Casino Competition in Overdrive: The Stench of the Saturated, Rotting Casino Industry in the United States
Casino competition in the United States is in overdrive and the resulting market saturation is roiling the industry.
It sounds like a bad scene from the newest “Sharknado” movie, but this is not some Hollyweird concept. This is the reality that is affecting people from Atlantic City to Indianapolis and beyond – casino cash cows are dead and dying at an alarming rate. And they stink.
For years, people have said that casinos are recession proof and even grow during tough economic times. That might have been the case in the past, but those days are long gone. The Great Recession and market saturation have created a death spiral for casinos.
You can easily look at Atlantic City as the poster child for the new reality of the overbuilt casino industry. It looks like 25 percent of the casinos in Atlantic City will close this year. Oh, how far the city’s casino industry has fallen! For decades, Atlantic City was the second largest gaming market in the U.S. behind Nevada.
Not too long ago, if someone had suggested this situation would come to pass, they would have been see as a laughing stock. (I guess I really stuck my neck out in 2002 during another economic downturn when I made the case that casinos are no longer recession proof, no longer countercyclical.) But today’s gaming industry is being shaken to its very core and it’s not going to end any time soon.
The root of this tectonic shift is an anemic economy and states starving for tax revenue.
Back in the day, if you wanted to go to a casino and you lived in the eastern U.S, your only real choice was Atlantic City. Now there are casinos from New York to Maryland. This means that potential players have more choices that require less travel and offer the lure of a newer property. Why would anyone drive from Baltimore to Atlantic City when they have sparkling casinos a few miles away? The answer is they wouldn’t and they aren’t.
There also is a systemic problem that most people are not thinking about – states that use casinos as an ATM to pay for schools and roads and to keep taxes low will soon face very tough decisions. For quite some time, people from Maryland drove to Delaware to gamble. The casinos’ parking lots were packed with cars from Maryland. This meant more tax revenue for Delaware without raising taxes for the general public.
Last week, the Delaware state senate announced a $10 million bailout for the state’s casinos. That is a serious change in fortune. In seemingly the blink of an eye, those casinos have morphed from a profit center to an expense for the Delaware treasury. Also last week, Indiana casinos announced substantial losses to properties in Ohio.
If you are a state representative or senator and you ran on (1) not raising taxes and (2) adding programs funded by the gush of casino tax revenue, what are you going to do now? You have two very bad choices. Either you reduce or eliminate programs or you raise taxes. FYI, those are not platforms that get people re-elected.
By now, it is abundantly clear that the casino industry is reaching maturity and saturation. That means that the glory days of “build it and they will come” are a fading memory. In order for any casino to grow, it will need to take revenue from another casino. There’s no other source for the money.
This problem is not limited to the eastern seaboard. When Florida opens pending mega resorts around the state, the one in the panhandle will be very disruptive to casinos in Alabama and Mississippi, markets that have long lived off Florida guests coming over for entertainment. A Tunica, Miss., casino has already closed. What will happen to the casinos in Oklahoma and Louisiana if Texas sees a need for more tax revenue? Why drive from Dallas or Houston to a neighboring state when you can take the short drive across town?
These putrid cash-cow casinos will have an immense impact on states. The loss of tax revenue is only part of the picture. Casinos that close employ lots of people, sometimes thousands. Most people think these are low-paying service jobs, but they are sorely mistaken. With “tokes,” casino employees often make significant income that won’t be replaced by “would you like fries with that” jobs.
Blackjack dealers can make significant tips working just part time. This allows them to take care of their children and still afford homes and cars. There are not many jobs that will give them that flexibility and revenue potential.
Now is the time for casino owners and states to come together and make intelligent decisions. They must work together so that casinos can remain open and profitable and offer guests an amazing entertainment experience. Both sides need to team up if they hope to survive for the long term. It is inevitable that more casinos will close because some states have made it too difficult to make a profit and compete. Casino owners will use their capital where they can generate a return on their investment and they pull assets out of markets that are just too onerous and competitive.
If you think the stench is bad now, just wait a little while. More states are still looking at entering the casino market or allowing more casinos to open. There is no doubt this will kill even more casino cash cows and leave a very putrid mess.
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