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.

Marketing to gambling addicts

November 25, 2013 9:30 am

Oregon is one of many states in search of ways to raise revenues through increased gambling. The problem is there are only so many people who gamble. As such, the state is becoming more and more dependent on marketing to problem gamblers.

In 2011, Oregon officials hired a consultant to learn more about the gambling habits of residents. The consultants examined the habits of gamblers who play video slot and poker machines in bars and restaurants. The consultants found something very disturbing: the majority of gamblers sat in front of the machines alone and played until their money was gone.

Essentially, the bulk of the players had a gambling problem. But rather than do something about the problem the state had created, Oregon officials embarked on an aggressive marketing plan designed to increase play on the machines, according to a report in The Oregonian. The findings should raise a red flag for other states – like Pennsylvania – that are moving to allow video gambling machines in bars and taverns.

Many gambling experts have said that such video gambling machines are among the most addictive. Rather than curb problem gambling the state is looking to feed the addiction.

The Oregonian reported the five-member state Lottery Commission approved spending $250 million over five years to replace the agency’s 12,000-plus video machines with state-of-the art models. The first 3,000 machines are expected to be in taverns, restaurants, strip clubs, bowling alleys and gambling-oriented “delis” by late spring.

The job of elected officials is to protect citizens, not enable policies that destroy lives and ruin families.

Gambling spreads to Pennsylvania bars

November 20, 2013 9:47 am

First it was slots to help the horse racing industry. Then full-blown casinos to supposedly reduce property taxes. Now, Pennsylvania is set to legalize gambling in bars and taverns.

It won’t be long before the state is pushing Internet gambling, online lottery sales and slot machines at airports. In case you haven’t noticed, Harrisburg lawmakers have become one of the biggest gambling addicts in the state.

The state is hooked on the tax revenue that comes from gambling. That explains the latest push to allow gambling in bars and taverns. The move produces little to no economic value and just makes it easier for residents – especially the poor, minorities and working class – to gamble away their paychecks. It is just an extension of the bad public policy that began with the push to legalize slot machines – not to mention the lottery.

Elected officials should look for ways to protect citizens, not strip wealth from them. They should also look for ways to grow the economy rather than push more and more regressive gambling policies.

The African American leaders who endorsed a casino on Market Street in Philadelphia should be ashamed of themselves. The developer claims the proposed casino would benefit African-Americans and Asians, when in fact its location near a public transit hub and Chinatown will only ensure more minority gamblers leave the casino poorer, and many will become addicted to gambling, leaving families even worse off.

Studies show casinos create more costs than benefits. Studies also show there is a decrease in property values and an increase in crime, divorce, suicide and bankruptcy in the areas where casinos locate. To argue otherwise is either disingenuous or ignores the facts. This report here details the many studies that show casinos do more harm than good to a community.

New York’s real casino games begin

November 11, 2013 10:37 am

Now that Gov. Cuomo and Albany lawmakers have rammed through the constitutional amendment to legalize commercial casinos, the real games begin as operators maneuver to land a lucrative gambling license.

If history is any guide, the players with the most political clout and deepest pockets will receive a casinos license. Just look at Pennsylvania where the biggest campaign contributors and best connected friends of then-Gov. Ed Rendell and other key influential leaders in the House and Senate were awarded casino licenses – including many who had no casino experience. The winners included two convicted felons.

In New York, it is a safe bet that Cuomo & Co. have a pretty good idea who is going to get the four initial casino licenses. In fact, Albany has already earmarked the geographic areas where the casinos will go and can’t go. That decision was based more on politics than thoughtful economic analysis.

James Featherstonhaigh, a gambling industry lobbyist, part-owner of a Saratoga racino and longtime Cuomo family friend told Crain’s New York he did not know who would get a casino license.

“I don’t have any idea,” Featherstonhaugh said, apparently with a straight face.

The reality is Featherstonaugh is almost assuredly a lock to get a casino license in Saratoga. Other connected players likely to get a casino license include Jeffrey Gural, the owner of the Tioga Downs racino. Gural contributed $400,000 toward a group that purchased ads urging residents to vote to legalize casinos. He will be looking for a return on his investment.

