As developers line up for a slice of the Bay State casino pie, gaming properties in neighboring jurisdictions brace for increased competition for the wagering dollar

Some analysts believe a casino in metropolitan Boston could generate $1.5 billion in annual gaming revenue.


Well, maybe in some instances the fourth time is actually the charm.

After three attempts in as many years to legalize some form of casino gaming in Massachusetts, it appears the Bay State is on track to approve enabling legislation that will clear the way for three destination-style gaming resorts and one slot parlor in yet-to-be determined locations throughout the commonwealth. As of earlier this month, slightly different versions of the casino bill had been approved by the Massachusetts House and Senate, and a conference committee has been formed to smooth out the differences. It is expected a unified bill will be presented to Gov. Deval Patrick by Thanksgiving, and he has already stated he will sign the measure into law.

All this has transpired much more smoothly and with much less acrimony than previous gaming legalization attempts; which was exactly the plan when the legislation was formulated quietly earlier this year in meetings between Gov. Patrick, Senate President Therese Murray and House Speaker Robert DeLeo, according to Michael Pollock, managing director of Spectrum Gaming Group, a New Jersey-based gaming research firm that has advised the governor’s office and key Massachusetts legislators on casino issues in the past.

“There’s an old adage that says the two things you do not want to see being made are sausages and laws. But there are instances where the process can actually be quite appetizing and not unpleasant at all,” said Pollock about Massachusetts gaming legislation during a session on U.S. casino expansion at last month’s Global Gaming Expo in Las Vegas. “In my view, [the Massachusetts casino bill] is a good model for how legislation should be drafted with the public interest in mind. I think it is one of the best pieces of [gaming] legislation that has been out there, past or present.”

However elegant the bill and pain-free the legislative passage, there is still a long way to go before gaming properties actually open for business, and with numerous developers and communities vying for only four casino licenses, the process is bound to become contentious at some point.

One area where animosity is already evident is with the various jurisdictions bordering Massachusetts that are now forced to revise gaming strategies in the face of eventual Bay State casino expansion. For non-casino states such as New Hampshire, this means contemplating casino legalization of their own to keep entertainment dollars from crossing the border. For established gaming regions such as Connecticut, Rhode Island and Maine-many of which have long relied on Massachusetts visitation to their casinos-legislatures and government officials are now considering a number of liberalization measures to protect market share.

It certainly appears in many ways that events in Massachusetts could lead to a new wave of casino expansion throughout New England-which may not be good news for all. A recent report from Moody’s Investors Service said Massachusetts casinos may not add additional proceeds and customers to the already mature New England gaming market; instead, it may cannibalize people and money from existing gaming facilities.

“It’s a new era of gaming,” Keith Foley, senior vice president of Moody’s Investors Service told the Boston Globe. “Atlantic City has gotten hurt, Pennsylvania has done well; it’s been a little bit of a zero sum game over the past four years.”



In my view, [the Massachusetts casino bill] is a good model for how legislation should be drafted with the public interest in mind. I think it is one of the best pieces of [gaming] legislation that has been out there, past or present.
- Michael Pollock, managing director, Spectrum Gaming Group

STRUCTURED FOR SUCCESS

Despite these concerns, if the casino bills as they are currently composed come to fruition in Massachusetts (long-time Bay Staters will tell you never to assume anything is certain; see Buckner, Bill or Red Sox, September 2011), the state’s casino industry should be both consumer-attractive and economically formidable. Both the Senate and House bills agree to the establishment of three Las Vegas-style gaming resorts (casino, hotel, restaurants and entertainment), each to be located in a different region of the state (western, southeastern and either Boston or Worcester) to avoid direct competition. The licenses for these resorts will be awarded through a competitive bidding process (although the Mashpee Wampanoag will be given the first chance to secure the southeastern license), the winners determined by a five-member commission-appointed by the governor, the treasurer and the attorney general-that will oversee most functions of the new gambling industry. Winning projects will have to pay a one-time $85 million state licensing fee and will have casino revenues taxed at 25 percent. License holders will be required to invest at least $500 million in their projects.

Both bills also agree on the development of a 1,250 machine slot parlor that can be located anywhere in the state. It will also be awarded through a competitive bidding process overseen by the state gaming commission. The winning project will have to pay a licensing fee of $25 million and have a minimum investment of $125 million. The tax rate for the slot parlor varies between the two bills-55 percent in the Senate plan versus 49 percent in House version-but both mandate that 9 percent of the tax windfall go to the state’s horseracing industry.

