by Elliott Morss
These are desperate times for US state and local governments. More than half a million state/local workers have been laid off and more will be soon as Federal support dries up. Where can these governments find more revenues? The Massachusetts and New York governors have hit on the solution: gambling casinos. They echo one another in saying: why should our citizens gamble in Connecticut, Delaware, Maine, New Jersey, Pennsylvania, and Rhode Island? Why should our citizens help pay their taxes? The questions sound sensible, or do they?
Gambling casinos exist in 15 states. As Table 1 indicates, their gross revenues in 2011 were $62 billion, with Indian casinos taking in just under half. The NE/Mid-Atlantic States took in about a third of the U.S. gambling tax revenues. Governors Cuomo and Patrick want part of the action.
As a point of reference, Table 1 includes gambling revenues from Nevada and Macau. It is amazing how rapidly Macau surged by Las Vegas. However, the Macau product is very different than the one offered in the U.S. While U.S. casinos promote the image of “family experiences” (like going to Disneyland), Macau has a somewhat “harder” image that features gambling, drinking and prostitutes.
Slot Machines and Video Lottery Terminals (VLTs)
While gambling casinos have typically been places where one can play “table games” (Poker, Blackjack, etc.), the role of slots and VLT’s are growing. Operated like vending machines, slots (pull a handle) and VLTs (push a button) are easy to maintain and are normally programmed to return 9% of the amount gambled to the house. As Table 2 indicates, the vast majority of U.S. casino gambling revenues come from slots/VLTs. In striking contrast to the U.S., slots account for only 4% of non-pari-mutuel gambling revenues in Macau. There, Baccarat is extremely popular, generating 91% of gambling revenues.
Current Conditions in the New England/Mid-Atlantic Gambling Markets
As I have noted in an earlier article, the demand for U.S. gambling products behaves far more like a discretionary item than an addiction need. The global recession hit U.S. gambling quite hard, and the industry is still trying to recover. For example, gambling revenues in Nevada fell 20% in the 2008-2009 period, and there has been very little recovery since then.
The two largest casinos in the world, Foxwoods and Mohegan Sun (both in Connecticut), are in dire straits. With $2.3 billion in debt, Foxwoods is effectively bankrupt. Mohegan Sun is not far behind, even though it has just refinanced some of its debt. Foxwoods does not have a very positive view of the gambling market moving forward. As an alternative, Foxwoods is building a 300,000 square foot outlet mall for 75 stores. In Rhode Island, the Twin River Casino has just emerged from bankruptcy. New Jersey has several casinos emerging from bankruptcy. Trump Entertainment Resorts, the owner of three Atlantic City facilities, is emerging from bankruptcy for the 3rd time.
The Market for Additional Gambling Facilities in Massachusetts and New York
Cuomo and Patrick hope to build three new casinos each, with additional slots/VLTs in other selected locations. Looking only at Connecticut, Maine, New Jersey, New York and Rhode Island, there are already 71,053 slots/VLTs in operation. Are more needed? Is this a growth industry? To answer this question, consider the demographics of slot/VLTs users. Michael Sokolove quoted Scott Butera, the CEO of Foxwoods, on its slots users:
“Our crowd wants to sit in front of a slot machine, smoke a cigarette, and drink…. You look around here, and 45 is young”. Sokolove also quoted Michael Meczka, a casino marketing consultant: “There aren’t any new customers out there. Gaming is an aged community….Anyone who has ever wanted to try a casino has tried a casino.”
There is no question that casinos are attractive to smokers. It is one of the few places they can smoke (and drink) in an indoor public facility. But the portion of American smokers continues to fall. There is another point about younger gamblers. Many of them have become accustomed to gambling on the Internet. In short, the demographics are against much growth in casino gambling.
Conclusions on What Will Happen When MA/NY Move Ahead With Casino Plans
The U.S. casino market is not growing. That means if Massachusetts and New York move ahead with casino plans, they will draw the bulk of customers from other markets. Sitting between Massachusetts and New York, the two Connecticut casinos are likely to be hit hard. An estimated 50% of customers for these two casinos come from out of state with 30% coming from Massachusetts. Rhode Island’s two facilities with 6,100 VLTs will lose customers. And Atlantic City, already hit hard by gaming facilities in Mid-Atlantic States, will also lose customers.
Will this trouble Cuomo and Patrick? If they don’t have to put up the money for the new casinos, why should it? And as they often say, if our citizens want to gamble, why should they pay gambling taxes to other states?
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