Casino bets are off

January 22, 2014 3:43 pm

Has the casino industry hit its peak?

Gambling revenues are down in a number of states, raising questions as to whether the market has become saturated. It also raises questions for states like Florida that are considering legalizing casinos: Are they too late to the gambling game?

Before making a big bet on casinos, policy makers should take a look at Indiana, Ohio, Pennsylvania and Louisiana to name just a few states where casinos revenues are falling.

In Detroit, casino revenues dropped 4.7 percent last year in part because of increased competition from Ohio. The drop in revenue leaves even less money to fund operations in the bankrupt city.

In Indiana, casino tax revenues plunged 15 percent over the past six months. Overall, revenues in Indiana hit an eight-year low. In Ohio, casino-tax revenue dropped for the second-straight quarter leaving some to wonder if gambling has already peaked in a state where the casinos just opened two years ago. In Wisconsin, the drop in casino revenue there prompted some to say the market is saturated.

In Pennsylvania, casino revenues dropped 1.4 percent in 2013, marking the first drop since gambling play began in 2006. In Louisiana, casino revenues were down 4.4 percent in December, including a 16 percent drop in New Orleans. In Connecticut, revenues from two Indian casinos dropped 15 percent and 8 percent respectively in December. Officials there expect gambling revenues to keep dropping as competition increases, leaving the state scrambling for new sources of revenue.

In Delaware, casinos revenues dropped 5.5 percent in one year, thanks to increased competition mainly from Maryland. The Delaware casinos pushed for lower taxes but got a bailout instead from Gov. Jack Markell. The falling revenues prompted Governing Magazine to wonder if casinos are still a safe bet. Likewise, USA Today recently asked if the country has too many casinos.

Then of course there is Atlantic City, where gambling revenues are down 45 percent since 2006. Last year, revenues dipped below $3 billion for the first time in 22 years. The slide in Atlantic City shows no signs of slowing down. One casino recently closed and the fancy new Revel casino filed for bankruptcy less than a year after opening.

Analysts say the opening of each new casino in some markets essentially cannibalizes business from each other. “It’s close to the saturation point,” Alex Burnazhny, director in Fitch Rating’s Gaming, Lodging & Leisure group, told Bloomberg News. “It’s almost a zero-sum game whenever a new casino opens.”

Clyde W. Barrow, director of the Center for Policy Analysis at the University of Massachusetts, Dartmouth, told the Press of Atlantic City the saturation will only intensify once casinos in New York and Massachusetts open. “I believe the level of competition will continue to escalate, because at this point, table games and slots are just like a commodity — like copper and aluminum,” he said.

In Illinois, Clark County Commissioner John Detrick said the casino funds are an unreliable source of funding..”We’re glad to get it,” he said. “But casino money is an unknown and can go down.”

However, not all of the news is bad for the casino industry. The CEOs at two nonprofit casinos in Iowa were each paid more than $650,000 last year, the Des Moines Register reported. Revenues at the casino in Dubuque are down 20 percent in the past five fiscal years, but the CEO’s pay increased 38 percent, the paper reported.

Just goes to show the house wins even when it loses.

Is Atlantic City the next Detroit?

January 2, 2014 11:01 am

Atlantic City’s faltering casino industry has resulted in a sharp drop in property tax revenues, which has forced the city to borrow hundreds of millions of dollars and is threatening its ability to pay its bills.

A big problem is that the drop in gambling revenue prompted a number of casinos to appeal their property tax assessments, resulting in lower tax bills. In order to pay property-tax refunds, Atlantic City has borrowed $270 million since 2007.

“In a few years, we will be broke under the way the city is doing business, and the [casino tax] appeals is just one part of it,” Mayor Don Guardian told The Inquirer in an interview before he was sworn in. “Detroit continued to bond until [it] couldn’t bond anymore. It increased taxes and lost population. Some of those same things are happening in Atlantic City, and we have to take steps to avert bankruptcy.”

In Detroit, a continued drop in casino revenues is hampering the city’s ability to restructure its debt. Meanwhile, there does not appear to be any end in sight to Atlantic City’s financial woes.

The Atlantic Club Casino (formerly Steve Wynn’s Golden Nugget) is closing its doors later this month, reducing the number of casinos in Atlantic City to 11.The Borgata will be in court this spring fighting to maintain a $48.8 million refund awarded by a state tax court in October. The city appealed the ruling. If the Borgata wins, many expect Atlantic City will have to raise taxes on residents and businesses.

