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The U.S. gambling market used to be dominated by two major destinations, Las Vegas and, to a lesser extent, Atlantic City. There were other, smaller, gambling hubs, but they never captivated a national and international audience the same way. The smaller venues were viewed as regional in nature and draw.

The slow recovery from the 2007 to 2009 recession has left many state and local governments strapped for cash. At the same time, these areas are often facing big costs from both current and retired employees. The word pension has become a “seven letter word” in many states, cities, and towns with workers lined up on one side and local governments lined up on the other. In the middle, are the voters trying to figure out who to support in this battle royal.

As government officials try to find more revenue to offset current and upcoming costs, taxes would seem a likely option. However there’s a backlash against what many believe is a spendthrift government levying more growth stifling taxes at a time when the economy needs a lift.

One avenue to deal with revenue shortfalls that seems to be getting solid support all around, however, is casinos. There are horse racing facilities adding slot machines and gaming tables; there are whole new casinos being built in regions where there were none before; and there are smaller gambling facilities being built near the local shopping mall, making them almost a part of everyday life.

The logic is fairly simple, lots of people like to gamble and most people don’t seem to mind taxing a “sin” industry. On the surface, it would seem to be a win-win for the government, gamblers, and local residents. It could even be good for the gambling industry, too, as more casinos should mean more revenue. This view, however, may only be applicable in the shorter term.

As gambling proliferates, revenues in the industry are likely to move higher overall. Destination-oriented gambling hubs, however, may see slower growth, as gamblers choose local venues to satisfy their gambling desires. This basically means that Las Vegas and Atlantic City aren’t likely to be as profitable in the future as they have been in the past. That’s not to say that the newest and brightest casinos won’t prosper, they likely will. Older establishments will probably take the brunt of the blow. This isn’t a new phenomena, it’s just one that is likely to become more prominent.

The industry could, as a result, start to see something of an arms race, as bigger and better becomes the only way to differentiate a facility. With bigger and better, though, comes increased costs and more leverage, in an already highly leveraged industry. Thus mistakes could become far more costly.

Las Vegas probably will continue to stand above other domestic gambling hubs as a place to which one travels for several days of fun and gambling. That said, Las Vegas has had to contend with the growth of gambling in Macau, China. This relative newcomer to the gaming space has been growing by leaps and bounds on the strength of the Asian markets. While the region has been an overall boon to gambling, it is also likely diverting some of the customers who would otherwise have flown to Las Vegas. This trend is likely to continue for some time, as the Macau buildup continues.

Atlantic City, meanwhile, has been struggling for years to regain its former glory. It never had the same drawing power as Las Vegas and it hasn’t been the same since massive casinos opened in nearby Connecticut. With relatively new, smaller gambling facilities as close as New York and Pennsylvania, Atlantic City may never gain back what it has lost.

As smaller facilities proliferate, it will likely be harder and harder for regional industry participants to draw customers to their doors. Basically, the same thing that the regional players have done to Atlantic City could begin to creep down to the local level. If a gambler can just drive over to the nearby shopping mall, there’s much less reason to drive hours to get to a regional facility.

When examining the gaming industry for investment options, it would seem that casino operators with solid positions in Las Vegas and exposure to the still expanding Macau market will probably be the best options. Companies here include Las Vegas Sands (LVS), where Macau revenues have been driving top-line results. Its other main hub of operations is Las Vegas, with the Venetian and the Sands. It appears well positioned in the top markets. Wynn Resorts (WYNN) is positioned similarly to Las Vegas Sands, with strength in Macau leading revenues higher, and a solid position in Las Vegas. Both of these companies should do well so long as Macau continues to expand. Note that U.S. operations represent less than 50% of each company’s top line.

MGM Resorts International (MGM) has operations in several U.S. locals and Macau. However, with its strongest base in Las Vegas and the growth being experienced in Macau, MGM also looks set to weather any turbulence caused by the proliferation of gambling venues. That said, a high level of debt and the slow recovery of the Las Vegas convention business is likely to continue to weigh on results in the near term.

Melco Crown Entertainment (MPEL) only has operations in Macau, so growth in that market will dictate Melco’s results. It could provide diversification for investors with a lot of exposure to the domestic gambling market or a concentrated bet of that market. However, the heavy focus on just one region is a material risk.

Operators in other domestic locales, including Atlantic City, will probably have a harder time of it in the future. Boyd Gaming (BYD), for example, has been performing relatively well of late, but has a lot of regional exposure. It recently halted construction of its first facility to be located on the Las Vegas Strip, not the best sign. Pinnacle Entertainment (PNK) also has material regional exposure. Business has been picking up, but it, too, faces the risk of too much competition as more casinos are allowed to open. It has been working to expand its operations and hasn’t been forced to pull back like Boyd.

Penn National Gaming (PENN) is working to make the best of gambling’s recent acceptance, by pushing into new, regional markets. While this could be profitable in the near-term as new facilities open, longer term it could be helping to oversaturate the market—which may not be the best outcome. Still, in the near term, this could be a company to keep an eye on.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.