Another likely winner will be Genting, the Malaysian-based casino giant. Genting controls Empire Resorts, which owns the Monticello racino. Genting also owns the lucrative Resorts World racino at the Aqueduct racetrack in Queens. Genting led the casino push shortly after Cuomo was elected and was a major donor to a nonprofit created to back Cuomo’s legislative agenda.

That leaves the rest of the less connected players to fight for the fourth casino license, including Caesars, the Las Vegas operator whose bid for a casino license in Massachusetts was rejected because of its $24 billion in debt and alleged ties to organized crime in Russia. See The New York Times report here.

Days after getting turned away in Massachusetts, Caesars pumped $100,000 into Cuomo’s efforts to pass the casino referendum. Caesars knows how the game gets played. Casino licenses usually go to the best connected and biggest donors.

Once that wheeling and dealing ends, look for Las Vegas operators like Steve Wynn, Sheldon Adeslon’s Las Vegas Sands and MGM to push for casino licenses in Manhattan.

Boston casino vote up in the air

November 4, 2013 9:45 am

Voters are expected to decide on Tuesday whether to approve a casino plan with a partnership between Suffolk Downs in East Boston and Caesars Entertainment Corp.

Except there is one problem: the Massachusetts Gaming Commission rejected Caesars as a partner in the deal, arguing it was unsuitable to do business in the state. The gaming commission cited the Las Vegas  casino company’s $24 billion in debt, alleged ties to organized crime in Russia and a scandal involving a high-roller who racked up a huge gambling debt but now claims Caesars encouraged him to gamble while intoxicated, the New York Times reported.

Heavy debt, mob ties and inducing customers to gamble too much: Sounds like standard operating procedure at most casino companies. Indeed, Caesars complained that the Massachusetts standards were “arbitrary, unreasonable and inconsistent with those that exist in every other gambling jurisdiction.”

Translation: Most state gambling commissions are rubberstamps that look the other way when it comes to red flags and rogue behavior. (See Pennsylvania where two casinos were awarded licenses even though the owners were convicted felons.)

With Caesars gone, Suffolk Down lacks a deep pocketed partner to build and manage the casino. As such, it is unclear what voters will be voting for or against on Tuesday.

Study: casinos = corruption

July 3, 2013 9:06 am

A new study has found what anyone who has watched states legalize casinos already knows: gambling has a corrupting influence on elected officials.

Two economists studied federal corruption conviction rates in states before and after they legalized casino gambling. The study focused on the years 1985 to 2000, a period when gambling interests flooded state capitols with money in a drive to legalize casinos.

They found corruption convictions increased after casinos were legalized. The study also showed that the corrupting influence of casinos began a year or two before lawmakers approved gambling. (See New York, where the first hint of corruption began two years ago. The impact casino money has also begun to impact Massachusetts, where gambling was recently legalized. Of course, Pennsylvania may have set the gold standard.)

Economists Douglas M. Walker and Peter T. Calcagno said the pattern supported two theories to explain the increase in corruption: the casino industry is attracted to states with an existing “culture of corruption.” The casino industry often exploits the regulatory atmosphere after gambling is legalized. In other words, the casino interests corrupt public officials before, during and after the legalization process.

The study looked at conviction rates in all 50 states between 1985 and 2000. Four out of the five states with the highest annual rates of public corruption were casino states.

Mississippi topped the list with almost four public corruption convictions a year per 10,000 state employees followed by Louisiana, Illinois and South Dakota. The five states with the lowest corruption rates did not legalize casinos during the same period.

The corrupting influence of casinos is not new, it has only increased in recent years. (See a list of anecdotal corruption incidents here.) But former Illinois Sen. Paul Simon pointed to the problem while testifying at a meeting in 1997 before the National Gambling Impact Study Commission when he said, gambling “has more of a history of corruption than any other industry.”

Bad bet: Outsourcing the lottery

January 16, 2013 9:46 am

It is bad enough that many states fund budgets by pushing the sale of lottery tickets, which is effectively a regressive tax that preys on the most vulnerable residents, many of whom consider the purchase of lottery tickets as a wealth-building strategy.

Now, Pennsylvania Gov. Tom Corbett plans to turn over the lottery operations to a private operator who will be paid hundreds of millions of dollars to get taxpayers to gamble even more. Corbett awarded the lucrative lottery contract to a British firm named Camelot Global Services. The award process was done in secret and offers little transparency. 

