Delaware props up faltering casinos

March 14, 2014 9:52 am

Here is a peak at the future for other states that get into the casino game.

Delaware used to generate millions in tax revenue from its three casinos. But competition from surrounding states killed the golden goose.

So now, Delaware lawmakers – who are beholden to the gambling industry - are scrambling for ways to help the casinos make money. Last year, Gov. Jack Markell gave the casinos an $8 million bailout. Then he appointed a panel to come up with other ways to help the casinos. Here is some of what the panel is recommending:

* Eliminate the annual $3 million table games fee paid by the casinos.

* Slash the tax rate the casinos pay on table game revenue from 29.4 percent to 15 percent.

* Split 75 percent of the costs for slot machine vendors and fees, rather than have the casinos continue to pay the full amount.

The moves are expected to cost the state $20 million. What other businesses could get such concession from the government once profits dropped? Only when you give large enough campaign contributions will lawmakers do what you want.

The concessions underscore what other states face once their casino revenues drop – as in happening in many states now that the gambling market has become saturated. Once states get hooked on gambling, the lawmakers are forced to do whatever it takes to help prop up the casinos. Just goes to show that the House always wins.

Casino bets are off

January 22, 2014 3:43 pm

Has the casino industry hit its peak?

Gambling revenues are down in a number of states, raising questions as to whether the market has become saturated. It also raises questions for states like Florida that are considering legalizing casinos: Are they too late to the gambling game?

Before making a big bet on casinos, policy makers should take a look at Indiana, Ohio, Pennsylvania and Louisiana to name just a few states where casinos revenues are falling.

In Detroit, casino revenues dropped 4.7 percent last year in part because of increased competition from Ohio. The drop in revenue leaves even less money to fund operations in the bankrupt city.

In Indiana, casino tax revenues plunged 15 percent over the past six months. Overall, revenues in Indiana hit an eight-year low. In Ohio, casino-tax revenue dropped for the second-straight quarter leaving some to wonder if gambling has already peaked in a state where the casinos just opened two years ago. In Wisconsin, the drop in casino revenue there prompted some to say the market is saturated.

In Pennsylvania, casino revenues dropped 1.4 percent in 2013, marking the first drop since gambling play began in 2006. In Louisiana, casino revenues were down 4.4 percent in December, including a 16 percent drop in New Orleans. In Connecticut, revenues from two Indian casinos dropped 15 percent and 8 percent respectively in December. Officials there expect gambling revenues to keep dropping as competition increases, leaving the state scrambling for new sources of revenue.

In Delaware, casinos revenues dropped 5.5 percent in one year, thanks to increased competition mainly from Maryland. The Delaware casinos pushed for lower taxes but got a bailout instead from Gov. Jack Markell. The falling revenues prompted Governing Magazine to wonder if casinos are still a safe bet. Likewise, USA Today recently asked if the country has too many casinos.

Then of course there is Atlantic City, where gambling revenues are down 45 percent since 2006. Last year, revenues dipped below $3 billion for the first time in 22 years. The slide in Atlantic City shows no signs of slowing down. One casino recently closed and the fancy new Revel casino filed for bankruptcy less than a year after opening.

Analysts say the opening of each new casino in some markets essentially cannibalizes business from each other. “It’s close to the saturation point,” Alex Burnazhny, director in Fitch Rating’s Gaming, Lodging & Leisure group, told Bloomberg News. “It’s almost a zero-sum game whenever a new casino opens.”

Clyde W. Barrow, director of the Center for Policy Analysis at the University of Massachusetts, Dartmouth, told the Press of Atlantic City the saturation will only intensify once casinos in New York and Massachusetts open. “I believe the level of competition will continue to escalate, because at this point, table games and slots are just like a commodity — like copper and aluminum,” he said.

In Illinois, Clark County Commissioner John Detrick said the casino funds are an unreliable source of funding..”We’re glad to get it,” he said. “But casino money is an unknown and can go down.”

However, not all of the news is bad for the casino industry. The CEOs at two nonprofit casinos in Iowa were each paid more than $650,000 last year, the Des Moines Register reported. Revenues at the casino in Dubuque are down 20 percent in the past five fiscal years, but the CEO’s pay increased 38 percent, the paper reported.

Just goes to show the house wins even when it loses.

The biggest losers

April 1, 2013 3:42 pm

The competition to lure gamblers to lose money at casinos in heating up in Maryland, West Virginia and Delaware.

The largest casino in Maryland will introduce blackjack, craps, roulette and other table games next week and stay open around the clock. The moves are expected to keep many Maryland gamblers from traveling to West Virginia and Delaware.

The expanded casino in Maryland is just latest example of the increased competition for gambling dollars. As more and more states legalize casinos, they are finding there is a limited number of gamblers to go around.

The competition also shows how casinos do not attract tourists, but instead depend on repeat local gamblers. Ed Sutor, president and chief executive of Dover Downs in Delaware, said 50 percent of his business comes from Maryland residents. Many of those gamblers live near the Maryland Live casino in Maryland.

