Gambling companies began 2004 hopeful of theirbiggest windfall as the government pressed ahead with a long-awaited deregulation ofthe gaming industry - and casinos in particular.

Companies such as Stanley Leisure, Rank, Gala and London Clubs International were preparing for an expansion explosion.

International companies such as MGM Mirage, Isle of Capri and Harrah's Entertainment continued to position themselves for the boom.

Kerzner International was hoping to have a site next to the Millennium Dome. And Las Vegas Sands, owner of the Venetian hotel on the Las Vegas Strip, was planning an £80m development at Sheffield United's Bramall Lane stadium as well as a project next to Glasgow Rangers' ground.

Even companies outside the industry have been looking at ways in. Luminar, the nightclub group hit heavily by the drinks price war on the high street, said it was considering converting venues into casinos.

But as the year ended, the odds on substantial benefit from the new legislation had shortened, despite other forms of gambling having a boom year. Betting shop operators Ladbrokes and William Hill continued to generate income from a relatively new source, fixed-odds betting terminals, which allow punters to bet on virtual casino games. And the National Lottery, which celebrated its 10th birthday in November, returned to sales growth for the first time in several years.

For casino operators, though, the future does not look as rosy at it did at the beginning of 2004. In their earlier incarnation, the legislative reforms would have allowed any casino to install so-called "category A" slot machines, which offer the largest pay-outs. The changes would also have removed restrictions on where casinos could be built and allowed operators to advertise for the first time.

But, gradually, the government hardened its views. It opted to cap the number of "super-casinos" at eight and subsequently said it would only allow eight new large casinos and eight new medium-sized ones when the reforms become law.

Similarly, only the largest casinos will be allowed to have category A slot machines, with a limit of 1,250 for each property.

The gambling bill at the beginning of 2005 still offers some promise to UK gambling operators. But the deregulated gaming environment presents a far less exciting prospect than it was 12 months ago.

The outlook had been so promising when a cross-party committee of MPs and peers came to an agreement about the shape of the new laws, with some concerns about the scope for proliferation of slot machines.

One of the committee's recommendations was for a limit on the number of slots allowed in each casino.

To the horror of the bill's supporters, the government adopted the committee's recommendations and went a stage further, proposing to restrict category A machines to regional casinos.

On the other hand, the move was a royal flush for the international players.

Companies such as Kerzner had been stalking the UK with a view to investing hundreds of millions in Las Vegas-style casino developments. As the companies with the financial muscle needed to build these regional casinos, they looked set to benefit most from the government's change.

But they reckoned without the backlash that would greet the bill when it entered parliament. A Daily Mail campaign and behind-the-scenes lobbying by the bill's opponents succeeded in hardening opinion against many of the reforms.

Tessa Jowell's culture department came up with compromises designed to ease fears that the UK would resemble a colder and greyer version of Las Vegas.

So a limit on developments was introduced, leaving UK casino operators with plenty of properties as the most likely beneficiaries.