S. Census Bureau.

In addition to the state lottery, Texas has several dog- and horse-racing tracks. One Indian tribe, the Kickapoo Traditional Tribe of Texas, operates two small casinos in remote southern Texas.

State residents itching for a gambling fix can head north to Oklahoma's booming Indian casino market, east to Louisiana's riverboat properties, or to Las Vegas.

While many in the investment community believe Texas casinos are untapped oil gushers, conservative Gov. Rick Perry and influential Republican state Sen. John Carona of Dallas have said candidly gaming that will not pass in this session of the Legislature.

The onerous process to change the Texas constitution -- a two-thirds majority vote in the Legislature plus passage of a statewide voter referendum -- also makes affirmation of a gaming bill unlikely.

Slot machine manufacturers, looking at potential sales revenues from Texas casinos, are understandably disappointed by the lack of action.

Houston-based Landry's Inc., which owns the Golden Nugget casinos in Las Vegas and Laughlin, also sees opportunity in its home state.

Landry's CEO Tilman Fertitta told The Associated Press he could have a Golden Nugget casino open in Galveston "within a matter of weeks" if gaming was approved. Fertitta cited the "billions of dollars" in tax revenue gaming could provide to state and local governments.

Among those not disappointed is Pinnacle Entertainment CEO Anthony Sanfilippo.

The Las Vegas-based regional casino operator has three riverboat properties in Louisiana, including its flagship L'Auberge du Lac Casino Resort in Lake Charles.

Houston, which has 6 million residents, is the primary feeder market for Lake Charles. The cities are roughly 145 miles apart, about a 2½-hour drive along Interstate 10.

Sanfilippo said Pinnacle monitors any state that looks to expand gaming. Texas drew much closer scrutiny. Besides the Houston-Lake Charles connection, eastern Texas provides customers to Pinnacle's Bossier City, La., casino. The Dallas-Fort Worth area is a feeder market to New Orleans.

"Our sense is that the momentum or interest just isn't there," Sanfilippo said.

Even if Texas legalizes gaming, Sanfilippo believes Pinnacle has an established and loyal customer base from the state.

"There is really nothing to say until we understand what form or fashion of gaming is legalized in Texas," Sanfilippo said. "Slots at a racetrack are much different than full casinos."

Macquarie Securities gaming analyst Chad Beynon said Pinnacle is safe from Texas encroachment.

"The risk from increased competition due to legalization of gaming in Texas is still years away," Beynon said. "The recent press around this is no different than what we've heard over the last 10 years."

Related Links
Union Gaming Group Gaming Vendor Information
Landry's Ownership Details
L'Auberge Casino Resort Lake Charles Details
Texan Gambling


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