Wednesday, July 16, 2014

Enough Gambling Already

Yesterday I discussed how Las Vegas has been diversifying its entertainment attractions to encourage tourists to visit the city for more than gambling.

These actions no doubt were taken partly in reaction to other states' opening the way for casinos.  Las Vegas needed to adjust, and it seems to have done so successfully.

My state, New Jersey, could have taken a lesson from this, but it has not done so.  At least, not so far.  

Eager to revitalize the blighted beach town of Atlantic City, the state opened the place to casinos starting in the late 1970s.  

This worked well for a while.  By 2006, Atlantic City gaming revenues totaled $5.6 billion, and the city's 12 hotels and casinos employed almost 50,000 employees.  But, outside of gambling, the city had not much else going for it except boardwalk beach traffic on summer weekends.  Atlantic City still doesn't have much going for it.

Then the problems started.

The biggest of these was that other states, also eager for taxes generated by casinos, decided to legalize gambling.

There are now 20 casinos in the state of New York, 12 in Pennsylvania, three in Connecticut, three in Delaware and five in Maryland. 

As these new casinos opened, people started favoring places closer to home.  Between its peak year of 2006 and 2013, gambling revenues in Atlantic City dropped by almost half, to $2.8 billion.

(In fact, many of the newer casinos in other states, like those in Atlantic City, are not as profitable as they used to be.)

Long story short:  The gambling sector now is overbuilt.

New Jersey was slow to figure this out.  Even though gambling revenues started dropping in 2006,  Atlantic City pinned its hopes on a huge new casino and hotel, the Revel.  When Revel's construction funds dried up in 2010, the state stepped in with a tax incentive/profit sharing deal to get the half-built structure finished.  The $2.4 billion facility was completed two years later.

So far, things haven't worked out.  Revel is now in bankruptcy for the second time and may be sold at auction next month.  Estimated bids range from $200 million to $300 million, or one-tenth of the initial cost to build the thing.

The lesson here was that adding a big new casino in a declining gambling market did not increase gambling demand.

The slide continues.  One of the two Trump casinos in Atlantic City will close at the end of the summer. At least two other casino operators have said they want to sell.  In all, 8,000 jobs -- 25 percent of all casino employment -- are at risk.

Undaunted by falling gambling revenues, New Jersey's state legislature tried another tack.  It opened the casinos to online gambling.  The state treasurer estimated at the end of 2013 that the revenues would be $1.2 billion, generating $180 million in taxes for the state budget.  In the six months ending June 30, online gambling contributed only $34 million to the state budget, less than 20 percent of the estimate.

But hope springs eternal.

Now another proposal has come forth.  A developer wants to build a 95-story hotel/apartment/casino tower in Jersey City, just across the Hudson River from Manhattan.  Within days of the announcement, a state legislator introduced a bill to impose a 66 percent tax on gross casino revenues in Jersey City. (Atlantic City's rate is 8 percent.) The legislator said he was willing to compromise, though, maybe on a lower rate of, say, 50 percent.

Some people never learn.

Some states never learn.

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