ALBANY
— New York State is charging headlong into the casino business, with
four full-service gambling resorts expected to be approved this fall and
opened as early as next year, and talk of a torrent of new revenue,
thousands of new jobs and a powerful economic jump-start for
long-depressed upstate communities.
Supporters
of the expansion — most notably Gov. Andrew M. Cuomo — hope it will
reverse the fortunes of economically stagnating regions like the
Catskills, where little has filled the void left by the demise of the
borscht belt.
But
analysts, economists and casino operators warn that the industry is
already suffering the effects of fierce competition, if not saturation,
even in the Northeast, once a rich, untapped market. Winnings are flat
or shrinking in many places. Casinos in Atlantic City are closing; Foxwoods,
in Connecticut, is cutting costs. The longstanding image of gambling as
a no-doubt winner for state governments has quietly gone the way of a
bettor’s bankroll after too many hours at the tables.
The Buy-In
Articles in this series will examine the ramifications of New York State's embrace of casino gambling.
None of which bodes well for the long-term goals of Mr. Cuomo’s plan.
“He’s 15 years too late to the party,” said Harold L. Vogel, a longtime gambling industry analyst.
Pitfalls
abound: Four of the state’s nine racetrack casinos, which have
collectively poured billions into the state’s educational system, could
be undercut and endangered by the new casinos. The jobs created,
experience elsewhere suggests, could offer low wages instead of
providing a pathway to the middle class. Localities could face new
expenses for public safety services, not to mention the indirect costs
of problem gambling. And while large casinos like Maryland Live,
outside Baltimore, have capitalized on unmet demand for gambling, such
promising markets are becoming harder to find as casinos proliferate.
New
York’s casino gambit has already paid off handsomely in one important
respect. In the spring of 2013, Mr. Cuomo threatened to license new
casinos just outside the gambling operations of the Mohawk, Seneca and
Oneida tribes, including the successful Turning Stone
resort east of Syracuse, unless the tribes agreed to settle
long-running disputes over revenue sharing. The tribes agreed, which
reaped hundreds of millions of dollars for the state. As a result, they
were neutralized as potential opponents of the vote to amend the State
Constitution and authorize New York’s casino plan last November. Public
hearings on the new casinos start next month as state officials begin to
grapple with the consequences of the new law.
Few
doubt that new casinos built by the likes of Caesars or the
Malaysia-based Resorts World chain would make splashy debuts, especially
if the government allows any to be built within a short drive of
Manhattan. Mr. Cuomo, a Democrat seeking re-election this fall who is
believed to have national aspirations, would probably be able to point
to a large influx of revenue and economic activity in the run-up to the
2016 presidential campaign.
But
any sudden windfall for New York could be short-lived if the novelty of
new casinos wears off quickly, as it often does, or if other
jurisdictions respond with new casinos of their own.
Many
in the industry suggest that New Jersey would allow slot machines or
more at the Meadowlands, a few miles from the Lincoln Tunnel, or perhaps
even closer, in Jersey City.
And
while the new casinos are “intended to attract non-New York residents
and bring downstate New Yorkers to upstate,” according to the state’s
request for applications, a recent report from the state comptroller’s
office warns that many players will be from nearby communities — posing
the risk of an economic wash, rather than a net gain.
State
officials may also face a vexing decision: choosing between areas in
the greatest need of economic assistance and those where a casino could
deliver the greatest impact for the state.
The
prospect of a casino in suburban Orange County, for example, less than
an hour from Manhattan, has already chilled the prospects for a casino
in the rural Catskills, farther north, where gambling had long been seen
as a key to economic revival. Two of those proposals have now been
shelved. Only three developers are competing for a license in the
Catskills; six are contending in Orange County.
A Fragile Industry
For
years, New York had resisted as other states welcomed the gambling
industry’s march from coast to coast. That changed after 9/11, when the
reeling economy prompted lawmakers to approve slot-like video lottery
terminals at racetracks. Tribal casinos, enraged, stopped making
revenue-sharing payments under prior agreements. Beginning in 2011, Mr.
Cuomo pushed for the constitutional amendment to allow full-scale casino
resorts, in part to pressure the tribes to come to terms.
But
by then, casinos had sprouted up throughout the country, and industry
employment was past its 2007 peak, leaving many to wonder whether
maturation or saturation was at hand.
Once
confined to Nevada and Atlantic City, gambling has become a fixture of
the economy in states across the country, with nearly 1,000 commercial
and tribal casinos in 39 states, and dozens of casinos in the Northeast
corridor between West Virginia and Maine.
Interactive Graphic
The Crowded Market for Casino Gambling
More than half the population in the Northeast now lives
within 25 miles of a casino featuring video lotteries, table games or
slot machines, up from about 10 percent a decade ago. As the market
grows crowded, many older casinos are declining or going bankrupt.
The
nation’s gambling thirst also is being slaked by lotteries and
scratch-off games, an expanding world of Internet gambling and office
pools on everything from March Madness to the Super Bowl.
“I
think the entire industry knows that there’s too much supply for the
demand that’s out there,” said Richard McGowan, an economics professor
at Boston College who studies casino gambling. “The gusher is over.”
Recent
developments have been ominous: Thousands of layoffs are expected this
year in Atlantic City, where three casinos are poised to be shuttered.
Closings and revenue declines have also hit states like Mississippi,
Missouri and Iowa, all early adopters in the nation’s casino craze.
Tribal
Indian gambling officials reported meager growth last month of less
than 1 percent at some 450 casinos in 2013. And two major credit
agencies have issued cautionary reports in recent weeks warning states
of dimming demand and a surfeit of casinos.
