Delaware, Pennsylvania, New Jersey and other Mid-Atlantic states are dealing with the promise and consequences of rapid casino growth

The Times Square Casino is one of several gaming areas at the new Resorts World New York complex at Aqueduct Racetrack in New York City.

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.

was one of the first states in the Mid-Atlantic region to challenge Atlantic City’s gaming dominance when it allowed VLTs at state racetracks.

The arms race that commenced in 2004 when the first video lottery reels started spinning at New York’s racetracks and saw commercial casinos spread to Pennsylvania and Maryland has brought billions of dollars of investment to the region and rewrote the book on the dynamics of competition between the five Mid-Atlantic states and their various markets.

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.

The success of trackside casinos at Saratoga Raceway and other pari-mutuel facilities has New York officials considering further casino expansion.

To take an example, New York’s nine racinos currently generate about 30 percent of the New York Lottery’s profits, which provide 15 percent of state funding for local school districts. Conversely, state and local government revenues in New Jersey took a 13.7 percent hit when gambling win in Atlantic City went into free fall at the end of the decade, largely as a result of competition from Pennsylvania, where gambling tax revenues soared 176 percent over the same period. Nationally, the decline was 2.5 percent. In fact, when gambling tax revenues bounced back nationally after the recession-year drop in 2009, it was Pennsylvania that accounted for almost half the increase.

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.”

Maryland is the latest Mid-Atlantic state to hop on the gaming train with the opening of facilities such as Hollywood Casino in Perryville.


Among 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 addition of slots to Yonkers Raceway in New York has made it one of the most successful casinos in the eastern U.S.

From the Adirondacks to the Potomac there are something like 38 million adults, and they generally enjoy higher rates of per capita income than the national average and lower rates of unemployment. The discretionary income is certainly there. Factor in the border states and you’ve got one-quarter of the U.S. population within driving distance of a Mid-Atlantic casino. At Aqueduct Racetrack in Queens, where Resorts World New York is booking $10 million and more a week in slot revenue, spokesman Stefan Friedman said, “The company believes the New York market still is underutilized and not even close to being saturated.”

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.

New casino facilities in New York and elsewhere may be taking business away from established gaming properties in neighboring jurisdictions.


“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.”

Tribal governments are also trying to cash-in on Mid-Atlantic casino expansion, such the Connecticut Mohegans who developed Mohegan Sun at Pocono Downs in Pennsylvania.

Israel Posner is similarly optimistic. He heads the Lloyd D. Levenson Institute of Gaming, Hospitality & Tourism at Richard Stockton College of New Jersey. For him, it’s back to the past, in a sense. “If you look at Atlantic City for all of its 160 years of existence, Atlantic City has no other reason to exist but to entertain visitors. It was the first city in the country built for no other purpose but to entertain, to give people what they don’t have at home. If everybody has gambling near their home there is no reason to come. So Atlantic City must become what it always was, which was about relevant entertainment.”

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.”