Just as we all used to follow the form of horses - think the Great
Depression and the success of Seabiscuit to see we all love a champion -
the latest form book covers the race among US states to balance their
budgets. Of course, everyone has been focussing on California with
Arnold Schwarzenegger leading the charge to the winning post on getting
the budget signed into law. He has enough strength for arm twisting and
'gator wrassling to bulldoze the bill through. But Pennsylvania is just
as interesting with the Governor's office matching California's use of
IOUs by refusing to pay funds to the four state universities. Probably
someone somewhere is running a book on which US state will be the first
to declare itself bankrupt. These would be the front runners among an
alarming number of states lacking initial prudence and the political
will to raise taxes, to cut spending, or both.
Anyway, the real point of interest in Pennsylvania is the growing
threat of litigation from the group of license holders who run slot
machines. When the licenses were first issued, the state sold maximum
exclusivity for a high fee (that's $50 million a license). The enabling
law is very clear. No other gambling outlet will be allowed to compete
directly with the market for slot machines. At the time, this looked a
good deal for both sides. Gambling was a popular activity and the state
benefited from a generous input to its finances. Fast forward and the
recession has forced people to cut back on their discretionary spending.
This means less money to spend on trips to gamble. Ironically, the
casino operators to benefit from this have been online. Had it not been
for the changes in the law making it difficult to move money into and
out of the online casino accounts, they would have cleaned up. So this
leaves the current license holders under pressure with building work on
some of the proposed casino and resort sites put on hold. While the
government finds an expanding black hole eating up its cash reserves as
tax revenue falls. The state's answer is proposals to increase the
number of slot machines allowed in the existing resorts and to license
new resorts. To the existing license holders, this looks like plans to
allow direct competition from new operators. They are up in arms with
their attorneys slavering on the end of a short leash, just waiting for
the chance to sue.
There's no doubt
slots
still represents a pot of gold for both the license holders and the
state. The machines are still a big draw even though the recession is
biting hard. But this plan looks like an expansion too far. The average
spend has dropped. If the state increases the number of machines, this
will only spread the same amount of money around more machines. It's not
going to increase the size of the spend. This leaves the state with a
growing hole in its accounts and the existing license holders with a
good case in contract and constitutional law. With the online casinos
introducing new
slots games every month and keeping up player interest, this is no time to be fighting over a reducing market in the real world.
