Harrah’s U.K. venture nixed

By Liz Benston

Thursday, Jan. 6, 2005 | 10:53 a.m.

Harrah's Entertainment Inc. said Wednesday it has pulled out of a joint venture with U.K. bingo parlor operator Gala Group Ltd. because of recent moves in Britain's Parliament to limit the scope of regional casinos the venture expected to build. The company still will pursue previous plans to build major resorts in the United Kingdom on its own.

Harrah's hoped to build eight to 10 smaller casinos across Britain with Gala in a deal announced June 2003.

Over the past several years the British government has pursued a plan to expand that country's limited gambling industry by allowing Las Vegas-style casinos and slot machines with unlimited jackpots. Lawmakers and some media outlets in recent months have fought some proposed changes, saying they will create and encourage compulsive gambling.

A draft of the gambling bill is still working its way through both houses of Parliament, with analysts expecting the rules to be adopted by 2006.

The move appears to be the first and only fallout so far in this country of a growing backlash in the United Kingdom over liberalizing gambling laws, which some critics say would change that country's culture.

Analysts' initial estimates allowed for dozens of smaller casinos but many have since lowered their projections based on concerns about the largest gambling halls. In December, lawmakers amended the gambling bill to allow for only eight larger casinos.

In a research note to investors today, Morgan Stanley analyst Celeste Mellet Brown said the bill also will likely allow for only eight smaller casinos with 1,250 slot machines each "instead of a more flexible arrangement by which casinos would have been limited by zoning, size and market restrictions."

Brown said she hasn't factored any British casinos into earnings estimates for U.S. companies because of the uncertainty surrounding casino deregulation in Britain.

Harrah's spokesman Gary Thompson said the bill, in its present form, will "severely restrict anyone's ability to successfully develop regional casinos." The smaller casinos would have been from 30,000 to 50,000 square feet.

Harrah's and Gala will continue in a "strategic alliance" that would allow the companies to work together should any opportunities arise in the short term and leaves open the possibility of resurrecting the joint venture, Thompson said.

Thompson declined to say how many larger casinos of 50,000 square feet or more it intends to build on its own, but executives have previously stated plans to develop several.

"We'd like to build a few but we'll be competing with other operators in the best markets," he said.

The company hasn't announced any specific plans for big casinos but has confirmed news reports about a potential redevelopment project in Glasgow, Scotland.

Thompson said any money that had already been invested in the partnership so far wouldn't be significant for the company.

Competitors say they are still moving ahead with their U.K. casino plans.

Caesars Entertainment Inc., which is pursuing a partnership with a real estate developer to build a casino resort at Wembley National Stadium in London, is "fully committed" to the project, spokesman Robert Stewart said.

"We have a tremendous opportunity going forward, specifically with regard to redevelopment" at Wembley, Stewart said.

MGM Mirage spokesman Alan Feldman also said his company, which has been one of the most aggressive U.S. casino giants to pursue deals in Britain, intends to pursue those projects.

Some casino developers have blamed the backlash in Britain on existing gaming developers who fear competition, particularly from deep-pocket Las Vegas companies.

"I think that's a pretty safe assumption," Thompson said.

The company had been "optimistic" about casino expansion in Britain because of the scenario first envisioned by the Budd Report, he said.

The 2001 report, the first government-commissioned review of gambling laws in more than 30 years, recommended loosening gambling restrictions to stimulate market growth and competition.