States Rushing To Build Casinos As They Search For Revenue
NEW YORK -- A Malaysian company's plan to build a $4 billion convention center and big-time casino on the outskirts of New York City could be the biggest shot fired yet in a tourism arms race that has seen a growing number of Eastern states embrace gambling as a way to lure visitors and drum up revenue.
New York Gov. Andrew Cuomo announced last week that he would work with the Genting Group, one of the world's largest and most successful gambling companies, to transform the storied, but sleepy, Aqueduct horse track into a megaplex that would eventually include the nation's largest convention center, 3,000 hotel rooms, and a major expansion of a casino that began operating at the site in October.
The proposal came less than two months after once-puritanical Massachusetts passed a law allowing up to three resort casinos, plus a slot machine parlor, at locations around the state.
Ohio is poised to see its first commercial casinos open this year, after voters approved up to four gambling halls in 2009. Maryland's first casino opened last year, with more on the way. Pennsylvania's first casinos opened in 2006, and already the state is threatening to surpass Atlantic City as the nation's second-largest gambling market.
And in Florida, lawmakers are hotly debating a whopper of a bill that would allow up to three multibillion-dollar casinos, plus additional slot machines at dog and horse tracks. Genting appears confident the law will pass. It has already spent around $450 million to acquire waterfront property in Miami, where it wants to build a $3.8 billion complex that would include a casino, dozens of restaurants and a shopping mall.
States have embraced casinos, after years of trepidation about their societal costs, for two simple reasons: a promise of a rich new revenue source, plus the possibility of stimulating tourism.
"They are faced with tough decisions. They are in recession ... And we pay taxes far over and above normal taxes," said Frank Fahrenkopf, president of the American Gaming Association.
Last week alone, Genting's new gambling parlor at Aqueduct, now limited to 4,500 video slot machines and another 500 electronic table games, made nearly $13 million – putting the "racino" on pace to make $676 million per year, with 44 percent of that take going to a state education fund.
And that total is nothing compared to the $1.4 to $2 billion per year Genting predicts it would bring in at the huge complex it is planning in Miami.
Some experts, however, have questioned whether revenue bonanzas that large are realistic, and say states should be cautious about giving up too much to lure these projects. Competition for a limited pool of gambling and tourism dollars is already fierce, and recent years haven't been kind to casinos.
Nevada's larger casinos lost $4 billion in 2011, according to a report released this month by the state's Gaming Control Board, as the state continued to feel the effects of the global economic slump.
As gambling options have increased in the East, revenue has slid substantially at the pair of Indian tribe-owned casinos in Connecticut and declined by a dramatic 30 percent in Atlantic City, which has lost customers in droves to the new casinos in nearby Philadelphia, according to David Schwartz, director of the Center for Gaming Research at the University of Nevada Las Vegas.
That trend could deepen with the introduction of big-time gambling in New York and Massachusetts, and in the end result in a situation where few people need to travel to gamble.
And that could mean that the tourism promise of the casinos largely goes unfulfilled, as the gambling tables and slot machines are played predominantly by locals taking revenue from other parts of the economy, rather than out-of-state visitors bringing in new dollars, said the Institute on Taxation and Economic Policy, a Washington D.C. research group that advocates for progressive tax codes.
"Gambling may simply shift money from one tax to another, limiting the net gain to the state," it said. "Consumers spend more money on gambling activities, they will spend less money on other items, such as recreation and even basic needs."
Gambling resorts, most notably Las Vegas, have responded to tougher competition by trying to make themselves into destinations for visitors of all stripes, offering concerts, theater, museums, zoos, restaurants and other attractions.
Genting appears to be planning a variation on that model for New York.
The company and the project's champion, Cuomo, have heralded it first and foremost for the planned convention center, which they have boasted will be the nation's largest.
Genting has insisted it will go ahead with construction of the center even if the state doesn't pass the constitutional amendment needed to fully legalize the type of casino it wishes to operate at the site, with table games run by human dealers rather than the electronic machines.
"I can't be clearer about this: This project, this convention center, is in no way predicated on the legalization of table gambling in New York," said Stefan Friedman, a publicist for the company. "We think there is a real opportunity here."
The company has, however, asked for permission to expand its current casino operation as part of the deal. It also wants to alter its revenue-sharing deal so it can take home a bigger slice of the profits.
There are some skeptics. The convention center the company wishes to build will be a 45-minute taxi ride from Manhattan, or an hour or longer by train. It will be located in a residential area where there are now no restaurants, shops or sites of interest, aside from nearby John F. Kennedy International Airport.
Convention centers across the country have been losing money for many years, and suffering from attendance declines even while going ahead with expansion projects.
"I would consider that a very risky business proposition," said Heywood Sanders, a professor of public administration at the University of Texas who is a leading critic of using taxpayer money to build convention centers.
He noted that the nation's biggest convention center, Chicago's McCormick Place, has seen attendance drop steadily in recent years, despite several expansions and costly upgrades. The Chicago Convention and Tourism Bureau reported that 2 million people attended events at the center in 2010, compared to 3 million in 2001. Convention delegates dropped to 890,000 from 1.3 million over that same decade.
Cuomo himself noted in a letter to New York legislators this week that many convention centers lose money, and he expressed doubt over the wisdom of using public money to pay for such facilities, saying it was "debatable" that they generate enough new tourism to validate the investment.
But he noted that, in this case, the building would be privately funded and operated.
"The state is not building anything. We are not spending public money on a convention center. Genting, a private entity, will take the risk of economic success," he said.
That argument rang true with Kathryn Wylde, president of the Partnership for New York City, an influential group of business leaders.
"There is only upside for the city and state," she said. "We have very little to lose by encouraging them."
As in Florida, Genting appears to be betting big that the state will eventually eliminate legal hurdles to expanded gambling. It paid $380 million up-front for the right to operate at Aqueduct for 30 years, and said it is prepared to spend billions of dollars constructing convention and exhibition space, as well as a theater and 1,000 hotel rooms, even without the gambling expansion it desires.
Clearly, Friedman said, the company doesn't believe the East Coast is saturated with either casinos or convention centers.
That said, it isn't necessarily keen for more competition. As part of its negotiations with the state, he said, the company is discussing a possible grant of exclusivity that could prevent another casino from opening "right in our backyard."
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By DAVID B. CARUSO 01/14/12 01:19 PM ET Associated Press