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Downsize or Right Size?

As I write this column, the House and the Senate in Massachusetts are grappling with different casino bills passed by each chamber.

Downsize or Right Size?

As I write this column, the House and the Senate in Massachusetts are grappling with different casino bills passed by each chamber. The main difference between the two is that the House bill legalizes racinos at existing tracks and the Senate measure does not. While the governor, Deval Patrick, is threatening to scrap the whole process, it’s more likely they’ll reach some kind of accord because there is a desperate need for the kind of revenue that casinos will produce (surprise, right?).

From across the state line, the two tribal casinos in Connecticut are watching with trepidation. Well, maybe not the Mohegan Sun as much, because that group has a proposal to build one of the Massachusetts casinos in the western part of the state, which would ease the impact, but not completely negate it. But casinos in the Bay State are bound to hit the Connecticut casinos even harder than the downturn they’ve already experienced, mostly due to the bad economy.

In Atlantic City, the same bad economy combined with increased regional competition from Delaware, Pennsylvania and New York has several of the city’s 11 casinos teetering on the brink of insolvency and a 12th casino standing half-completed because investment necessary to complete it isn’t available. One respected casino executive, who once worked in Atlantic City, told me last year that perhaps the “right size” for Atlantic City is around six casinos.

The recent introduction of table games into the Delaware and Pennsylvania markets will further accelerate that decline, and the six-casinos prediction may come to pass sooner rather than later.

Las Vegas isn’t immune to this phenomenon either. Again, a combination of the economy and huge new tribal casinos in Southern California have impacted visitation to the world’s gambling capital. And in a ripple effect, the “locals” casino market in Las Vegas has been devastated as well, by high unemployment and less disposable income for customers who didn’t lose their jobs.

The opening of the Cosmopolitan in December on the Las Vegas Strip will add another 3,000 rooms to an inventory that is already stressed. Who would have thought that accommodations at MGM’s sprawling CityCenter, once slated to be offered at about $300 a night, would be going for as little as $129?

So, what can be done about these situations? Should the casino owners in these jurisdictions have been able to see the future and realize that competition was coming? Would that have meant they would have built smaller, or in the Las Vegas and Atlantic City examples, fewer properties?

Well, some of this has already happened. The Revel project in Atlantic City and the Fontainebleau in Las Vegas stand as testaments to a reality that falls short of expectations. Other multibillion-dollar projects in both markets have been canceled. A huge expansion project at Mohegan Sun has been delayed, probably forever.

While “right-sizing” a casino or a destination is probably the answer, it’s going to be painful. People will lose their jobs, local economies will suffer and the image of the destination will be tarnished.

Back in Massachusetts, dreams of billion-dollar entry fees have been slashed. Part of the negotiations in the legislature has to be a consideration of the structure of entry fees, tax rates and goals. Although most jurisdictions opt for the highest payments from casino owners, the legislature should consider the example of Singapore, where a reasonable tax rate has resulted in two signature properties with more jobs, infrastructure improvements and increased tourism, producing results for everyone, not just the state. 

Looking internationally again, Macau seems to have realized that unlimited casinos can have a negative impact. The new chief executive, Fernando Chui, has decreed that only the approved casino developments can go forward, as long as they do so in a timely manner.

This is a wise choice, because if Asian casino developers look into the crystal ball, there seems to be a proliferation of casino resorts just over the horizon in that region. What happens to the existing Macau casinos if Taiwan, Japan, South Korea, Thailand and others do enter the industry? The decision to “right-size” the Macau casino industry now rather than later will pay dividends and prevent pain in the future.

As the industry reaches saturation levels in many regions around the world, it’s going to be easier to decide upon the size and scope of a jurisdiction or a casino development. But in the meantime, the existing casino operators need to be aware of the dangers of growing too fast and too big.

Roger Gros is publisher of Global Gaming Business, the industry's leading gaming trade publication, and all its related publications. Prior to joining Global Gaming Business, Gros was president of Inlet Communications, an independent consulting firm. He was vice president of Casino Journal Publishing Group from 1984-2000, and held virtually every editorial title during his tenure. Gros was editor of Casino Journal, the National Gaming Summary and the Atlantic City Insider, and was the founding editor of Casino Player magazine. He was a co-founder of the American Gaming Summit and the Southern Gaming Summit conferences and trade shows. He is the author of the best-selling book, How to Win at Casino Gambling (Carlton Books, 1995), now in its fourth edition. Gros was named "Businessman of the Year" for 1998 by the Greater Atlantic City Chamber of Commerce, and received the Lifetime Achievement Award from the American Gaming Association in 2012.

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