Moody’s downgraded Atlantic City’s credit rating last month to Baa2, citing the shrinking tax base. In New Jersey, casino property valuations are based on the income generated. Casino revenues in Atlantic City have dropped from a high of $5.2 billion in 2006 to just over $3 billion in 2012. The final figures for 2013 are expected to be below $3 billion, which would be the lowest in 22 years. That is without adjusting for inflation.

Atlantic City’s financial woes offer a cautionary tale for other cities and states that try to use casinos to fund budget operations. Research by the Rockefeller Institute shows that gambling revenue is often unsustainable and unreliable.

The nearly two dozen states that get revenue from casinos struggled financially in recent years, according to an analysis by the Lexington Herald-Leader. “All of the states cut spending; half raised taxes. Some fired thousands of their public workers, including educators and police, and gutted their basic classroom funding,” the paper reported.

Revel’s sucker’s bet

June 28, 2013 9:19 am

The Revel casino in Atlantic City opened to great fanfare last year and then promptly filed for U.S. bankruptcy protection.

Now, the $2.4 billion casino appears willing say and do anything to lure in gamblers to help stay afloat. The Revel is advertising a new promotion that claims slots players “Can’t lose.”

During the month of July, the casino says it will ‘refund’ any losses at slot machines. Of course, the ad is misleading. There are no cash refunds. Instead, the Revel will give gamblers credit for any losses at its slot machines. But the credit can only be used to gamble again at the Revel. In other words, the casino will let you lose your money twice.

That’s not a deal, that’s a suckers bet. The goal of casinos is to keep gamblers coming back early and often. Over time, the casino knows it will take your money because the odds are always stacked in its favor. Hence the term, gambler’s fallacy. But the casino industry has a better term that it doesn’t like to discuss. It’s called play to extinction. (See video here and read this excellent piece in the National Review on why casino gambling is a bad racket.)

Getting gambler’s to play to extinction is really what is behind the Revel’s “can’t lose” promotion.

NY casino vote delayed?

May 2, 2013 9:54 am

New York Gov. Andrew Cuomo may delay a statewide vote for commercial casinos because he fears a large turnout of city voters for this year’s mayoral race will reject the measure.

What do New York City voters know that upstate voters don’t?

Perhaps city voters are not bamboozled by the casino hype. Perhaps they better understand the social and economic ills that come with casinos, including more crime, divorce, bankruptcy and suicide. Perhaps they have seen that casinos have not helped struggling cities like Detroit, Philadelphia or Atlantic City. Or perhaps they don’t want cheesy casinos invading a world class city.

As usual, the public remains left out of the policy debate regarding casinos. Cuomo and other key political leaders spent the day behind closed doors discussing casino strategy. Rest assured Cuomo and his casino cronies have poll tested a casino vote this year against 2014. Just like the casinos that stack the odds in their favor, Cuomo seems to like his chances better in 2014.

Cuomo has already tried to mislead the public by initially proposing three casinos located upstate. They could tamp down opposition in the city. But if casinos are approved, the operators are going to push hard to locate in and around the five boroughs – especially in the lucrative market of Manhattan.

But having the casino measure on the 2014 ballot could complicate Cuomo’s reelection bid – especially if any opponent highlight how gambling is not economic development. In addition, casino operators in Connecticut, Atlantic City and Indian casinos in New York appear poised to fund a major campaign to keep casinos out of New York – not because of the negative impact of gambling but because they fear the competition. It should make for an interesting election.

Chum in the gambling water

April 15, 2013 4:02 pm

One of the most effective gimmicks casinos use to lure in frequent gamblers is offering so-called “free play,” or gambling credits.

These are essentially gambling vouchers to get people in the door. It is the equivalent of a fisherman putting chum in the water to lure sharks. The gamblers like it because they feel special and get to play with house money. But once they burn through the voucher, most gamblers dig into their own pockets. That’s exactly what the casinos want.

This story in the Atlantic City Press details how one casino has used “free play” to dramatically boost profits. The Atlantic Club increased the amount of free play it uses to lure in gamblers to $3 million a month from $1 million. The result was a 33 percent increase in profits.

That may be good for the casino. But the end result is luring gamblers in more often and stripping more wealth from them. One Atlantic Club member said the casino gives her upt to $25 in “free play” every time she shows up. As a result, she goes to the Atlantic Club three times a week and usually on the weekends. That comes to about 200 trips to the casino a year. Talk about feeling lucky.