In both bills, the state’s share of the taxes from both the resorts and the slot facility will be dedicated to a wide variety of needs including funds for local communities, schools, the rainy day fund, transportation projects and gambling addiction programs.

Indeed, outside of the tax rate for the slot parlor, the Senate and House casino bills agree on most major details. More problematical may be the agreement in both pieces of legislation that gives the Mashpee Wampanoag a preference of sorts for the southeastern region gaming license. The Mashpee Wampanoag are a federally-recognized tribe that has been trying to broker a land-into-trust arrangement with various Massachusetts communities for the purpose of negotiating with the state and eventually opening a casino. The casino bills give the tribe one year to find a site, schedule a referendum and secure a gaming compact with Gov. Patrick, in which case they will be given the southeastern license, likely without having to go through the bidding process. Some southeastern communities and gaming developers claim this arrangement constitutes a tacit agreement for a casino license, and are threatening to sue to stop the whole process.

Similar claims have been hurled against Suffolk Downs and the state’s sole slot parlor license, since the track is in the home district of House Speaker DeLeo and he has fought for its casino rights in the past.

“In any casino licensing situation, there are going to be rumors… but I can state with a high degree of certainty that there is no entity that has a ‘lock’ on a license Massachusetts,” Pollock said. “There are potential bidders out there who got into the process early and have done their homework in securing community support and a lot of the other things that are necessary ingredients and are likely to come into play in the bidding process. But that does not give them a lock. You could argue it gives them an advantage, but certainly not a lock. That is an important point that needs to be made.”

If this is found to be true and there are no legal delays with the licensing process, than the resort casinos will likely come on-line in the two-to-five year time period. Since it is smaller in scope and scale, the slot parlor is likely to open sooner, with some actually predicting a fourth quarter 2012 debut.



BY THE NUMBERS

One thing is for certain-once opened, the Massachusetts casinos are forecast to generate rather large amounts of money and jobs. Most estimates have the gaming properties generating $1.0-$1.5 billion in revenue which translates to $300-$400 million in yearly tax proceeds for the state, while providing 12,000-15,000 jobs, including 6,000 temporary construction jobs.

Still, not everyone is entirely sold on the projected numbers from Massachusetts casinos and the potential overall economic benefit to the state. Scott Harshburger, former Massachusetts attorney general and president of Citizens for a Strong Massachusetts, claims the public “is being sold a bill of goods;” that the casinos will actually kill jobs and cost communities money due to more household spending going to casino coffers and a projected $90 million decline in lottery sales.

Various government organizations dispute Harshburger’s claims. Geoffery Beckwith, executive director of the Massachusetts Municipal Association told Masslive.com that he was “reasonably confident” casino tax revenues will offset lottery sales losses. A 2007 study on gaming in Massachusetts said $144 million in gaming tax revenue would offset any loss in lottery sales.

No matter what the projected tax revenue numbers, many politicians are going to continue to support casinos for one very simple reason-job creation.

“If we are going to get $1.4 billion in gross revenues instead of $1.8 billion, isn’t that a significant amount that we can carve out of for the state coffers and programs we agree with?” Sen. Stephen M. Brewer (D-Barre) told the Boston Globe. “If it isn’t 15,000 jobs, is it going to be 10,000 jobs? And if it is-that is 10,000 jobs we don’t have now.”



The compacts with the Mashantucket Pequods and the Mohegans limit how the state can respond to Massachusetts gaming expansion, but local reports have the legislature considering the establishment of gaming opportunities close to the Massachusetts border and improving odds on gaming devices.

MARKET MATTERS

One thing is certain, the potential tax revenue dispute is not slowing down developer interest in the Massachusetts casinos licenses. The list of the major casino companies reportedly expressing interest in the Bay State licenses includes Las Vegas Sands, Caesars Entertainment, MGM Grand and Wynn Resorts. Some casino entities have actually made their plans public including the Mohegan Tribal Gaming Authority which has targeted a site in Palmer, a western Massachusetts community; Penn National Gaming which also seeks to build a resort in western Massachusetts; KG Enterprises which has plans for New Bedford in southeastern Massachusetts; Northeast Resorts , which is also looking to develop in New Bedford; Warner Gaming, which has teamed up with local developer David Nunes in Milford, outside of Boston; and Paper City Development, which hopes to build in Holyoke.

