Indiana tax hike includes dockside gambling option

By Liz Benston (contact)

Monday, June 24, 2002 | 10:54 a.m.

Indiana legislators over the weekend approved an increase in riverboat gaming taxes that allows casinos to choose between two methods of operation.

Under the first alternative, operators may not dock their boats -- an expensive method of operation. Their tax rate will increase from 20 percent to 22.5 percent.

Under the second alternative, operators may permanently dock, but could be taxed as high as 35 percent. Casinos winning more than $150 million per year from gamblers would be taxed at that rate, with a graduated tax of 15 percent to 30 percent for smaller casinos.

An admissions fee of $3 per customer remains the same for both options.

Some casino industry concessions were knocked out of the final bill, including provisions that would have allowed operators to hold two licenses, authorized slot machines at racetracks and authorized a casino in Orange County.

Still, some Wall Street analysts concluded that the move will prove either neutral or somewhat positive for the state's casinos.

For casinos that choose the dockside option, some may be able to generate an increase in revenues of more than 10 percent, which could offset the tax increase, Lehman Brothers gaming analyst Joyce Minor said.

Gaming revenues increased 37 percent in the 12 months since the 1999 legalization of dockside gambling in Illinois. Yet revenues increased only modestly in Louisiana following similar approvals there, Minor said.

"We believe that in Indiana the result is likely to fall somewhere in the middle."

Given competitive pressures and customer demand, all casinos will likely elect to operate dockside, said J. Cogan, a gaming analyst with Banc of America Securities. If that happens, smaller operators such as Phoenix-based Aztar Corp. and Pinnacle Entertainment Inc. of Glendale, Calif., could benefit more than larger competitors, he said.

The move completes the cycle for potential tax increases in key Midwest markets this year, analysts said. Gaming stocks have slid by about 8 percent since the end of May, just before news of a significant gaming tax hike in Illinois.

Indiana's 10 riverboat casinos generated $1.8 billion in gross gambling revenue in 2001, in line with other key markets such as Illinois and Louisiana and higher than other states such as Iowa, Michigan and Missouri, according to the American Gaming Association. Indiana reaped $492.6 million in taxes on gambling revenues last year, which was spent on local government and economic development initiatives.

Las Vegas-based companies Harrah's Entertainment Inc., Park Place Entertainment Corp., Mandalay Resort Group and Boyd Gaming Corp. run casinos in Indiana. Other operators include Aztar, Pinnacle Entertainment and Illinois-based Argosy Gaming Co., which owns Indiana's largest riverboat in Lawrenceburg.

The Lawrenceburg casino generated $356 million in revenues over the past year and paid about $94 million in gambling and admission taxes, Merrill Lynch gaming analyst David Anders said.