Delaware’s slots revenue is already down 25 percent from five years ago, thanks to increased competition from area states. The Maryland Live casinos threatens to hurt business even further, prompting Delaware casino operators to seek tax breaks from lawmakers.

The upshot is – as a result of increased competition – many states can’t depend on gambling as a steady or growing source of revenue. As a result, the states are being forced to reduce taxes, which reduces the amount of revenue the states take in. Like addicted gamblers, state lawmakers are being forced to chase their losses.

Casinos squeeze West Virginia

March 11, 2013 11:05 pm

Those who support casinos should keep an eye on the gambling industry evolution currently playing out in West Virginia.

First the casino industry spends hundreds of thousands of dollars on campaign contributions and lobbying fees in order to get state lawmakers to legalize gambling. (In some instances, lawmakers get busted for corruption and go to jail.) Then the casinos open and everyone is happy as the states enjoy a spike in tax revenue from the casinos and create some jobs. But the revenue doesn’t do much to lower taxes, improve education or any of the other promised reasons lawmakers used to rationalize their support for gambling in the first place. Often the projections of gambling windfalls are wrong.

Then casinos open in neighboring states and gamblers begin to get tapped out, causing the tax revenue to level off or drop. (See Pennsylvania, Indiana and Atlantic City.) Some casinos are forced to lay off workers. Then the casino industry and their high-powered lobbyists go back to lawmakers seeking lower taxes and fees. Since money talks, the lawmakers jump. The taxes and fees are lowered leaving the state with less tax revenue. But the profit margins increase for the casino owners. And isn’t all that matters?

West Virginia has been hurt by increased competition from Pennsylvania, Ohio and Maryland, which have all opened casinos in recent years. So to help the struggling casinos in West Virginia, lawmakers there slashed the taxes and fees they pay by nearly $30 million a year. Lawmakers also allowed the casinos that operate at racetracks to scale back on racing. Never mind the reason, the reason casinos were first legalized there was supposedly to support the racing industry.

This is the playbook the casino industry follows in state after state. (See similar deal in Delaware. Gambling interests are working to lower taxes in New York as lawmakers there debate legalizing commerical casinos.) As more and more states, legalize casinos, one sure bet is that this life cycle will continue to play out. One big difference: As the gambling market becomes more saturated, there will be less time between the boom and bust. The upshot is lots of loser and a state hooked on gambling.

Casino competition hits state coffers

December 27, 2012 9:37 am

As more and more states legalize casinos, the competition for gamblers is beginning to impact government coffers.

Indiana is projecting a 9 percent drop in tax revenue from casinos in the coming budget year. The decrease in revenue is attributed to new casinos opening in neighboring Ohio. Casino competition has cut into the tax revenue at other states, including Delaware, Michigan, New Jersey and Pennsylvania.

The drop in tax revenue shows that casino revenue is not a sustainable or reliable way to fund state budgets. Not to mention, the opening of local convenience casinos in state after state does not generate any new spending, a study by the Federal Reserve Bank in Boston found. “Casinos that cater to a local market generally do not bring outside money into the economy through the spending of its patrons,” the study said. ”Residents patronizing such casinos may simply substitute gambling for other goods and services.”  

Of course, once hooked on casinos or lotteries, states face pressure to find new ways to get residents to gamble once the tax revenue falters. In Delaware, gambling accounts for more than 7 percent of state budget, making it the state’s fourth biggest revenue stream. So when new casinos in Maryland and Pennsylvania began to lure away gamblers, the state enacted new gambling measures.

First it legalized a form of sports betting. Then it allowed table games including blackjack, craps and roulette. But its gambling revenues have continued to fall. In June, Gov. Jack Markell signed a law that could make Delaware the first state to offer Internet gambling. The state also reduced the tax rate on its casinos, who complained that competition was cutting into their bottom lines. To offset the loss in tax revenue, the state legalized keno machines in other bars and restaurants.

With each step, Delaware lawmakers essentially continue to bet against their residents. Rather than building a sustainable economy, the state is making a bad bet on gambling. It is an unstatinable arms race to the bottom.

New Hampshire is one state that has not fallen for the casino gimmick. An anti-casino group there has done a good job of making the case as to why casinos are a bad bet.

‘The one-armed bandit arms race’

August 3, 2012 8:21 am

As more states get into the casino business, existing casino states have had to scramble to keep up by adding more gambling. The result is a gambling arms race that has some wondering if markets are becoming over saturated.

States are now competing for gamblers, much the same way they try to lure companies to town. Except rather than creating jobs and economic growth, casinos extract wealth from communities and produce little economic spin off.

The New York Times details very nicely how states that embraced gambling are “struggling to keep up in what has become a feverish one-armed-bandit arms race.”  This blog has written about this frequently over the past year. (See here, here, and here.) The Times examined Delaware’s efforts to confront the increased gambling competition for other states. This blog has focused on Delaware’s efforts as well. (See here, here and here.)

