Tri-State Casino Ecosystem, About to be Shuffled
Since the days of when vice boats carried gamblers up and down the Mississippi, untold fortunes have changed hands in America’s casinos. But lately, cash-hungry politicians in the tri-state area are shaking the dice on new gambling models, which stand to impact the fortunes of neighboring states.
New Jersey lawmakers are betting the one-of-a-kind Revel casino and resort in Atlantic City will be able to compete with the open table games that New York Gov. Andrew Cuomo pushed for in seven of the state’s racetrack casinos. As Albany attempts to work out the legislative hurdles to a new gambling economy, Indian casinos upstate and in Connecticut are looking on nervously.
MetroFocus looks at what New York, New Jersey and Connecticut are holding, and what could be folding as casino fever heats up.
In early March, the Atlantic City Express Service (ACES), an express train that whisked gamblers from New York City to Atlantic City, made it’s last run. The train, which opened in 2009 and was funded by three of New Jersey’s biggest casinos, simply wasn’t making enough money and it’s untimely demise served as a warning for those invested in the aging boardwalk empire.
“The ACES train project was a unique initiative that fell victim to the timing of increased gaming competition in surrounding states and the economy,” said John Palmieri, executive director of the Casino Reinvestment Development Authority — an agency that provides investment funds for Atlantic City development projects — in a written statement.
Atlantic City’s gambling revenues have declined 36 percent since 2006, according to the Center for Gaming Research. While the decline was partially due to the recession — Las Vegas also lost revenues after 2008, but had reversed its decline by 2010 — the truth is, Atlantic City’s revenues have been slowing since the mid-1980s. The legalization of table games at Pennsylvania casinos in 2010, and the opening of a slot machine casino at Aqueduct racetrack in Queens last October seemed like two more nails in the boardwalk.
But after multiple setbacks, including the loss of its main investor Morgan Stanley in April 2010, Atlantic City finally opened its first casino since 2003 on Monday. Revel, a $2.4 billion resort, is different from Atlantic City’s other 11 casinos. The casino only makes up 5 percent of the 6.3 million-square-foot property, and the rest is dedicated to luxury hotel rooms, restaurants, theaters, spas and swimming pools.
“We’re looking for people to look at this as a resort first,” Kevin DeSanctis, Revel’s CEO, told CBS. “If you’re thinking of a two or three-day getaway in the Northeast without getting on a plane, this is the place I want you to think of first.”
Virtually every aspect of Revel, including the fact that it faces the beach, breaks with Atlantic City tradition. DeSanctis, lawmakers and other Atlantic City stakeholders have their fingers crossed that focusing on families and non-gamblers will pay off. However, remember that Las Vegas spent the ’90s trying to reinvent itself as a family-friendly town, a decision that turned out to be not so profitable, and ultimately resulted in a return to Vegas’ “What happens here stays here” marketing campaign.
Competitors from up north
Pennsylvania and its table games is only Atlantic City’s latest foe. In 1992, the Mashantucket Pequot tribe opened the Foxwoods casino in Connecticut, the state’s first Indian casino. Foxwoods, the second largest casino in the nation, quickly became more profitable than any casino in Atlantic City (it was said to clear $400 million annually in its first two years). Because reservations are sovereign nations, Indian casinos do not have to pay state taxes on gambling revenues, though Foxwoods has an agreement to pay the state either 25 percent of its slot earnings or $80 million per year — whichever is higher. The federal government can tax individual American Indians, but not tribal government revenues from casinos. Indian casinos do pay employment taxes and other taxes not directly related to gambling.
New York’s first Indian casino, the Oneida tribe’s Turning Stone in Verona, opened in 1993, and in 1996 a smaller Indian casino in Connecticut, Mohegan Sun, opened near Foxwoods. Over the years, four more Indian casinos have opened in Western New York, all operated by the Seneca tribe, and the Mohawk tribe opened the Akwesasne Mohawk Casino in Franklin County. With the exception of Turning Stone, New York’s Indian casinos pay the state 25 percent on slot revenues. In 2008, a report by the trade group Casino City found that New York’s Indian casinos saw a 7.7. percent increase in profits between 2006 and 2007, while Atlantic City experienced a 5.7 percent drop.
“From what I’ve seen and what I’ve heard and read, I think they [Atlantic City and the neighboring Indian casinos] are all in some ways competing against each other,” Alan Meister, the author of the report, told the New York Daily News.
Indian casinos, however, suffered during the recession, and revenues dropped nationally in 2009. That same year, Mohegan Sun cut its employees’ salaries. Foxwoods, which opened a sister casino, MGM Grand, next door just five months before the recession hit, is still $2.3 billion in debt. A deal with lenders will reduce the debt to $1.7 billion, and although that’s still a daunting number, lenders cannot foreclose on the casino because it’s located on sovereign soil.
