May 23, 2006

Pennsylvania slots to hit, help Atlantic City

By Paritosh Bansal

ATLANTIC CITY, New Jersey (Reuters) - Atlantic City's main
source of revenue is likely to take a short-term hit when
resorts and racetracks in Pennsylvania start offering gambling,
but casinos in the seaside city will not suffer for long and
may see their market grow, analysts said on Tuesday.

Pennsylvania is in the process of licensing up to 61,000
slot machines statewide at new gaming centers, existing
racetracks and small resorts, challenging Atlantic City as the
East Coast's gambling destination.

Casinos that depend on day customers are likely to be hurt,
as many people who now travel to Atlantic City from
Pennsylvania will find it easier to go to their local casinos
once they open, analysts said at the East Coast Gaming

"At the very least, on the margin, folks who are
convenience-oriented may go there," said William Lerner, an
analyst at Prudential Securities. "On the surface it's
concerning until this market reinvents itself."

Atlantic City is trying to transform itself into an
entertainment destination not unlike Las Vegas, offering more
than just gambling to get people to stay longer and spend more.

Casino operators such as Harrah's Entertainment Inc., MGM
Mirage, Boyd Gaming Corp. and Trump Entertainment Resorts Inc.
are expanding and upgrading their properties -- adding hotel
rooms, restaurants, shopping malls and other facilities.

This transformation, along with a much higher tax rate in
Pennsylvania, will work to the advantage of Atlantic City
casinos, analysts said.

The Pennsylvania tax rate will be more than 50 percent,
while New Jersey's is about 9 percent, leaving casinos in
Atlantic City with more cash to spend on marketing and
construction of more elaborate properties.

"Nice rooms, spas, nice restaurants ... (are) going to
become more the standard here in Atlantic City," said Dennis
Forst, an analyst at KeyBanc Capital Markets. "That's something
that you will not be able to get in Pennsylvania."

Pennsylvania may also help to boost the market as locally
available slots introduce gambling to more people who may then
want to go to Atlantic City, Jefferies' analyst Larry Klatzkin

Companies such as Harrah's and Trump Entertainment, which
have applied for licenses to build gambling resorts in
Pennsylvania, would also drive customers to their properties in
Atlantic City, where the companies can make more money.

"Markets like that actually invent new gamblers," Klatzkin
said, referring to the looming competition from Pennsylvania.
"In the long term, you may end up with a higher penetration."