U.S. casino giants OK so far with British rules

By Liz Benston

Tuesday, March 2, 2004 | 11:02 a.m.

British regulators are in the midst of discussing a potential tax rate of 15 to 20 percent on new casinos allowed under anticipated deregulated gambling laws.

Though higher than some state taxes at home, American casino company representatives hoping to do business in the United Kingdom say they are satisfied with the tax rates under discussion and are pushing ahead with casino development plans.

Two companies that expect to do business in Britain -- Harrah's Entertainment Inc. and Isle of Capri Casinos Inc. -- already do business in states with similar tax rates. Harrah's is based in Las Vegas and Isle of Capri is based in Biloxi, Miss.

"Some Midwestern states have tax rates of 15 to 20 percent," Harrah's spokesman Gary Thompson said. "You know you can make a business if that tax rate is there and the tax rate is stable."

"We don't have any concerns at this point," Thompson said. "We will see how the legislation is ultimately approved and hopefully we will have some input in the process. We haven't seen anything that is at all alarming in terms of tax rates."

Tim Hinkley, president and chief operating officer of Isle of Capri, said the company is used to operating in states "where it's close to 20 percent" and in Missouri, where rates approach 30 percent.

"We know what kind of investment it takes with states in those types of tax structures," Hinkley said.

"All we're trying to explain to the powers that be in the U.K. is that if they add too much tax, they're going to be missing out on the potential higher revenues in this deregulated market," said Hinkley, who recently met with U.K officials. "It will just scare (casino operators) away."

Las Vegas-based MGM MIRAGE, another company expecting to invest millions in casinos in the United Kingdom, is working on additional potential deals in that country.

"We're obviously comfortable with the direction we believe the reforms will take -- not only tax rates but other regulatory requirements," MGM MIRAGE President and Chief Financial Officer Jim Murren said. "We're taking the view that these changes will be made to our satisfaction and to the satisfaction of any viable operator that wants to invest in the U.K. But we're reserving our right to review and reject if we find a situation not to our benefit."

Frank Fahrenkopf, chief executive of the American Gaming Association, was in Britain about a month ago to testify before a special committee of Parliament that is crafting the gambling legislation.

Fahrenkopf said he discussed the importance of tax rates with lawmakers, who came up with the 15 to 20 percent tax rate on casino revenue early on to stimulate investment and interest in the region. Taxes on existing casinos in the United Kingdom -- private clubs of mostly table games that require registration 24 hours before gambling -- are more than twice that amount.

"If (the U.K. government) is going to impose exorbitant taxes they will not have our companies coming in and making those capital investments," Fahrenkopf said. "They have to find a balance that's going to work."

A member of Parliament and staff from Prime Minister Tony Blair's administration visited the American Gaming Association a few weeks ago, Fahrenkopf said.

British officials have also met with U.S. companies and Nevada's Gaming Control Board in the past to gather industry statistics.

Another aspect of the proposed legislation up for debate includes the number of slot machines allowed in casinos, he said.

Draft legislation now allows an unlimited number of slot machines in casinos of more than 10,000 square feet. Smaller casinos may offer a certain number of slot machines, which are now restricted to a mere handful per casino.

Government officials are concerned that they might end up with what some have called "slot sheds," a disparaging term for large buildings with little more than slot machines, Fahrenkopf said.

"They're not crazy about the concept of slot sheds," he said. "They don't think there's going to be the (same) economic development" possible with destination resorts, he said.

"They are really looking for major investment, for hotels with entertainment," he said.

Brighton and Blackpool are faded resort towns in need of revitalization that have been discussed as potential sites for major casino resorts, he said.

Some casino companies such as Caesars Entertainment Inc. are taking a wait-and-see approach to deregulation in the United Kingdom. Other companies, such as MGM MIRAGE, chose to jump in early to establish a presence in the country.

"We chose to prepare for the big game and not wait for the Super Bowl," Murren said. "Others are waiting to know all the rules beforehand."

MGM MIRAGE last year announced plans to acquire a 25 percent stake in British casino operator Metro Casinos Ltd., which is building a casino in Bristol, England, and form a joint venture with a U.K. special events company to potentially build a casino and entertainment complex in London. Harrah's expects to build several casinos in the United Kingdom with bingo operator Gala Group Ltd. Isle of Capri announced it would buy a two-thirds interest in U.K. casino developer Blue Chip Casinos Plc. Both MGM MIRAGE and Harrah's have expressed interest in building major casino resorts in addition to several smaller casinos in that country.

Mandalay Resort Group and casino resort developers Steve Wynn and Sheldon Adelson are also among the Las Vegas entities expressing interest in Britain.