February 27, 2013 / 7:31 PM / in 5 years

TEXT - Fitch says state-level online gaming momentum continues

Feb 27 - The rollout of state-level online gaming continues to pick up
traction with New Jersey, Nevada, and Massachusetts recently passing or
considering online gaming legislation and Fitch Ratings believes that
state-level online gaming could become operational by the end of this year or
early next year. Longer term, a successful initial rollout in states like
Nevada, New Jersey, and Delaware would spur an acceleration; other gaming states
would move quickly to adopt similar measures if the regulatory, legal,
practical, and social hurdles and concerns prove manageable.

On Tuesday, New Jersey Governor Chris Christie signed an online gaming bill, 
paving the way for the state to become the most meaningful individual state to 
pass online gaming legislation so far. This was largely anticipated following 
his conditional veto on Feb. 7 of an online gaming bill passed by the state's 
legislature in December 2012. Governor Christie pushed for an increase in the 
gaming tax rate to 15% from 10%, a 10-year sunset provision to allow for a 
review of online gaming in the state, and additional safeguards. 

We believe the passage of online gaming in New Jersey is a positive ratings 
consideration for Borgata and to lesser extent for Caesars Entertainment Corp 
(Caesars). We rate Borgata's issuer default rating (IDR) 'B-' with a Stable 
Rating Outlook and Caesars' IDR 'CCC' with a Negative Rating Outlook. (Marina 
District Finance Company, Inc. is the issuing entity for Borgata).

Nevada and Delaware previously passed online gaming legislation, but their 
population bases are much smaller and therefore less meaningful on a stand-alone
basis. Nevada rushed to pass a bill last week allowing it to enter into 
agreements to pool players with other states as passage of the New Jersey bill 
became apparent. The Massachusetts legislature also recently introduced two 
bills related to online gaming encompassing the ability to sell lottery tickets 
over the internet and the ability to grant internet gaming licenses, providing 
additional political momentum. 

Nevada's legislative action reinforced our view that the state will continue to 
strive to remain at the forefront of the evolving gaming industry and recognized
its online gaming market would be limited on a stand-alone basis. As gambling 
has become more socially accepted and proliferated across the United States over
the past 25 years, we have seen states become increasingly competitive with 
respect to gambling expansion initiatives.  

Gaming expansion typically follows a path of least resistance to establish 
initial operations, then grows from there. For example, language in the 1988 
Indian Gaming Regulatory Act permitted "electronic, computer, or other 
technologic aids" to bingo ultimately resulted in slot-like terminals initially 
and full-service casinos over time, fuelling what is today a $27 billion Native 
American gaming industry. Rarely do we see a contraction of gaming offerings. 
The potential agreements to pool players between states as contemplated by the 
Nevada bill can likely be attributed to similar practices in the lottery 
industry, such as Powerball.

New Jersey was incentivized to be an early mover with online gaming, as its 
gaming revenues have declined from a peak of more than $5 billion in 2006 to its
current level of roughly $3 billion as Pennsylvania and New York gaming markets 
ramped up. Implementing online gaming may help offset concerns relating to the 
possible gaming expansion in New York in the near term and an additional 
Philadelphia casino longer term. If the New York legislature passes an expansion
bill this session (which may include table games at Aqueduct and Yonkers), the 
measure will go to a referendum this November.  

The biggest question surrounding online gaming expansion is whether an 
acceleration of state-level gaming initiatives spurs federal-level regulation at
some point over the next several years. We believe this is possible, but not 
necessarily probable. In the meantime, New Jersey, Nevada, and Delaware are 
bearing the initial implementation risk, but we expect other states to follow 
aggressively if operations commence without material issues.

For more information this topic, please see our reports: "Fitch: Imminent Online
Gaming in N.J. Positive for Borgata & Caesars," dated Feb 19, 2013 and "States 
and Locals Turn to Gaming: Expansionary Trend Will Produce Winners and Losers," 
dated Sept. 20, 2012 both available at www.fitchratings.com.

In addition, we regularly summarize various online gaming bills and provide an 
overview of recent trends in online gaming and of companies that may benefit 
from proliferation of online gaming in the U.S in Fitch's Online Gaming Monitor,
last published on Feb. 19, 2013

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