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Eating Our Own

Cannibalizing existing markets has become a blood sport in the casino industry.

Eating Our Own

Cannibalization has become a concern in established gaming markets as more states authorize casinos and as more properties open.

The effect of the proliferation of gaming in the Middle Atlantic and Northeast is getting a big test with two just-opened casinos: the much anticipated $2.4 billion Revel in Atlantic City, and the much smaller Valley Forge Casino Resort in Pennsylvania.

Valley Forge opened with its maximum authorization of 600 slot machines and 50 table games.

Technically, Valley Forge is only for guests and conventioneers at the adjacent Valley Forge Convention Center, but $10 will buy a membership, and $10 spent anywhere in the casino will buy a day’s entry. So, buy a gourmet burger and a soft drink and you’re in.

Revel is at the opposite extreme, an extraordinary property truly unlike anything else east of Las Vegas. It is an experiment in whether AC’s reputation can be turned around and whether it finally becomes the Las Vegas of the East.

Skeptics point to a litany of AC’s historic problems and say that, at best, Revel will cannibalize neighboring properties and put several out of business.

Optimists, perhaps with fingers crossed behind their backs, note the huge and affluent regional population, and say a change of reputation can make Atlantic City a permanent success.

What is certain is that the region is getting crowded, especially at its Philadelphia-Atlantic City epicenter.

Valley Forge is about 20 miles northwest of Philadelphia, Revel 60 miles east.

Thus, Valley Forge is less than 30 minutes away from Harrah’s Chester, SugarHouse and Parx. Though further away from Mohegan Sun at Pocono Downs, Sands Bethlehem, Mt. Airy and Hollywood at Harrisburg, people 20 and 30 miles to the north or west now have more choices.

Meanwhile, a much larger casino could be coming to Pennsylvania.

The state Supreme Court has rejected the appeal by Foxwoods’ investors to keep their Philadelphia casino license, basically freeing the state to put the license up to bid if it so chooses.

Given the huge neighborhood opposition to Foxwoods and the concern about cannibalization, it is doubtful the legislature will keep it a Philadelphia license.

More likely, it will be bid statewide, with the selection based on, or at least influenced by, what location can bring in the most money and cannibalize the least.

In that regard, there already has been a preference stated publicly by some for putting a casino in south central Pennsylvania where it can tap Baltimore and even Washington, D.C.

Given the potential for up to 5,000 slot machines and 150 table games, such a casino could add to the competitive ferocity of the Baltimore-Washington region that, not long ago, was served by distant properties such as Penn National’s Charles Town in West Virginia and the three racinos of Delaware.

Now, it would add to competition with the 3,750-slot casino Caesars plans in Baltimore, the 4,750-slot casinos Cordish Cos. is opening between Baltimore and Washington, the 4,750-slot casino proposed just across the District of Columbia line in Prince George’s County, and Penn’s small Perryville casino.

The overlapping of casino markets continues in the East from D.C. to Maine, and soon west from Atlantic City all through Ohio and as far as Iowa.

Eight New Casinos In Michigan?

That same aforementioned overlapping of casinos and increased competition could soon include Michigan, where a group of local investors and politicians is proposing eight casinos, including three more in the Detroit area.

The Committee for More Michigan Jobs will be submitting its request to circulate petitions that would put a casino referendum on the ballot.

If successful, it would get fierce opposition from several existing casinos that promise a $50 million war chest to combat it, the Detroit Free Press reports. That is the same amount supporters intend to spend.

Proposed are another downtown Detroit casino, two in the suburbs and five elsewhere in the state.

If enacted, that would double the number of Detroit-area casinos from four to eight, counting the three now in the city, Caesars across the river in Windsor, Ontario, and Penn National’s Hollywood opening in Toledo, Ohio.

Opponents, organized as Protect Michigan Vote, include MGM Grand and Greektown casinos in Detroit, the Chippewa tribe that owns the state’s largest casino, Soaring Eagle, and the Indian owners of FireKeepers Casino.

In addition to the increased competition, opponents cite that the referendum would build into the state constitution a 20 percent tax for the new operators, a lower rate than Detroit’s casinos now pay, and no obligation to make a minimum investment or build amenities.

A Final Note On Revel

A number of experts have compared Revel to the Cosmopolitan in Las Vegas, which has been an artistic success, but not yet financial, as the 20- and 30-somethings who inhabit the place are great eye candy, but don’t do much to dent the $3.5 billion debt.

Like Cosmopolitan, Revel is built for affluent customers for whom gaming is not necessarily their motivation in visiting. Indeed, Revel is designed so that a visitor never has to step foot on the casino floor or hear a slot machine beep.

However, we think Revel has a better shot at succeeding for the following reasons:

• It’s got a much bigger casino at 2,447 slots and 160 tables.
• Debt is about a third as large.
• Kevin DeSanctis is principal and CEO, a top gaming guy.
• Forty million people within a six-hour drive. It’ll take a fraction of them to succeed.
• Little competition at the upper end compared to the Strip, so it needs even a smaller fraction of the larger regional market to succeed.
• Big concert space with 5,050-seat venue with flexibility to house different kinds of events.
• Bigger convention and meeting spaces than other AC casinos.

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