Maybe Kansas can, for casinos

Kansas is getting a fresh look from the casino industry.

A gaming tax rate in the 60 percent range, competition from neighboring Missouri and dried-up credit markets caused casino operators to walk away from Kansas opportunities last year. The souring economy and internal financial issues drove away Las Vegas Sands Corp. and Harrah's Entertainment.

This past week, a second round of Kansas casino bids were opened. Operators expressing renewed interest in the market included Penn National Gaming, Foxwoods, Lakes Entertainment, Las Vegas-based Golden Gaming and a development team that includes former Mandalay Resort Group executives Mike Ensign and Peter Simon.

So what changed?

Casino expansion opportunities may not be as plentiful in 2009 and 2010 as once thought. Proposals to legalize casinos in Ohio and Texas are still in the discussion stages. Meanwhile, newly minted gambling opportunities in Maryland, Pennsylvania and Florida didn't attract the investment once expected.

"The dynamics of jurisdictional expansion are not as cut and dry as they were 10 to 15 years ago," Susquehanna Financial Group gaming analyst Robert LaFleur said. "Tax rates are generally too high. We are extremely pessimistic about the emergence of a new wave of casino development."

Despite LaFleur's dour predictions, Kansas still brought in a wave of interest.

The most surprising was from Penn National, which is sitting on $1.5 billion in cash and is openly seeking casino purchases on the Strip. The regional gaming operator wants to build a $500 million Hollywood-themed hotel-casino on 61 acres near Kansas City, Kan., which would compete with Harrah's and Ameristar Casinos properties across the Missouri River in Kansas City, Mo.

Stifel Nicolaus gaming analyst Steven Wieczynski offered two reasons for Penn National's interest in Kansas: a Las Vegas acquisition may be too expensive and the Missouri market has grown stale.

"There are four casinos in and around downtown Kansas City, (Mo.), that generate just over $700 million in adjusted gross revenues per year," Wieczynski said. "A new asset will have a significant advantage over older properties."

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Regional gaming markets continue to outperform Las Vegas and Atlantic City. Janney Montgomery Scott gaming analyst Brian McGill is touting casino operators in those markets, such as Penn National and Ameristar.

"The regional casinos are holding up well versus expectations," McGill said. "They benefit from lower gas prices year-over-year and from a trade down mentality. Consumers eschew destination casinos and drive to regional casinos closer to home."

Howard Stutz's Inside Gaming column appears Sundays. E-mail him at hstutz@reviewjournal.com or call 702-477-3871. He blogs at lvrj.com/blogs/stutz.