One,
by Fitch Ratings, was deeply downbeat, citing a variety of long-term
factors facing casinos, including saturation, lower wages among
small-purse players, increased online gambling, as well as baby boomers’
concern about their retirement funds. “The U.S. regional gaming supply
has largely met demand,” the report concluded.
Nearer
to New York, taxes and revenue are down at casinos in Pennsylvania and
in Connecticut, where the Pequot tribe, owners of Foxwoods, stopped
paying every adult member a $100,000 yearly stipend in 2012. In Delaware, legislators authorized a $10 million casino bailout in July.
And
some neighboring states are having second thoughts about the whole
business. In Massachusetts, voters will decide in November whether to
repeal a 2011 law that legalized casinos there.
Still,
even the most pessimistic analysts say that some New York casinos may
initially reap big winnings — particularly those near the city and its
50 million tourists a year.
Novelty, for one, continues to attract gamblers. According to a 2013 report from the American Gaming Association,
the casino industry owes some of its rebound after the 2008 recession
to new gambling operations in Ohio, Maryland and New York, where an $830
million hall opened in Queens at Aqueduct Racetrack in late 2011 and almost instantly became the nation’s most popular slot parlor.
The
new upstate casinos will not lack for bells and whistles. The owner of
the Aqueduct complex, the Malaysia-based Genting Group, proposed a $1.5
billion resort rising from just north of the border with New Jersey,
complete with a botanic garden, revamped ski slopes and a year-round Renaissance Faire,
presumably for winter jousters. Other bidders have imagined putting a
$425 million casino on a patch of farmland opposite an Amish farm
outside Syracuse, or a Hard Rock casino in Rensselaer, N.Y.
But New York’s new casinos will be facing much stiffer competition than the Aqueduct complex did.
In
June, regulators in Massachusetts approved an $800 million casino in
Springfield, a battered city where tourist traffic until now has mainly
been headed for the Naismith Memorial Basketball Hall of Fame. Barring a
repeal of the gambling law, the first slot parlor in the state, south
of Boston, is expected to open by next summer.
And
Pennsylvania, which already has 12 casinos, is mulling a 13th in
Philadelphia. Contending with that interstate competition, while salving
upstate New York’s economic wounds, were Mr. Cuomo’s stated reasons for
urging New York voters to legalize casinos.
“We’re
losing revenue every day because people are going to those casinos to
play,” the governor said in 2013, adding, “They now go to New Jersey,
they go to Connecticut. Why don’t we bring them to upstate New York?”
Cannibals and Victims
New
York is, of course, already in the gambling business, with five upstate
Indian casinos offering table games and amenities like hotels, golf
courses and conference centers, and nine horse racing tracks with slot
machine parlors, known as “racinos,” that try to imitate the glamour of
Las Vegas.
Mr.
Cuomo’s strategy acknowledged that some business now captured by the
racinos would be cannibalized by the new casinos. But he reasoned that
if a large amount of gamblers’ money was already exiting the state, New
York would be better off with its share of both cannibals and victims,
not just victims.
That is cold comfort for the racinos, many of which are already suffering declining or stagnant winnings.
Tim Rooney, the general counsel for Empire City Casino
at Yonkers Raceway, for example, said it had seen a 4 percent drop in
winnings already this year. “It does call into question what’s going to
happen when they drop in four upstate casinos,” he said.
Until
now, the racinos have been important taxpayers, pouring $4.6 billion
into the state’s education fund from 2004 to 2013, including $877
million last year.
But that largess comes from a staggeringly high tax formula that works out to roughly 60 percent at some tracks.
Under
legislative deals negotiated by Mr. Cuomo, however, slot machines at
the new casinos will pay the state much less — from 37 percent to 45
percent.
In
order to produce the same amount of tax revenue for the state, the new
casinos will have to do considerably more business than the racinos, at a
time when there is less business to go around.
Cuomo
administration officials express confidence that the new casinos will,
on balance, make money for the state. But they agree that gambling is
not a panacea, rather “just a part of a comprehensive effort to grow the
upstate economy and bring good-paying jobs to these host communities,”
said Richard Azzopardi, a spokesman for the governor.
A
report by the Budget Division — released a month before last year’s
casino referendum — suggested New York would collect an additional $238
million a year for education or property tax relief, as well as $192
million more for local government aid, even after lost racino revenue
was figured in.
The
Cuomo administration had similarly sanguine estimates last year of
employment growth from the new casinos: nearly 3,000 permanent jobs, and
an additional 6,700 temporary jobs in construction, estimates based on
seven casinos in Pennsylvania, including six of the state’s largest,
along with the most successful casino in Maryland.
Curiously, all seven of the Pennsylvania casinos saw declines in slot machine revenue over the past year.
Casino
jobs are also unlikely to lift many New Yorkers into the middle class.
Federal labor statistics show that many gambling-related jobs —
cashiers, cage workers, card dealers — average less than $30,000 per
year. Casino industry data suggests wages are closer to $40,000. Some
jobs also earn tips.
Echoing
Mr. Cuomo, pro-casino boosters say their business now is more than just
betting, with earnings from hotels, food and entertainment. But they,
too, admit that uncertainty about the future is real.
“The
shiny new objects attract all of us as customers,” said Geoff Freeman,
chief executive of the American Gaming Association. “The question is
what happens when the ‘Grand Opening’ sign is taken down.”
Jesse McKinley reported from Albany, and Charles V. Bagli from New York.
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