Revel files for bankruptcy

February 20, 2013 9:09 am

The one sure bet in Atlantic City the last 10 months was that the new $2.6. billion Revel casinos was likely to go bankrupt. Well, that bad bet just came true.

There was a reason why Morgan Stanley and other private investors walked away from the half-built casino after the 2008 financial collapse. Given the state of Atlantic City’s faltering casino industry, the Wall Street investors determined it was cheaper to cut their sizable losses and walk away from the Revel.

But Gov. Christie stepped in with $300 million in taxpayer money to get the casino up and running. Can you say bailout? Flush with house money, Revel rolled the dice.

From the start, the casino failed to attract the repeat gamblers needed to keep the slot machines spinning. Atlantic City is a mostly low-rollers market, supported by working class and elderly gamblers who spend hours at the slot machines. (Think Jersey Housewives, Sopranos and lots of senior citizens buses.)

The Revel tried to be an upscale casino that doesn’t allow smoking. But there aren’t enough James Bond types in Atlantic City to support the casino. Not to mention, the increased casino competition from Pennsylvania, Delaware, Maryland and the racino in Queens, N.Y. With gasoline back near $4 a gallon, there is no need to trek to dumpy Atlantic City when there are plenty of dumpy casinos closer to home. In fact, the growing glut of casinos raises questions about the whether the region is oversaturated and can support more casinos.

Other states will likely press on with their casino expansion plans, paving the way for more competition and more casinos going under. In the end, the big losers at the Revel will be the New Jersey taxpayers that Gov. Christie put on the hook for the $300 million in state funding.

A former mayor’s $1 billion gambling problem

February 15, 2013 9:52 am

The former mayor of San Diego wagered more than $1 billion at casinos over the last decade, forcing her to liquidate her savings, sell off real estate, auction belongings, borrow from friends and take more than $2 million from a charity set up by her late husband, according to The New York Times.

Maureen O’Connor, 66, made repeated visits to casinos in Las Vegas, Atlantic City and San Diego. Her wagers totaled more than $1 billion but her actual losses were $13 million. Even still, her gambling addiction amounted to wagering an average of $300,000 a day, every day, for nine years. O’Connor’s game of choice was video poker, a highly addictive gambling game and one of the more lucrative games. 

Friends were shocked by O’Connor’s gambling addiction. She didn’t drink and as mayor was described by a reporter as a “goodie two shoes.” O’Connor blamed her addiction on depression from the loss of her husband and later a brain tumor. Her addiction fits a pattern known as “grief gambling.” Indeed, many slots addicts tend to be widows.

O’Connor’s story underscores the addictive hold gambling can have on individuals. It also underscores how little casinos do to try to stop addicts. It is virtually impossible to imagine the casinos were not aware O’Connor was spending an average of $300,000 a day for nine years. In fact, casinos target problem gamblers. The casinos likely teated O’Connor like a VIP, offering her a variety of incentives, including free rooms and meals, to keep coming back and to stay for hours on end.

Indeed, casinos make a large percentage of their profits from repeat and problem gamblers. One study found as much as 62 percent of a casino’s slot machine revenue comes from problem gamblers. Studies also show that the closer a casino is to someone’s home the more at risk they are of developing a gambling problem. That’s what makes the spread of convenience casinos in many states and small towns all the more troubling.

Most elected officials and casino supporters ignore or deny the fact that a casino’s business model is essentially built on problem gamblers. Then again most elected officials and casino operators don’t gamble. They know it is a sucker’s game. But now the former mayor of San Diego has been ensnared in the predatory gambling venture that is being enabled and pushed by many other mayors and governors.

Atlantic City losing streak: six years and counting

January 11, 2013 9:11 am

Like many of the gamblers who leave Atlantic City with empty pockets, the casinos here are on a serious losing streak.

Total casino revenue was down 8 percent in 2012 in Atlantic City. It was the sixth year in row of revenue declines. Where have all of the gamblers gone? The casinos are struggling from increased competition mainly from Pennsylvania, which legalized casinos in 2004. Delaware, Maryland and Ohio have opened casinos in recent years. Massachusetts legalized casinos but has yet to open any. 

Overall, revenues are down 41 percent from the high 2006. The casinos raked in $3.05 billion last year compared with $5.2 billion in 2006. the addition of the new Revel casino has done little to reverse the fortunes in Atlantic City. In fact, the Revel has struggled to attract gamblers since opening last spring and is teetering on bankruptcy. Hurricane Sandy also hurt the casino, which were forced to close for several days during the storm.

