‘The one-armed bandit arms race’

August 3, 2012 8:21 am

As more states get into the casino business, existing casino states have had to scramble to keep up by adding more gambling. The result is a gambling arms race that has some wondering if markets are becoming over saturated.

States are now competing for gamblers, much the same way they try to lure companies to town. Except rather than creating jobs and economic growth, casinos extract wealth from communities and produce little economic spin off.

The New York Times details very nicely how states that embraced gambling are “struggling to keep up in what has become a feverish one-armed-bandit arms race.”  This blog has written about this frequently over the past year. (See here, here, and here.) The Times examined Delaware’s efforts to confront the increased gambling competition for other states. This blog has focused on Delaware’s efforts as well. (See here, here and here.)

The bottom line is states that bet on casinos may see an increase in revenue in the short term, but eventually competition kicks in resulting in a steady drop in tax revenues. States wrongly respond to the competition by trying to add even more gambling and lowering the costs for casinos, which results in less revenue coming to the state.

It is a viscous cycle. Almost like an addicted gambler hoping for a big score.

Dismantling the case for casinos

April 3, 2012 9:01 am

One of the main reasons lawmakers use to support gambling is competition from other states. The governors in Pennsylvania, New York and Massachusetts all said that legalizing casinos would keep residents from going out of state to gamble.

To a certain extent that may be true. But the answer to gambling is not more gambling. A casino closer to home just means folks gamble more often and new problem gamblers are created. The upshot is more wealth stripped from residents.

New Hampshire’s governor and lawmakers just rejected an effort to legalize casinos there. (See earlier post here.)Casino supporters said the state needed to act now that Massachusetts has legalized casinos. But an editorial in a New Hampshire newspaper explains why that is a bogus argument. Here’s a portion of this compelling editorial in the Seacoast newspaper that cuts through the rhetoric:

“The last thing in the world New Hampshire should ever do is try to copy the corrupt, bloated and thoroughly dysfunctional government of Massachusetts, where the last three House speakers have been convicted of federal felonies, and patronage, nepotism and no-show jobs are common.

“The reason Massachusetts needs gambling is that it is addicted to spending. When the going got tough during the Great Recession, instead of belt-tightening, as we did here in New Hampshire, Massachusetts decided to feed its spending habit by prostituting itself to organized gambling operators.

“Massachusetts will soon find, as every other state that has allowed gambling out of desperation has found, this sort of political prostitution does not create a sustainable revenue stream. As the initial flow of gambling dollars slows, the gambling interests will seek more lenient laws and additional locations. Once they have more lenient laws, they’ll begin to choke off the amount of money going to the state and the state will need to take what it can get to feed its addiction.”

 Well said.

Foxwoods fights to stay afloat

March 14, 2012 1:32 pm

Michael Sokolove has a great piece in The New York Times Magazine about the financial struggles facing the Foxwoods casino in Connecticut.

The sprawling casino on an Indian reservation printed money for years, giving members of the tribe annual checks of $100,000. But Foxwoods grew too big too fast and took on a pile of debt to grow some more just before the economy tanked. That and increased competition from other states that are using gambling as a way to finance government operations has cut into Foxwoods’ bottom line. (Just wait until Massachusetts and New York open commercial casinos. The two Indian casinos in Connecticut could be in real peril then.)

The piece does a fine job of capturing the state of the gambling industry these days and how lawmakers and casino operators view the gambling public. Scott Butera, the new head of Foxwoods who was brought in to turn around the casino, is honest about how lawmakers view gambling.

“Few governors or senators or House members want to say, ‘I absolutely love having casinos in my market,’ ” he said. “It’s more like: ‘We can manage this. And here’s what we’ll do. We’ll put it in the right place, it won’t impact our society too much and we’ll make some money.’ ”

Butera also explains how casinos suck gamblers in and almost always win over time.

“The more hands a player is dealt, the better it is for us,” he said. Butera, who has an M.B.A. from N.Y.U., invoked a gambling term — “vig,” short for “vigorish,” meaning the house’s cut of the action. “The math is the math,” he said. “Over time, we’ll make our vig.”

Meanwhile, casino operators know that slot machines are even better bet for the house.

As Sokolove writes: “The difference between table games and slot machines is that slots are entirely predictable. They’re like A.T.M.’s, but in reverse — programmed to take money from players, usually about 9 cents of every dollar wagered, while producing frequent near misses, the illusion that a big jackpot was at hand if only, say, just one more overstuffed burger had landed on the pay line. The lower the house’s hold on a slot machine — and the higher the number of small payouts — the longer a player’s T.O.D. (time on device). It’s a fine balance. Casinos want customers to lose their money, but not so rapidly that they’ll feel the whole experience was a bummer and not want to return.”

Atlantic City’s troubles continue

March 12, 2012 9:46 am

The casino industry in Atlantic City continues to struggle, thanks in large measure to increased competition from Pennsylvania as well as Delaware and Maryland, and the weak economy.

The industry posted another down month in February. Revenues were off 5.9 percent compared with last year. That’s a steep drop considering the mild winter this year compared with 2011 and an extra day of gambling in February.

Now, comes word that Atlantic City is ending its train service from New York because it was not generating enough gamblers. Add that it with recent news of a casino lowering its minimum bets for table games to $3 and increasing the payout of penny slots and casinos offering hotel rooms for as little as $19 a night, and the gambling industry in AC is taking on a distinct feel of desperation.

Overall, casino revenue in Atlantic City have been sliced in half in recent years. Just wait until the new Revel casino opens this spring, which should pull gamblers away from the other AC casinos, which will just add to the financial pressure on several already-struggling casinos.