U.S. News
Casino Boom Pinches Northeastern States
Influx of Competition Leaves Early Players—Such as Delaware, New Jersey and West Virginia—Struggling to Keep Bets Flowing
June 19, 2014 7:27 p.m. ET
Racetrack casinos used to contribute
as much as $240 million a year to Delaware's tax coffers. But as the
Northeast becomes saturated with gambling venues, the state's casino
revenue has tumbled, prompting a new industry request—for a tax break.
"It's a different world for the Delaware casinos," said Democratic Gov.
Jack Markell,
who supports reducing the tax burden on casinos by $20 million a year to help them compete.
More
casinos have opened in the Northeast over the past decade than in any
other part of the country, and the expansion is causing upheaval in the
region. States that adopted gambling earlier than their neighbors, such
as Delaware, New Jersey and West Virginia, are watching dollars drain
away, and new projects have some wondering how many facilities the area
can support.
Twenty-six casinos have
opened since 2004, fueling a 39% increase in total annual gambling
revenue in the mid-Atlantic and New England, according to a study by the University of Nevada, Las Vegas.
Within 100 miles of Philadelphia, there now are 24 casinos, a big shift
from the early 1990s, when Atlantic City, N.J., enjoyed an East Coast
monopoly. At least a dozen more gambling spots are in the pipeline from
Massachusetts to Maryland, raising fears in states such as Rhode Island
that their casino tax windfall is at risk.
The casino-building boom is "a
declaration of war—indirect war—by the states," said the Rev.
Richard McGowan,
a casino expert and Boston College adjunct associate professor.
"What they're saying is, 'I want the revenue. I want the revenue back.' "
A recent Fitch Ratings report said the Northeastern market "is reaching a saturation point." Analysts say similar market shakeouts are occurring in Indiana and Mississippi on smaller scales.
Even
Pennsylvania, which has roared out of nowhere since 2006 to become the
state with the second-most gambling revenue, after Nevada, has seen its
fortunes wane, in part because of competition from Maryland and Ohio.
Slots revenues at Pennsylvania's 12 casinos are down more than 4% in the
first 11 months of the fiscal year ending in June, after dropping last
year as well, according to the Pennsylvania Gaming Control Board.
Harrah's
racetrack casino opened in Chester, Pa., in 2007 and pays the city
millions every year, accounting for roughly one of five dollars in the
municipal budget. But the arrival of two more area casinos slashed
Harrah's slot-machine revenue by nearly 30%, state figures show,
reducing the city's share. The introduction of Las Vegas-style table
games in 2010 has helped offset the decline, and this year the casino
began paying property taxes after a seven-year exemption expired. Still,
city officials are concerned.
"Any loss of dollars is seriously missed here," said Mayor
John Linder.
Some public services have been
affected. Ocean County, N.J., no longer offers low-cost rides for new
dialysis patients because of a dip in casino revenues that fund programs
for the elderly and disabled.
Delaware
officials say declining gambling money—down 29% since fiscal 2011—is
one reason the state cut 538 public jobs over the past five years.
Delaware's once-profitable
Dover Downs
DDE +3.60%
casino netted just $13,000 last year and lost $1 million the first quarter this year, said Chief Executive
Denis McGlynn.
He blamed competition, coupled with a 17% increase in the tax rate on slots in 2009, for an "unworkable business model."
Delaware's
proposed tax relief for casinos, which needs legislative approval,
would lower the table-game tax rate, eliminate fees and shift vendor
costs to the state.
New Jersey takes
9.25% of casino revenue, less than nearby states. Nevertheless, Atlantic
City's 11 casinos collectively have suffered revenue declines since
2006. The recession, superstorm Sandy and competition from Pennsylvania
all have contributed. On Thursday, the city's Revel resort and casino filed for Chapter 11 protection, its second trip to bankruptcy court in recent years.
In January,
Caesars Entertainment Corp.
CZR -1.56%
and a rival closed the bankrupt Atlantic Club Casino Hotel after buying it.
Among the hundreds laid off was 62-year-old
Pat Van Woeart,
who had earned $35,000 a year serving food in the casino's coffee
shop. "Now I'm losing my home," she said. "My unemployment is going to
run out real soon. I've applied for every job in the world."
Hoping
to compensate for casino declines, New Jersey and Delaware have allowed
their casinos to offer Internet gambling, with limited success.
Pennsylvania officials are exploring the same.
In southern New England, states are bracing for a hit when Massachusetts opens its casinos. The first, a
Penn National Gaming Inc.
PENN -1.89%
slots parlor about 12 miles from Rhode Island's biggest casino, is expected to open next year.
A
2011 Massachusetts law also allows three resort-style casinos, and a
Native American casino may be in the works. A battle is continuing for a
coveted license near Boston, the last big Northeastern city without a
nearby casino.
"It kind of was the last
frontier of market without commercial gaming" in the region, said
Mitchell Etess,
chief executive of the Mohegan Tribal Gaming Authority, which is
competing for rights to build a $1.3 billion casino near Boston's Logan
Airport. Mohegan also has casinos in Connecticut and Pennsylvania and is
vying for other regional licenses.
Pennsylvania's Valley Forge Casino, above, before its 2012 opening, has taken business from a nearby one.
Associated Press
The Mohegan Sun Native American
casino opened in Connecticut in 1996, and nearby Foxwoods Resort Casino
opened four years earlier. They had little outside competition for
years. But since the recession, the state's 25% cut of slot-machine
revenue has been under pressure, said
Thomas Fiore,
fiscal and program policy director at Connecticut's Office of
Policy and Management.
Partly because
of competition from racetrack casinos on the outskirts of New York
City—and soon from Massachusetts—Connecticut has forecast a 5% decline
in state revenue from casinos in fiscal 2016 and a 20% drop the
following year, Mr. Fiore said.
"There is dramatic oversupply in the industry right now," said Foxwoods Chief Executive
Scott Butera.
In neighboring Rhode Island,
casino dollars accounted for 9.5% of state revenue last fiscal year, one
of the highest levels in the country, and are the third-largest source
of state revenue.
The state has two
casinos: a small one in Newport that developers hope to remake as a
Monte Carlo-styled boutique casino if voters approve table games in a
November referendum, and the far larger Twin River Casino outside
Providence, which last year added voter-approved table games including
blackjack.
Since the state approved
video-gambling machines in 1992, its reliance on casino dollars has
grown. Now Rhode Island is projecting it will lose about $422 million in
casino revenue over the next five years, contributing to budget
struggles.
"We did kind of continue to pursue that easy money," said
Thomas Mullaney,
Rhode Island's budget officer.
In
Chester, Pa., city officials have plans to renovate downtown buildings
and open a pasta factory in a long-abandoned plant. Still, with nearly
1,700 casino jobs on the line, the wager on gambling continues.
"We are hoping that something changes so they can continue to make money—and we can continue to make money," the mayor said.
Write to Jon Kamp at jon.kamp@wsj.com
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