In addition, there are many questions and potential problems surrounding the deal. For starters, the details of the contract are murky and unclear. Camelot was the sole bidder, so it is unclear if the state is even getting a good deal. There are also risks. It is also unclear if the revenue is guaranteed to the state if lottery sales come up short.

More broadly, privatizing public assets does not have a great track record and may backfire. One report says the lottery deal may cost senior citizens. Consider the bad deals cities like Chicago have struck to lease parking operations to private firms.

More troubling, the lottery contract includes incentives and bonuses for Camelot if it can boost sales. The only way to do that is to aggressively market the lottery to get new and existing taxpayers to gamble away more money. In effect, the state is betting on its own residents to lose more money. It’s a bad deal all around. The only clear winner is Camelot.

The deal also calls for Camelot to install keno machines in bars and restaurants and sell lottery tickets online, all part of the state’s ever-growing addiction, er, policy, to push gambling at every turn in order to suck more money out of the pockets on residents. The lottery already generates $3.5 billion in sales and more than $1 billion in revenue for the state.

Most of the lottery players are elderly, poor, minority and working class. Studies show that low income residents spend a much higher percentage of their income on lottery tickets. Many are not casual players who buy a $1 ticket when the Powerball pot gets big. Instead, many buy multiple tickets every day on long-shot odds that rarely, if ever, pay off. But when it comes to privatizing the lottery, it is a good bet that this deal will prove to be a costly boondoggle.

Slots for tots X

January 15, 2013 10:25 am

Illinois, like other states, likes to trumpet the benefits of casinos. But one of the dirty little secrets is that the casinos create social and economics costs as well. One of the more disturbing patterns that follow casinos is the number of gamblers who leave kids in cars outside casinos. 

In Illinois, adults have left 85 children unsupervised at casinos across the state over the last two and a half years, according to a report in the Chicago Sun-Times. In one instance, a grandmother left her four grand kids in the car while she went to gamble. The kids, ages eight months, 1, 8 and 11, were not hurt. Grandma was fined. 

There have been a number of incidents of kids left in cars outside of casinos in Pennsylvania and many other states. (This blog has done nine previous posts titled Slots for Tots detailing similar cases.) The incidents underscore the addictive nature of gambling, especially slot machines as detailed in this post. As more casinos open closer to home, more adults are making frequent visits and getting hooked. Some casinos boast that their customers visit an average of four to five times a week. As a result, more kids are getting left in cars as adults swing into the local casinos.

Casino operators and lawmakers downplay the incidents because they are too busy counting the tax revenue that casinos generate. But it is only a matter of time before a child gets injured or dies as a result of a guardian in search of a gambling fix.

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.

Former casino boss indicted

January 7, 2013 1:10 pm

The former head of an Indian tribe that runs one of the world’s biggest casinos in Connecticut was indicted by federal prosecutors for allegedly stealing more than $100,000 from the tribe. His brother, who is the treasurer of Mashantucket Pequot Tribal Nation, was charged with stealing more than $700,000.

Michael Thomas, 44, is accused of stealing tribal funds and federal grant money between 2007 and 2009 during his tenure as leader of the tribal council. He was ousted from the top post over his handling of the tribe’s finances, which have collapsed in a pile of debt after years of success. His brother, treasurer Steven Thomas, 38, allegedly stole more than $700,000 between 2005 and 2008 when he was assistant director of the tribe’s natural resources department.

Of course, this is not the first time Michael Thomas has faced legal troubles. In 1987, Thomas was busted for cocaine possession by Rhode Island police and spent nearly a year in state prison. Despite that drug conviction, the tribe was awarded a casino license in Pennsylvania, but it was later revoked due to failure to build a casino in Philadelphia.

The Connecticut Post reported that both brothers recently filed for federal bankruptcy protection, and Michael Thomas was granted a discharge of his debts in April. Thomas listed $346,474 in assets and more than $10 million in liabilities, including a claim for $8.4 million by Sovereign Bank.

The sad story underscores the criminal element that often surrounds casino gambling. Not to mention the troubles that have best Indian tribes.