The financial problems in Atlantic City may get worse if New York Gov. Andrew cuomo gets his way and legalizes casinos. About half of the Atlantic City gamblers come from the New York area. At the same time, some lawmakers in North Jersey are pushing to bring a casino to the Meadowlands.

That will leave the Atlantic City casinos like many of its gambling customers: chasing its losses.

Update: The casinos in Nevada are also struggling as the sluggish economy continues to impact gamblers.

Why casinos are bad for cities

November 27, 2012 11:05 am

Richard Florida makes a strong case against adding casinos in New York City and other cities for that matter.

“While politicians and casino magnates seek to sell gambling complexes to the public as magic economic bullets, virtually every independent economic development expert disagrees — and they have the studies to back it up,” writes Florida, the director of the Martin Prosperity Institute at the University of Toronto as well as a professor at New York University and senior editor at The Atlantic.

Florida pointed to Baylor University economist Earl Grinols’ 2004 book “Gambling in America: Costs and Benefits,” which totaled the added costs cities pay in increased crime, bankruptcies, lost productivity and diminished social capital once they introduce casinos. “He found that casino gambling generates roughly $166 in social costs for every $54 of economic benefit,”

Florida cites the National Gambling Impact Study’s 1999 findings that while the introduction of gambling to highly depressed areas may create an economic boost, it “has the negative consequence of placing the lure of gambling proximate to individuals with few financial resources…And as competition for the gambling dollar intensifies, gambling spreads, bringing with it more and more of the social ills that led us to restrict gambling in the first place.”

Florida points out casinos have not helped to revitalize Atlantic City. Even Las Vegas is struggling to broaden its appeal beyond gambling. “Atlantic City’s first legal casino opened in 1978 amid expectations of economic spillover in the form of retail businesses, restaurants, rising property values and jobs,” he wrote. “But a study conducted 13 years later found that any ‘anticipated multiplier effect has not moved much beyond the core industry . . . Half of the population still receives public assistance, and city services continue to be substandard. Social problems, including increased crime and prostitution, are worse than ever. Since most people holding the better casino jobs live in Atlantic City suburbs, they contribute little directly to the city.’ ”

Florida writes that gamblers “may fool themselves into thinking that they can get something for nothing, but public officials and civic leaders should know better.” He then underscores the role of states in enabling casinos by quoting Warren Buffett: “I don’t think the state should be in the position of selling the needle.”

The real Atlantic City

November 16, 2012 11:11 am

The way lawmakers and casino operators tell it, Hurricane Sandy has left town and all is well in Atlantic City. Now, the gamblers just need to return.

But don’t tell that to the many residents of Atlantic City who are still dealing with the aftermath of the storm. Storm damage there was reportedly minimal. But many residents lost heat, hot water and electricity. Others lost what meager possessions they had, including clothes and food. While much of the focus has been on the casinos, life has not returned to normal for many residents.

Lonzie Tolbert’s basement took on 6 feet of water, ruining his furnace, the Associated Press reports. He has no heat, so he burns small pieces of wood and scraps of paper in a fireplace to try to keep warm. He has no hot water, so he tries to heat some in a kettle near the fireplace.

“You do the best you can with what you have,” the 84-year-old Tolbert told the AP while sunning himself outside his home three blocks from Revel, a $2.4 billion casino resort. “I can’t complain and I’m not hollerin’.”

Of course, leaving Atlantic City residents to fend for themselves is nothing new. Thirty years ago, the casinos were supposed to be the savior of the seaside town. Instead, the gleaming casinos have reaped billions of dollars in profits, while the rest of the city remains as poor and downtrodden as ever.

Timothy Ryan, a University of New Orleans economist, said homelessness increased in Atlantic City after the arrival of casinos, while clothing stores and eating and drinking establishments declined. “Only a few retail stores opened in the off-Boardwalk and downtown areas,” he found. ”Researchers calculated that the growth of crime in the Atlantic City region reduced property values by $24,000,000 for each easily accessible community to Atlantic City.” Ryan said compulsive gambling was a major influence causing regional economic decline. Other studies have supported Ryan’s finding.

The bottom line is that casinos have done very little to transform Atlantic City. Even after all the damage caused by hurricane, the main focus was on getting the casinos up and running again, while the struggling residents have been left out in the cold.