Las Vegas Sun

March 28, 2024

Harrah’s expands U.K. growth plan

Harrah's Entertainment Inc. said Tuesday it wants to build two or three destination casino resorts in the United Kingdom in addition to several smaller regional casinos it had previously committed to build.

Chief Executive Gary Loveman said the expansion into the United Kingdom will consume most of the company's investment dollars over the next three to five years.

Harrah's announced a joint venture in June to build from eight to 10 smaller, regional casinos with U.K. bingo operator Gala Group Ltd.

On Tuesday, the company said the Las Vegas-style destination resorts would be built independently or with a regional partner.

The company has declined to reveal where it is considering the casinos, though some analysts have noted potential locations in tourist hubs such as London, Blackpool and Glasgow.

"This is a country of avid gamblers, yet a very small percentage of them visit casinos," Loveman said during a conference call on U.K. casino opportunities.

Harrah's has singled out the United Kingdom for several reasons, including the possibility of reasonable tax rates and wide-open opportunities for casinos, he said.

The company could invest up to 1.2 billion pounds (about $2 billion) in the country over the next several years on destination resorts and regional casinos, assuming a 50 percent investment in the smaller casinos with Gala, Loveman said.

Threats of higher casino taxes and few immediate openings for casinos in the United States are leading many operators to look for opportunities in the United Kingdom -- which includes England, Scotland and Northern Ireland.

MGM MIRAGE, Isle of Capri Casinos Inc. and Bahamas-based Kerzner International Ltd. -- none of which participated in the conference call -- are among the companies that have entered or are exploring the U.K. market. Also expressing interest in Britain have been Park Place Entertainment Corp., Mandalay Resort Group and developers Steve Wynn and Sheldon Adelson.

The U.K. government is working on draft regulations that would significantly loosen the country's gambling rules by opening the door to more casinos as well as high-tech slot machines and mass-marketing pitches familiar to U.S. gamblers.

That legislation will likely allow the first new casinos to open some time before the end of 2005 and may enable gaming companies to develop Las Vegas-style innovations that will leapfrog many domestic gambling markets, experts said during a conference call sponsored by investment banking firm and gaming dealmaker CIBC World Markets.

"We expect the U.K. to not only be a leader but a catalyst to Europe as well as traditional markets in the U.S.," Robert Miodunski, chief executive officer of slot maker Alliance Gaming Corp., said during the call.

Gaming companies are traditionally confined by state regulations, creating an industry that is more "lagging edge" than "leading edge," said Miodunski, whose company does about 25 percent of its business volume outside the United States.

The government is expected to complete a final draft of the regulations before the end of the year, which will then be picked over by a committee of Parliament before introduction into Britain's legislative branch next year, Julian Harris, a London attorney and gaming law expert, told investors during the call. The bill is expected to pass by January 2005 but would also require follow-up legislation and regulations to allow casinos to move forward, Harris said.

In an industry report released last week, UBS Warburg analyst Robin Farley estimated that the United Kingdom could support three resort-size casinos as well as 130 regional casinos -- 30 larger casinos with up to 2,000 slots and 100 smaller halls with up to 150 slots.

International Game Technology, the world's largest slot maker, is likely to reap an immediate benefit from deregulation, analysts say.

The United Kingdom -- which how has less than 1,000 slots -- may eventually offer as many as 40,000 slot machines, IGT Chief Financial Officer Maureen Mullarkey said during the call.

That compares to the 216,447 slots operating in Nevada as of June 30, according to the state Gaming Control Board.

International markets account for about 11 percent of IGT's revenue over the past 12 months through June.

UBS Warburg's Farley said IGT could gain a U.K. market share close to its dominant 65 percent to 70 percent share in this country. That's higher than earlier UBS Warburg estimates that the company would maintain at least 30 to 40 percent market share through its 1998 purchase of Barcrest Ltd., a British maker of low-stakes gambling games.

About a year ago, IGT established IGT-UK Casino, a division aimed at studying the proposed legislation. The company also operates three game design centers in the United Kingdom as well as field service locations worldwide.

In IGT's most recent quarterly earnings report, the company said growth in the U.S. remains strong but has been hurt abroad by decreased sales in Australia and Japan. A decrease in shipments of international machines during the second quarter compared to a year ago, in part due to new restrictions on gambling in Australia, was offset by strong sales in the United Kingdom related to the popularity of new games, the company said.

The government's current proposal would eliminate the 10-machine limit per casino by allowing for three machines per table game at casinos of at least 10,000 square feet and with up to 40 tables, while bigger properties could conceivably offer an unlimited number of machines, said John Kelly, chief executive officer of Gala Group.

The legislation would lift a variety of gambling regulations such as restricting casinos to specified areas, requiring gamblers to register 24 hours before placing a bet and limiting jackpot payouts. The new rules also would lift restrictions on advertising, allowing casinos to send direct mail pitches to players and develop loyalty programs similar to those used in the United States.

In addition to offering unlimited jackpot sizes, the legislation also is expected to allow slot machines to pool gambler bets through linked systems. The government is expected to allow casinos to link their machines within each property but will likely stop short of letting multiple casinos link machines nationwide -- similar to U.S. regulations that prohibit casinos from linking progressive jackpots between states, experts say.

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