Quick-takes: The month's trends in a glance – October 2007

You can see the signs of gaming's growing acceptance everywhere in the United States. September provides an example of this growing attitude of acceptance. Governors of both Massachusetts and Maryland launched new initiatives to bring expanded gaming to their respective states. Both initiatives have generated a great deal of coverage – and most of it positive. The stories focused on the benefits of gaming to the economy and the number of people from each state that currently travel to another state to gamble. The story that really underscored this attitude of acceptance came from Sports Illustrated; Frank Deford wrote: "Forget baseball, gambling is the new national pastime. For all the talk about how sweet and innocent and pastoral baseball began in the republic, the bald fact is that much of its early popularity came about simply because our dear national pastime was such a good betting game." He makes an argument one hears frequently these days – that without wagering, sports would not be as popular or as profitable as it currently is. How far wrong could he be when governors from California to Florida, from Pennsylvania to Massachusetts are finding gaming to be the perfect solution to budget crises, rising taxes, and competition from neighboring states?

You've probably heard that suspicions were, uh, shall we say, piqued recently when millions of dollars were suddenly bet on the 87th-ranked tennis player, one Martin Arguello, when he played the world No. 4 Nikolay Davydenko in the first round of an obscure tournament somewhere you've never heard of in Poland. And, heavens to Betsy, Davydenko suddenly decided he had a toe injury and had to retire. My, my. But that denouement did not surprise me nearly so much as to learn that just one British gambling site – named Betfair – announced in passing that it regularly took in about $700,000 on such a match. Think of it: $700,000 routinely bet at one gambling establishment on most every-day matches…They'll be dealing blackjack in the Taj Mahal next year. Nevada used to have the sin market cornered. Now 27 states boast casinos that more than one-quarter of Americans patronize every year…Now get this. In Vegas this season you can legally bet on fantasy football...And man, oh man, did you see what the jackpot for both PowerBall and Mega Millions got up to last week? Frank Deford, Sports Illustrated, (9-5-07)

Massachusetts, besides being the latest state to move toward casino gaming, has become a potential tipping point of gaming expansion, in my opinion. In fact, Massachusetts Governor Deval Patrick's decision to move forward with casinos may have more of an impact on the expansion of gaming on the East Coast than any other single factor. Within twenty-four hours, two other states, New Hampshire and Maryland, had begun talking about expansion. And Connecticut is suddenly feeling the kind of pressure on a major revenue stream that New Jersey is feeling from slot machines in Pennsylvania; and it has just started. We have to see how the process will play out, how much the state will charge for each license, what the tax rate will be, and just how much casinos in the state will generate in revenues.

Massachusetts promises more than simple entertainment for all of us watching, but with no stake in the outcome. Gaming in Massachusetts may make some significant shifts in attitudes in many more states than just internally within Massachusetts. It will also demonstrate a principle that has been applicable for a while, but not always obvious to outsiders: "only the largest need apply." The cost of entry has grown beyond the means of any company but the largest company with the best credit; licenses cost in the hundreds of millions of dollars, and start-up operations a billion or so more. And then in the bidding and licensing procedure, it is only the very large and successful companies which seem able to jump all of the hurdles legislators and regulators put in their path. In every jurisdiction there are local companies with a foot in the door, but they will mostly need to find one of the big companies as a partner. Massachusetts is also one of three states (the others are Kansas and Pennsylvania) which are demonstrating that Foxwoods and Mohegan Sun are major players in gaming.

