Las Vegas – The casino industry’s outlook is downbeat at this year’s Global Gaming Expo trade show here, but there is a possible bright spot for Kansas – Penn National Gaming may again seek to build and operate a state-owned casino south of Wichita.

“We’re going to take a look at it,” Chief Financial Officer William J. Clifford said Wednesday.

Much of the industry is cash-strapped as gambling revenues decline and is finding it difficult to borrow for new projects. But Penn is in a unique position, sitting atop USD 775 million in cash. That is from a breakup fee when a private equity group failed to close a deal earlier this year to acquire Penn, whose properties include the Argosy Riverside Casino.

Now, said Clifford, “we’re in great shape,” and looking to enlarge the company from a midsize industry player to one of the “large cap” big boys.

The chance to run the Wichita area casino opened up when Harrah’s Entertainment and its partners bailed out. They had been selected earlier this year by Kansas authorities over Penn and other applicants. But Harrah’s on Monday withdrew its USD 560 million bid, and the state will start the bidding process anew.

Kansas Lottery director Ed Van Petten, also in Las Vegas for the annual industry gathering, said Wednesday that he expected the new application deadline to fall in early April. He also said he expected a few of the state’s other jilted casino suitors to apply for the Sumner County contract.

However, few industry insiders here this week expect by then that dried-up credit markets will again be pumping much, if any, long-term cash through financial pipelines.

“Capital is available,” said Daniel D’Arrigo, chief financial officer for the MGM Mirage casino group. “But it is limited, and it is expensive.”

“Liquidity has dried up,” he told a Wednesday morning seminar audience.

He speculated that it might take as long as five years for capital markets to recover from what he termed the “worldwide meltdown” and get back to financing casino construction and corporate acquisitions.

The fate of racetrack slot parlors in Kansas is not as clear.

Van Petten said Wednesday that the political talk in Topeka was that “the leadership does not want to reopen” debate over the state’s gambling statute.

The big change on the table is a lower state tax rate that would-be operators, including The Woodlands, insist they must have to be economically viable. As the law stands, the state and other interests would take 60 percent of gross slot revenue.

All three qualified tracks in the state have walked away from deals for state-owned slots and have promised a lobbying effort in 2009 to rewrite the state’s gambling law.

Meanwhile, Harrah’s withdrawal from Wichita and Penn’s earlier rejection of a Kansas casino contract in the state’s far southeast corner has left the state with only two viable gambling proposals – casinos in Dodge City and at Kansas Speedway in Wyandotte County.

So far, Van Petten said, neither has suggested it is facing a capital shortfall. Both project groups have said they expect to start construction soon and to start gambling operations before the end of next year.

Van Petten said Penn’s saga in the southeast gambling zone could provide a template for future bidding in Wichita.

Penn negotiated a phased investment over 12 years of the USD 225 million the state set as the minimum level for casino capital investment. The state legislation assumed that all of that spending would occur at the front end of each project.

But state officials, stung by developers’ rejections and the weakened economy, now appear more accommodating.

“I expect most applications to be … phased in,” said Van Petten.

Earlier this week, Frank Fahrenkopf Jr., chief executive and president of conference sponsor, the American Gaming Association, also said he did not see a fast recovery from the economic downturn for the worldwide casino industry.

“We’re in uncharted territory,” he said.

At another conference session Wednesday, Joe Fath, a portfolio manager with T. Rowe Price, said the meltdown was going to “separate the wheat from the chaff” in the gaming industry.

“A lot of companies aren’t going to be able to invest in their properties” to keep them fresh and competitive, he said.

Such investment has been a big part of casino companies’ growth, along with new casinos financed with low-cost borrowing. The shutdown of those growth engines could set off a new wave of mergers and sell-offs of individual casino properties.

“We’re going to see market share shifts,” predicted Deutsche Bank Securities analyst Bill Lerner. “The gaming industry is going to change.”