Not 20 years have passed since the Legislature of the tiny state of Delaware, all of 35 miles across and with a population you could drop easily into Philadelphia with 250,000 souls to spare, saw fit to challenge Atlantic City’s monopoly on casino gambling in the Northeast.
The relatively conservative approach they took - organizing the industry as an adjunct of the Delaware Lottery for the benefit of the state’s horse tracks, and the means they chose, video terminals that functioned as a computerized lottery, not as banked gambling games - had never been tried for profit. In fact, it hadn’t been that long since Connecticut introduced the country to the first Indian-owned casino worthy of the name. Prior to that, you could’ve started from the remains of the Steel Pier and driven for days without finding another legal one-armed bandit.
It seems almost quaint now.
It’s also transformed the political conversation. Governments from Albany to Annapolis may be no closer to plugging their recession-riddled budgets than they were before they let the genie out of the bottle. But they are increasingly dependent on the taxes and fees the industry pays and the jobs it provides. A recent study by the Rockefeller Institute of Government shows that gambling of all forms, lotteries included, amounts to a relatively small portion of public revenues, less than 2.5 percent on average, but this varies from state to state and skews significantly higher in jurisdictions where casinos are big business - 12.5 percent in Nevada, 8.4 percent in Rhode Island and West Virginia, almost 5 percent in Pennsylvania and Delaware.
Which points up something else the study found: Growth in gambling tax revenues tends to be slow over time, but it speeds up “when policymakers expand the market by authorizing new casinos or other operations.”
SPREADING THE WEALTHAmong other reasons, this is why New York Gov. Andrew Cuomo is pushing for an amendment to the state constitution to permit live table games and full, stand-alone casinos and why lawmakers in Maryland are wondering if it doesn’t make sense to permit more casinos than the five currently authorized.
New York’s racinos enjoyed an 8 percent increase in net win last year to more than $1.1 billion, not counting Genting’s Resorts World New York, which opened in October, and the consensus of the industry is that the state is leaking another $3 billion to $5 billion to competing venues in other states. James Featherstonebaugh, a veteran lobbyist and partner in Saratoga Casino and Raceway, suggests the governor “is simply taking a pragmatic view.”
Featherstonebaugh heads the New York Gaming Association, a group created last year to advance the interests of the racinos. The association, not surprisingly, supports expansion. “It’s not a question of whether you’re for gambling or anti-gambling,” he said. “New York has gambling. Why not make New York state gambling competitive with everyone else’s and keep the money at home?”
This is central to the thinking of everyone with a stake in what’s happening in and around the Mid-Atlantic right now.
The Mid-Atlantic region generated about $7 billion of the $34.6 billion in gambling revenue recorded by commercial casinos in 2010, the latest annual figure available from the American Gaming Association. To put this in perspective, of the more than 500 casinos nationwide, those in New York, New Jersey, Pennsylvania, Delaware and Maryland, a relative handful, 35 currently, contribute 20 cents of every $1 the industry wins.
You’ve got established operators in need of a growth story to tell, you’ve got newbie investors lining up all the time for a crack at the region’s tasty demographics, you’ve got government, whose interest is now thoroughly vested in keeping as many taxable gambling dollars in their own states as they can. So the dominoes keep falling - in neighboring Ohio, where casinos in Cleveland and Toledo, the first of four in the state, could open as early as April - in Kentucky, where the governor and key lawmakers are making credible noises about legalization - in Massachusetts, historically a key feeder market for Connecticut, Rhode Island and eastern New York, where the three casinos authorized last year could open by the middle of the decade. In the meantime, Pennsylvania, which had no casinos six years ago, is getting ready to welcome its 11th, a $132.5 million resort in Valley Forge, Pa., with 600 slots and 50 table games. Set to open this spring, it will be the fourth to draw on the Philadelphia metropolitan market. Maryland’s largest casino, a $500 million facility with 4,750 slots, opens this spring at the Arundel Mills mega-mall south of Baltimore. In Atlantic City they’re hoping to recover their mojo with the return from the dead of the $2.4 billion Revel, which will open in phases starting next month.
GROWING CONCERNS“You call it expansion, I call it erosion,” said Bill Fasy, president of the racetrack and casino at Delaware Park outside Wilmington, which has been steadily hammered by Harrah’s Chester just a few miles up I-95 in neighboring Pennsylvania and more recently by Penn National’s Hollywood Casino Perryville, which opened across the border in Maryland in September 2010.
Since Pennsylvania’s first casinos opened in 2006, the racinos at Delaware Park, Dover Downs and Harrington Raceway have lost more than $1 billion in annual slot handle. Net win is off more than 22 percent.
Atlantic City’s revenues peaked in 2006 at a heady $5.12 billion, and up to that point, the industry had never known a year-over-year decline. But that was almost $2 billion ago. Revenues have fallen 55 percent since.
“I think it’s bottomed out,” said James Nickerson, managing director of industry consultants WhiteSand Gaming. “It will come back, not to what it was before, but back to a respectable level.”
The key, as he sees it, is to push the town as a resort rather than as a place to gamble. “Market it as a destination. Market it as Atlantic City. Once you get them here leave it up to them to decide where they want to go.”
Delaware doesn’t have a picture quite so big to look at.
“It’s not a promising from the standpoint of a business model when the market isn’t there, the economy is not good and you have more capacity coming on line,” Fasy said.
“Our biggest concern is what’s going to happen in June when Arundel Mills opens with 3,000 machines and close to 5,000 by the end of the year,” said Edward J. Sutor, president of Dover Downs Hotel & Casino.
Maryland was hoping five casinos would deliver $1.6 billion a year in incremental revenue for education, local governments, racing purses and other uses. To date, it has gotten $128.5 million from Perryville and the racino at Ocean Downs, which lies near the popular beaches of the Eastern Shore.
A consortium led by Caesars Entertainment wants the license set aside for Baltimore and is proposing a $310 million, 110,000-square-foot Harrah’s casino for the city. That’s a hopeful sign. But the state has had no viable takers for the license allotted to the resort at Rocky Gap in the western panhandle, despite the Legislature’s willingness to drop the tax rate from 67 percent to 50 percent and remove the current cap on one casino per licensee. Senate President Thomas Miller wants to expand the market to include table games and has said it may be worth considering a sixth license in Prince George’s County in the populous area around Washington, D.C.
“We’re a day late and a dollar short,” said state Sen. Richard F. Colburn, who is co-sponsoring a bill to legalize tables. “Even if we get table games, we’re still going to be behind the eight ball. Maryland will probably never catch up.”