The bottom line is states that bet on casinos may see an increase in revenue in the short term, but eventually competition kicks in resulting in a steady drop in tax revenues. States wrongly respond to the competition by trying to add even more gambling and lowering the costs for casinos, which results in less revenue coming to the state.

It is a viscous cycle. Almost like an addicted gambler hoping for a big score.

Delaware: First State for gambling

June 28, 2012 5:34 pm

There was a time when Delaware was dominated by companies like DuPont and Hercules that built and invented things. But now the First State feeds off of interest paid to credit card companies, bankruptcy court legal fees and gambling.

In fact, Delaware lawmakers’ addiction to casinos just took a big leap forward into the world of online gambling and keno machines. The state Senate passed a measure that will enable online gambling. The move essentially allows for virtual casinos in every home and mobile phone in the state.

The measure is supposed to help the state’s three casinos fight off growing competition from Maryland, Pennsylvania and other states. But what is really does is enable state lawmakers to strip more wealth from residents. By allowing people to gambler around the clock from the convenience of their home, office and car, online gambling will lead to a growth in problem gamblers, especially among younger people. (It is already a problem in Europe and Canada. See here and here.)

Even more pathetic, the measure allows the state to sell lottery tickets online while non-casino venues, such as bars and restaurants, can sell Delaware’s pro-football parlay cards and offer Keno instant lottery gambling.

You just see all the poor schlubs sitting in dumpy bars now blowing their Social Security checks into Keno machines so Delaware lawmakers can try to balance the state budget.

Delaware rolls over for casinos

March 28, 2012 10:29 am

Delaware Gov. Jack Markell has just set the new high water mark for the dumbest gambling proposal ever.

Markell wants to expand gambling to every corner of the tiny First State so he can give the struggling but influential casinos there a giant tax break.

Markell’s policy is a reverse Robinhood: Take from the poor and give to the rich.

Markell wants to expand keno from the casinos to 100 sites in the state, and allow betting on pro football to 20 sites. He also wants to legalize online gambling so citizens can play the lottery and casino games from the comfort of their home, office, dorm room and mobile phone. In return, Markell plans to give the casinos a massive tax break by eliminating the $4 million in slot machine fees paid to the state and slashing the fees casinos pay the state from table games from $6.75 million to $3 million.

The proposal amounts to a sweetheart deal for the casinos and a regressive tax for the state’s most vulnerable citizens. Elected officials take an oath to protect and serve their citizens, not scheme to make them poorer. But it is plain to see that Markell is really about serving the influential casino lobbyists first.

The scene playing out in Delaware is a preview for what is to come in other states as gambling spreads and caninablizes revenues. Delaware enjoyed steady growth in gambling revenue for years. But competition from Pennsylvania, Maryland and other states has eroded revenues in recent years. To combat the drop in revenue, the influential casino lobbyists have leaned on lawmakers to negotiate more favorable terms in their monopoly gambling compact.

The real problem facing lawmakers in Delaware is that the state is addicted to gambling – and trying to look cool by having a black license plate. Delaware depends on gambling to fund a much larger percentage of its budget than other states. It worked when Delaware didn’t have any competition. But gambling revenues are not sustainable or dependable, especially as more states turn to gambling as a way to balance their budget. It’s a vicious cycle that leads lawmakers to further exploit their citizens by allowing more and more forms of gambling that only strips wealth from workers in order to pay for government services. In the long run, pushing more gambling is a losing proposition for everyone but the house.

Tax breaks for casinos

February 6, 2012 10:45 am

The insatiable drive for tax revenue is one of the main reasons many states are turning to casinos as a way to fill government coffers. But once the casinos begin to struggle they immediately turn to lawmakers for help.

In West Virginia, the city council  in Longview just approved a one-year tax break in an effort to keep the struggling casino afloat. Once the tax revenue goes away, what is the point of having a casino if all it does is create economic and social costs?The troubles in Longview offer a window into what other towns and cities can expect as more casinos open and the competition for limited gambling dollars increases.

Consider: The two mega casinos on Indian reservations in Connecticut are scrambling to refinance crushing debt loads, and will soon face increased competition from Massachusetts and possibly New York. Several casinos in Atlantic City filed for bankruptcy in recent years and continue to struggle, in part from increased competition in Pennsylvania. Meanwhile, the Revel casino needed a state bailout in order to resume construction.

Casinos in IndianaMississippi and other states are also experiencing a drop in revenues, in part from the sluggish economy and increased competition. In Delaware, the governor has ditched a plan to add more casinos as the existing casinos lobby state lawmakers to reduce their tax rate. 

Meanwhile, other states like Ohio, Kentucky and Florida have or are considering legalizing commercial casinos, which will further increase competition. As the casino cancer spreads, look for more states to cut taxes and cut back on regulation – as New Jersey has done – in an effort to prop up the increasingly influential casino industry.

The Longview casino claims it has not made a profit since 2008. Meanwhile, the casino continues to strip wealth from the community. And now the government is extending the casino a tax break so it can continue to take money from residents. There is something seriously wrong with that picture. It shows why casinos are such a bad public policy that is insidious and unsustainable.