Indian casino profits picked up both in New York and nationally beginning in 2010, but like the gaming empire in Atlantic City, both of Connecticut’s casinos revenues have continued to decline. That’s due in part to some questionable financial decisions — does a casino really need 15 kinds of decorative Brazilian wood? — but it’s also the result of an increasingly popular form of gambling in neighboring states.
Racinos enter the race
In 2003, voters in Maine approved a ballot referendum to allow racinos — horse racing tracks with slot machines, and in some cases, table games — and on March 16, added table games to the state’s most popular racino. Massachussetts voters approved a referendum in 2011 to allow casinos. And Rhode Island voters approved a similar measure for 24-hour slot gambling at two racinos in 2007. In 2012, Rhode Island voters will decide whether to allow table games at a slot parlor in Newport, RI.
The emergence of new gambling dens in metropolitan areas to the north will certainly put a dent in traffic to Indian casinos and Atlantic City, but the biggest threat is coming from Albany.
Cuomo goes all in
New York State began its push toward legalizing racinos shortly after 9/11 to make up for lost tourism profits, reported the Syracuse Post-Standard.
Saratoga Casino and Raceway became New York State’s first non-American Indian gaming facility in 2004, followed by seven more — all with slot machines, but not table games — in the following three years.
A Rockefeller Institute report found that New York racino profits rose 7.9 percent between 2009 and 2010, and according the American Gaming Association, New York State racinos pulled in $1.1. billion in 2011. Due to New York’s extremely high gaming tax — a whopping 66.53 percent — the state took $503.48 million from those earnings.
Dazzled by the numbers, Cuomo was finally able to realize his long-time dream of legalizing slots at Resorts World casino near the Aqueduct racetrack in Queens last October. By the end of 2011, Aqueduct had earned $90 million, and the casinos owners, the Malaysian-based Genting Group, are projecting future revenues between $300 and 400 million, annually. In January, Cuomo signed a deal with Genting to allow Resorts World to expand, as part of his plan to replace the Javits Convention Center in Manhattan with a new convention center near the racino. However, on March 31, the New York Post reported that lawmakers in Albany intend to kill the convention center deal.
But the best or worst news, depending on your relationship to gambling, came on March 14. After a lengthy session of push and pull, Cuomo and the New York State legislature made an agreement to legalize table games at seven of the nine racinos this year or next, which will involve a new amendment to the state constitution. The agreement was described by Baruch College public policy professor Doug Muzzio as “classic Albany: three men in a room, huge log roll, no transparency.”
It’s not yet disclosed which casinos will get table games, but a racino insider told Crain’s that two of the three racinos in Western New York will likely be left out.
Meanwhile, two developers are hoping to transform an old Borscht Belt resort in the Catskills into a massive casino, although the companies are involved in a $1.5 billion federal lawsuit with another developer who had a similar plan that failed as a result of the recession. Additionally, the Shinnecock Indians are said to be ramping up their efforts to build a casino on an underdeveloped section of Long Island, after a previous casino deal in Nassau County fell through. The possibility of either of those projects actually happening is dubious, however.
The stakes in 2012
The owners of New York’s Indian casinos aren’t happy, and say they were excluded from discussions about the casino amendment.
“For most of the last 200 years it’s been founded upon predatory actions by the state to take our land, to take jurisdiction over our remaining land, to try to tax activities on our land and frankly it’s just this constant groundhog day-kind of replay of various efforts by the state government to interfere with our treaty rights and to take what we have. And that really hasn’t stopped,” Seneca Nation president Odawi Porter told WNYC.
And Nicole Gelinas of the Manhattan Institute cautioned that the seven casinos may turn out to be less profitable than Cuomo expects.
“If you have one then obviously everyone has to go to that one,” Gelinas told Fox News. “If you build three or five around the state, many people would rather go to one of those. So you may have the same revenue but split among different locations — which doesn’t really add anything for the state.”
There’s also two other elephants in the room.
Will the rapid creation of new casinos invite corruption? In 2011, a Pennsylvania grand jury claimed that the state’s casinos were designed under a framework polluted by cronyism, illicit deals and alleged mob ties.
Then there’s the more obvious fear, that casinos leach off those with the most to lose — the poor, senior citizens and people without high school or college degrees.
“It’s an ethical issue about fleecing unwary, vulnerable people in order to pay for government, David Blankehorn, president of the casino-opposed advocacy group Institute for American Values, told The New York Times.
It’s too soon to tell how the addition of table games to New York’s casinos will impact Atlantic City or the Indian casinos, but as the weather warms up, the theory that tourists will flock to Atlantic City for resort-style luxury in Revel’s 1,898 rooms will be vigorously tested.