Casino Competition Could Cause Community Collapse

With ever more states legalizing and building casinos should we worry about placing too much pressure on them to support local economies?

The schizophrenia of the US gambling market continues to pump out gambling news headlines that seem, at first glance, to be somewhat contradictory. To read of the alarming situation in Atlantic City where casino closures and a knock-on spike in unemployment have left the city’s economy facing a crippled near term future, and possible further slump, one would perhaps think that gambling has had its day, that it is withering on the vine, and then, often in the very next headline, one finds various investment groups and grinning millionaires are fighting tooth and nail over the right to build even more casinos.

The Casinos Are Coming! The Casinos Are Coming!

• Do online poker sites in the US threaten casino trade?

• Will more states license casinos in the future?

• Are casinos a help or hindrance to local economies?

Now a new casino is no small matter. Steve Wynn who has just won the competition for a license to build a casino near Boston is planning on spending $1.6bn during construction, which is hardly chicken feed, and yet he does so at a time when a casino that cost $2.4bn just two years ago now stands empty on the Broadwalk in Atlantic City, a monument to how the dream of gambling’s easy profits can sometimes lose its luster. The fact is, however, that the Revel was still profitable, it just wasn’t profitable enough for its backers, who could see better opportunities with higher returns to put their money into.

Obviously Atlantic City’s position is somewhat unique in that for a long time it enjoyed a monopoly on gambling that it shared with the far off desert oasis that is Las Vegas, a monopoly that it lost when adjacent states, all suffering various degrees of economic hardship, made the headlong dash into legalized casino gambling. However it does highlight that, to coin a phrase, “investments may go down as well as up” and that will apply as much in these newcomers to the gambling market every bit as much as it applies to the old haunts, especially if the proliferation of casinos continues at anywhere near its present rate.

Where once merely Nevada and Atlantic City provided gambling for its denizens now 23 states across the US provide some form of legalized gaming, from casinos to
online gambling sites in the US now there are a whole host of options, and this increased competition has evidently had its biggest effects on the highest concentrations of casinos, however Vegas has suffered far less than the coastal gambling mecca in New Jersey. Whilst there are some obvious differences between the two, Vegas is arguable a far bigger international destination, how is it that Vegas has bounced back where Atlantic City has fallen flat?

Projects At The Mercy Of Public Whim

Part of the reason is that the competition in the northeastern region of the US is far more disjointed with various states that just happen to be next to each other, all vying for catchment areas that cross over state lines. This finite regional population gives a ceiling to the number of participants and from that comes only a certain number of casinos that could possibly be viable, and only a small number of those that could see the massive returns that the casino industry has always promised investors in the past. Certainly those accepting of lower slower profits will see no issue with this, but for a great many looking at the capital investments required and the uncertainty of public whim, it might be unacceptable.

However if investors can sometimes appeal a little fickle and mercenary that is as to nothing when compared with the politicians and public whose views can be swayed by the breeze and have massive repercussions. Steve Wynn up in Massachusetts may have won the right to a license for his casino development but he’s not taken up the option to buy the land yet, and won’t until after the November mid-term elections. This time around whilst Americans go to the polls and re-electing the same old bunch of wealthy white criminals to represent their interests (you have to laugh) some ballots are asking about gambling.

Alongside Massachusetts, which is likely to vote in favor of retaining their legalized gambling status and thus allow Mr. Wynn to build his casino, Colorado (that bastion of forward thinking), California, Kansas, Rhode Island, South Carolina, south Dakota, Tennessee and Washington State are all posing their citizens questions about gambling this November. Those with favorable outcomes in these referendums are entirely likely to go ahead with their own casino building projects, which they hope will produce jobs and revenue during these continuing times of high economic pressure. The degree to which gambling can be used as a political football, and become focus of the morally-outraged, makes it inherently unstable.

There were, as of 2012, some 513 casinos in the United States, with another 466 on tribal lands, there will, in years to come, be far more, and whilst there will be some growth in participation rates brought on by ease of access due to closer proximity, there will inevitably be an upper limit to this number. This will place increasing pressure on margins and the competition between casinos may well lead to the sort of closures we’ve already seen in Atlantic City as investors keep their money mobile betting on greener pastures elsewhere every time there’s a dip in profits. In Atlantic City the closures have been disastrous, but in a location purpose chosen where the casino is the supposed savor of the local economy it could be catastrophic.

It’s The Economy, Stupid

The problem, of course, is that casinos aren’t the savor of the economy that they’re often touted to be. Certainly Las Vegas has shown that it can make for a fine backbone, but since the 2009 fiscal crisis Vegas has got back on its feet so quickly precisely because it has striven to diversify away from being a one-trick-pony to provide more than just gambling. Atlantic City will need to do the same and has some hope of that, but in other “newcomer” states, like Maryland, Delaware, New York and Pennsylvania, the locations chosen were done so with catchment in mind, and if that catchment shrinks they could find themselves losing out to other casinos in other states, leaving the central pillar of a local economy collapsing.

As part of a well balanced economy gambling can be a boon, but as the lynchpin of an economy it has several issues, many of which only surface publicly when situations like Atlantic City highlight them quite so starkly. The first is that casino gambling on a regional level is pretty much just taking money from local gamblers, which means that the local economy is gaining nothing per se, and whilst casinos do bring jobs, consumers without casinos spend their money on other things which also provide jobs, only a small percentage willing to travel very far to gamble. Internet betting in the US is also likely to increase adding even more pressure upon any economy, local or otherwise, that depends upon gambling.

There are also the hidden costs of casino gambling in the form of the one or two percent of gamblers who are compulsive or problematic, the issues that stem from this range from divorce to lost productivity, more bankruptcies to high crime rates, but they all cost states money in terms of welfare and unemployment benefits and spending on law and order, etc. Baylor University estimated this to have cost states approximately $9,400 per compulsive gambler per year, and an increase in casino numbers will almost certainly increase these numbers over time. However the attraction for states to legalize gambling and build casinos remains, and indeed is growing apparently as ever more jump on the bandwagon.

It is a bandwagon whose wheels are already squeaking under the weight. Steve Wynn in Boston might crow about the overseas gamblers he’s hoping to attract, but then that’s par for the course when launching a new casino, the Revel said much the same, then closed after two years. There are no guarantees, but then they do call it “gambling” for a reason, and perhaps that’s a comforting thought as we walk the carpets of our local casino, spending our money playing the games of our choice against the house. We might be gambling whilst we’re there, the casinos are gambling on us coming back, and the states that license them have gambled we will, and if we don’t, we may well ALL lose.