All three of the states racetracks-Suffolk Downs, Plainridge Racecourse and Raynham Park-have also announced intentions to compete for either a casino or slot parlor license. In addition to the Mashpee Wampanoag, the Aquinnah Wampanoag also announced they will attempt to secure a casino license.

Eric Schippers, a spokesman for Penn National Gaming, likely spoke for a lot of these gaming companies when he told the Boston Globe, “What is being proposed in Massachusetts is in the sweet spot of what our company does, and so we are very interested.”

But that’s not to say developers don’t have some concerns about the Massachusetts casino marketplace. The one that comes up most often is the 25 percent tax rate on the resort casinos which, although not as high as the rates found in Pennsylvania, is still much more onerous than the casino friendly jurisdictions of Nevada, New Jersey and Mississippi.

“[Developers probably] thought the 25 percent tax rate was pretty good when weighed against other states,” said Bill Lerner, a principal and gaming analyst for Union Gaming Group during a session at Global Gaming Expo. “But then they have to spend $80 million for a license fee and invest a minimum of $500 million in the project and they begin to wonder if they can absorb that tax rate, and how much lower the cost of capital would be if Massachusetts was structured like New Jersey or Nevada.”

For entirely different reasons, the arrival of casinos in Massachusetts is also a concern for neighboring jurisdictions with or without casino gaming. According to studies conducted by the UMass-Dartmouth Center for Policy Analysis, Massachusetts residents have contributed a combined $1.6 billion in gaming-related tax revenue to casinos in Connecticut, Maine and Rhode Island over the past seven years. For 2010 alone, UMass-Dartmouth reported Bay State spending at out-of-state casinos and slot parlors produced $222 million in tax revenue for neighboring jurisdictions. Combined, Massachusetts citizens spend in the vicinity of $1 billion each year at nearby casinos.

The assumption is that casinos closer to home will keep all or most of this money in Massachusetts. The newer and more modern Bay State casinos may also entice gamblers in New Hampshire, Maine, Rhode Island and Connecticut to cross state lines to try their luck.

Of course, this dynamic is not lost on these states, and they are taking various measures to protect their gambling markets in the face of the projected Massachusetts onslaught.

• Rhode Island is home to Twin River and Newport Grand slot parlors, which captured a combined $243 million in Massachusetts gaming spend in 2010, according to the UMass-Dartmouth study. To better compete with Massachusetts, Twin River is trying to push a table game legalization bill through the state legislature.

• Maine is home to one operating slot parlor (Hollywood Slots in Bangor) with a full-scale casino set to open in the town of Oxford in first quarter of 2012. Much like Twin River, Hollywood Slots is pushing a referendum on table games in an attempt to keep its Massachusetts business, which amounted to $700,000 in 2010. The state’s other strategy seems to be to get as much gaming money as it can before Massachusetts casinos open. Maine voters will be considering three casino expansion bills this month-slot parlors at tracks in Biddeford and Washington Country and a full-scale casino for Lewiston.

• Connecticut is home to Foxwoods and Mohegan Sun, two of the nation’s most successful tribal gaming facilities, which enticed a combined $613 million in spend from Massachusetts citizens last year. The compacts with the Mashantucket Pequods and the Mohegans limit how the state can respond to Massachusetts gaming expansion, but local reports have the legislature considering the establishment of gaming opportunities close to the Massachusetts border and improving odds on gaming devices. Mohegan Sun is also protecting its market share by attempting to win one of the Massachusetts casino licenses.

• New Hampshire currently has no casinos, but would still like to keep its citizen’s entertainment dollars on its side of the border. A study from the New Hampshire Center for Public Policy determined that state residents could spend upwards of $73 million at Massachusetts casinos. To keep this money at home, the New Hampshire legislature is debating a casino legalization measure of its own, calling for two full-scale casinos. Licenses for the casinos, which would cost $50 million each, will be awarded by the state’s Lottery Commission. A vote on this measure will take place in the New Hampshire house in January.

Here’s hoping New Hampshire take the same enlightened approach to casino expansion as their Massachusetts brethren. “There are a lot of good aspects of the Massachusetts legislation which I think bode well for future gaming regulation,” Pollock said. “Lawmakers understand a little bit more as to what is involved in gaming and how you do advance public policy as opposed to simply going for the highest possible tax rate you can place on a property without forcing it into bankruptcy. There have been instances where that has been the case in the past. So maybe this is a good sign.”

Hopefully, it won’t take them four tries to get it right.