Ready To Bet Big On Britain

U.S. gaming companies see a huge payoff if gambling laws are liberalized

Down a dark street in London's trendy Islington neighborhood, a small, dank casino hosts a handful of customers. The sign outside says "Vegas," but don't look for any Strip-style dazzle within. Slot-machine payouts top out at $50. Cocktails? A juicy steak? Sorry, just tea and mints. And forget about showgirls. Prerecorded music is all the entertainment you get before the 11:30 p.m. closing time. It may be dreary, but it's typical of Britain's casino scene -- at least until now. "I think anybody would look at those places and think 'this could be much better,"' says G. Thomas Baker, chairman of Reno (Nev.)-based International Game Technology (IGT ), the world's largest maker of slot machines.

Indeed, gaming companies are salivating as Britain considers liberalizing its gambling laws. Companies such as MGM Mirage (MGG ) and Harrah's Entertainment Inc. (HET ) are lining up potential casino sites; slot-machine makers such as WMS Gaming Inc. (WMS ) and Bally Gaming Inc. are opening British offices. Biloxi (Miss.)-based Isle of Capri Casinos Inc. (ISLE ) has bought an interest in a casino near Birmingham and plans casino and entertainment complexes in Coventry and Manchester. Las Vegas-based Harrah's has teamed with Gala Group Ltd., Britain's largest bingo parlor operator, to open up to eight properties.

No one is in as deep as MGM Mirage. Last year the Las Vegas company bought part of a small casino in Bristol and plans to develop a larger property in Newcastle. On Jan. 27, it announced the proposed acquisition of Wembley PLC (WMBYY ), an owner of dog tracks that MGM Mirage thinks might be good casino sites. It also plans to build a $455 million casino complex in Sheffield. "We've got to look for other markets to grow," says Chairman and CEO J. Terrence Lanni.

ANTEING UP. Britain may be just the place. Most of its 126 or so casinos consist of a handful of slot machines and table games. And while casino attendance is increasing only gradually, spending has risen from $5 billion five years ago to $7 billion in 2003.

Gaming laws are a problem at the moment. There are ceilings on bets, restrictions on building, and advertising is prohibited. The tax on casino revenue runs as high as 40%. But reforms could pass this fall. Among the potential changes: Building restrictions will be dropped, slots will have unlimited payouts, and the tax rate could fall to 15%. "Gambling is now a diverse, vibrant, and innovative industry," says Gambling Minister Andrew McIntosh. "We are committed to reforming the laws so they reflect that."

There's opposition, of course. The British Coalition Against Gambling Expansion wants casinos to pay the debts of addicted gamblers and insists that slot machines be programmed to inform players how much time and money they've spent. Steven Bate, a member of the Borough Council in Blackpool, thinks taxes on profits should be raised, not lowered. "If the Vegas casinos think they can come and decrease the tax on their addictive product, they're wrong," he says.

While it's an uphill battle for activists, a lot of companies could get burned if they block the new laws. But you never win the jackpot without taking risks.

By Christopher Palmeri in Los Angeles and Laura Cohn in London

Before it's here, it's on the Bloomberg Terminal.