Many U.S. states see gambling revenue as a cure to their budgetary woes. This strategy, however, doesn't always materialize

It’s looking increasingly likely that the gaming industry won’t see any major recovery until 2010.

“Following one of its most challenging years in recent history, the U.S. gaming industry will remain under significant pressure in 2009, with a meaningful recovery unlikely until 2010,” according to a report originally released in December but updated earlier this year by Fitch Ratings.

In the meantime, cash-strapped states continue to explore legalizing gaming as a way to soften the blow of the worst recession in decades.

Among the states contemplating gaming measures in 2009-2010 are:

Nebraska– considering legalizing slot machines at racetracks;

Ohio– looking at a proposal for casino gambling;

Massachusetts– considering a bill that proposes installing 2,500 slot machines at each of the state’s four racetracks.

South Carolina– where video poker could be an issue in the 2010 governor’s race.

While proponents in these states believe the proposals can help balance budgets and stave off job layoffs, others express doubt. A USA Today editorial calls expanding legalized gambling “a bet on a bad hand.”

“From Hawaii to Maine, state capitals are awash in proposals for new lotteries, slot-machine parlors, video gambling and full-fledged casinos - all in pursuit of mega-million-dollar jackpots that would help states balance their budgets without belt-tightening or tax hikes,” the editorial states. “According to recent surveys, serious proposals to seek revenue from new or expanded gambling operations are percolating this winter in at least a third of the states. There's just one problem: The most recent evidence says the promised riches won't materialize.”

The editorial cites several examples, including Kansas’s recent debacle, in which casino developers pull out of three of the four proposed casino sites; Illinois, which had sought $575 million from the sale of a long-dormant casino license but had to settle for a bid barely one-fifth that size - $125 million - plus a promise of further payments over the next 30 years; and

Maryland’s lackluster response to bids for six proposed sites for new gambling centers, receiving bids for only one of the sites.

Fitch Ratings also indicated legislators may be less optimistic regarding gaming taxes as a lucrative revenue stream compared with previous economic downturns.  “Gaming tax revenues have not met expectations in a number of jurisdictions that recently legalized or expanded gaming. In addition, with unfavorable credit markets and struggling corporate operators, there is likely to be limited appetite for funding new developments or large up- front licensing fees,” it states.

The report notes investment appetite will be further dampened if governments continue to seek extremely high tax rates of 50 percent or more. 

Nevada closer to state lottery

While other states are looking at legalizing casino gaming, the United States’ gaming capital will once again consider the idea of implementing a state lottery.

As it has so many times in years’ past, Nevada’s Legislature is expected to take up the controversial issue, which has gone nowhere in the past.

While still a long shot, the lottery, which would require a four-year process for approval, will receive more serious attention than it has in the past.

As the Las Vegas Review-Journal pointed out in a recent news story, it will be the 27th proposal introduced since 1975 to legalize lotteries. While 42 states have lotteries, Nevada has had a constitutional ban on a state lottery since 1864.

Now the state is facing serious budget problems, and the usually lottery-favoring Democrats control the state House and Senate. That adds up to better odds than in the past. But don’t hold your breath.