Thursday, March 15, 2012

On Casinos, Our Timing Was Impeccable

Foxwoods Casino Is Fighting For Its Life.  That's the headline on a New York Times article with huge - if predictable and obvious - implications for the Commonwealth's recent decision to stake part of our own financial future on the dubious proposition that there exists an infinite market in this country for casino gaming.  Here are just a few choice excerpts from the lengthy article:
Nearly everything about the Foxwoods Resort Casino is improbable, beginning with its scale. It is the largest casino in the Western Hemisphere — a gigantic, labyrinthine wonderland set down in a cedar forest and swamp in an otherwise sleepy corner of southeastern Connecticut. Forty thousand patrons pack into Foxwoods on weekend days. The place has 6,300 slot machines. Ten thousand employees. If you include everything — hotel space, bars and restaurants, theaters and ballrooms, spa, bowling alley — Foxwoods measures about 6.7 million square feet, more than the Pentagon...
These days the tribe is dealing with the latest improbability in its turbulent history: financial havoc. The casino is underwater, like a five-bedroom Spanish colonial in a Nevada subdivision. The Pequots misjudged the market, borrowed too much and expanded unwisely. Foxwoods’s debt is on a scale befitting the size of the property — $2.3 billion.
It would be easy to look at what has occurred at Foxwoods and think, Here are people who fell into money and didn’t know how to handle it. Which happens to be true. But how the casino reached this point, and the challenges its owners and operators now confront, is part of a much larger story — one involving the gradual relaxation of moral prohibitions against gambling, a desperate search for new revenue by state governments and the proliferation of new casinos across America. Casino gambling has become a commodity, available within a day’s drive to the vast majority of U.S. residents. Some in the industry talk of there being an oversupply, as if their product were lumber or soybeans.
Foxwoods has had its own in-state competition since 1996 from the Mohegan Sun, which lies just west, across the Thames River. Owned by the Mohegan Tribe, it is a more modest property, though only by comparison — Mohegan is the second-largest casino in the hemisphere. In October, a casino opened at the Aqueduct racetrack in Queens with 4,500 slot machines, and Gov. Andrew Cuomo is pushing an expansion plan for the site that includes a hotel and what would be the nation’s largest convention center. And lawmakers in Massachusetts recently voted to issue licenses for a slots parlor and three full resort casinos — an especially ominous development for the Connecticut casinos, which draw about 30 percent of their clientele from Massachusetts, because many gamblers are ruled by what is known in the business as the law of gravity. They stop where the pull is the strongest, which is usually the nearest casino....
You can still hear echoes of a time when gambling was widely considered wicked. When Rodney Butler raised the prospect of dropping the gambling age in Connecticut from 21 to 18 and allowing liquor sales until 4 a.m., The Hartford Courant’s editorial page objected, writing, “Why not just open a brothel?”
Resistance to gambling, however, has been overwhelmed by the need for new sources of public revenue in an era when it has become nearly impossible, at any level of government, to raise taxes or even to let temporary tax cuts expire. A kind of self-perpetuating momentum fuels gambling’s growth: the more states that legalize it, the more politicians in states that haven’t done so argue that if their citizens are going to throw money into slot machines, they might as well do it at home. “Those people would lose that money anyway,” Ed Rendell, the voluble former governor of Pennsylvania, said in a tense appearance on “60 Minutes” last year. Teeth clenched, he continued, “You’re simpletons, you’re idiots if you don’t get that.”
Butera reacts to the debates over gambling with a sense of amusement. “Few governors or senators or House members want to say, ‘I absolutely love having casinos in my market,’ ” he said. “It’s more like: ‘We can manage this. And here’s what we’ll do. We’ll put it in the right place, it won’t impact our society too much and we’ll make some money.’ ”...
The big buzzword in the business right now is “cannibalization.” It refers, in this context, to casinos’ gobbling up one anothers’ customers, which for some of them may be the only route to survival. Fahrenkopf, the A.G.A. president, said he was not worried. “What about Starbucks?” he said as I sat in his Washington office. “A block east of here, a block west, a block north is a Starbucks. How much is too much? The market will decide.”
Las Vegas, still the anchor of the gambling industry in the U.S., was battered by the recession, and its revenues from gambling still lag far behind 2007 levels. The city’s recovery could be hurt by a building boom in big Indian casinos in California — and, over time, by new properties in New York, Massachusetts and other Northeast states. The biggest winner in Las Vegas in recent years has been Sheldon Adelson, chairman of the company that owns the Venetian, but what has made him one of the wealthiest men in the world is not his U.S. holdings but his ownership of hugely profitable casinos in the Chinese territory of Macao. (Adelson has been in the news recently because he and his wife have contributed more than $10 million to support Newt Gingrich’s presidential campaign.)
Farhrenkopf acknowledged that when the market does decide, it can have adverse consequences — in Atlantic City, for example, where casino revenue is down 37 percent since 2006 and the city’s future as a gambling mecca is very much in doubt. Rooms at hotel casinos have been going for as little as $19 a night. At least four casinos have been in bankruptcy, and people are no longer crowding onto buses to head south down the Atlantic City Expressway. “The Pennsylvania casinos are killing Atlantic City,” he said. “That’s where the Philadelphia market used to go, but now they can stay home.”
It’s that specter — once-loyal players who disappear — that Foxwoods must worry about. At the Las Vegas conference, Meczka said that when people in the industry tell him they want new customers, his response is: “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.” In other words, the market is not expanding — only the venues meant to cater to a finite number of gamblers.
Who would have thunk it? There are a limited number of casino gamblers out there, and an ever-increasing number of casinos scrambling for their business - and the ever-diminishing returns that come with them. If only someone had thought of that before Massachusetts decided to jump on the gaming train just as it rounds the last corner before the end of the line. Oh... yeah (see Argument #1, here).

1 comment:

  1. The great race to the bottom begins. Anyone who has spent time in So. West where tribe casinos first popped up, then small stakes gambling houses could have told Deval Patrick it ain't a path to prosperity. I mean, have you ever seen an Indian reservation?

    ReplyDelete

No spamming, flaming, cursing, or other such nonsense tolerated. Thanks for engaging on those terms - Greg