Three years ago, you couldn't even buy a six-pack of beer on Sunday in most Massachusetts cities and towns – and now the governor is proposing not just one but three casinos. Despite some lingering vestiges of a Puritan blue law culture that brought "banned in Boston" to the nation's vocabulary, Governor Deval Patrick's willingness to embrace casinos represents a fundamental shift over the last generation in Bay State residents' comfort level with the ethics and glitz of gambling. Massachusetts, in fact, has been wading slowly into gambling for decades. In the 35 years since its founding as an alternative to Mob-run numbers rackets, the aggressively marketed state lottery has exploded into a $4 billion annual enterprise. The Massachusetts State Lottery Commission crossed a key line in 1993 when it began sponsoring electronic Keno games with drawings every five minutes that turned hundreds of bars, restaurants, and convenience stores into Keno parlors. (Peter J. Howe, Boston Globe, 9-18-07)

The owner of the Raynham Park dog racing track says he plans to bid for a casino license if the Legislature approves expanded gaming. George Carney is praising Governor Patrick's plan to allow three full-scale casinos in Massachusetts. Carney has been unsuccessfully lobbying lawmakers for years to permit slot machines at the state's four commercial race tracks. (Associated Press, 9-18-07)

The owners of Suffolk Downs in Boston think their racetrack would be a great fit for 1 of 3 casinos Governor Patrick supports building in the state. Suffolk Downs chairman of the board Bill Mulrow issued a statement saying the track's proximity to Logan Airport would help attract thousands of new visitors to the state. He also says adding a casino to their existing operations would create thousands of permanent new jobs. (Associated Press, 9-18-07)

The governor's support of three commercial gaming facilities might trump the Mashpee Wampanoag's casino if they do not agree to waive sovereign rights… Patrick said he expects the Mashpee Wampanoag tribe, which plans a $1 billion casino in Middleboro, to compete for a casino license. But he said there's no ironclad guarantee the tribe will be an operator of one of the three casinos he envisions… Secretary of Economic Development Dan O' Connell said he expects the licenses to be auctioned for at least $200 million to $300 million each and include agreements for at least 27 percent of all gaming revenues. (Alice C. Elwell, Brockton Enterprise, 9-18-07)

Maryland Governor Martin O'Malley will recommend a new revenue package, including slot machine gambling and higher sales and income taxes, to balance the state's projected budget deficit. And the governor could announce as soon as Tuesday whether he will call lawmakers into a special session to consider his plans. Senate President Thomas V. Mike Miller says O'Malley will make an announcement Tuesday about a possible special session. Maryland faces a projected deficit next fiscal year of more than $1.5 billion, and the governor has worked all summer to craft a package of new taxes to solve the shortfall. (WJLA News Channel 8, 9-18-07)

House Speaker William J. Murphy said yesterday that the General Assembly would study in January whether the state should allow table games at its two slot parlors — Newport Grand and Twin River — or even add a full-fledged casino elsewhere in Rhode Island. "In January, we have to take another serious look at whether we want to be up and running before Massachusetts," he said. "If three casinos open in Massachusetts, then the financial health of our two slot parlors will be in jeopardy. Murphy said gambling revenue critical to the state budget, which is projected to run a deficit for the next few years, will drain away to Massachusetts without action to protect Rhode Island's slot parlors…The machines in Lincoln, along with those at Newport Grand, are projected to bring in $271.1 million this year — $222.2 million from Twin River and $48.9 million from Newport Grand. The two facilities pay the state roughly 60 percent of their revenue from the machines, which translates into about 11 percent of state revenue. (Paul G. Grimaldi, Providence Journal, 9-18-07)

The results from Atlantic City continue to illustrate that competition does make a difference. Atlantic City had 25 years of ever-growing revenue until Pennsylvania authorized slot machines. Each new state increased the pressure on the existing jurisdictions to loosen regulatory restrictions and for the operators to improve their properties. That competitive pressure is another reason that only the largest need apply – companies need to be positioned in every jurisdiction and not lose revenue to other competing companies in neighboring jurisdictions.

Atlantic City August casino revenues fell 5.9% to $465.2 million. (Gaming Industry Weekly Report, 9-17-07)

Colorado August casino revenue rose 4.7% to $72 million. (Gaming Industry Weekly Report, 9-24-07)

Detroit revenue was up $2.97 million or 2.7 percent in August. (Detroit News, 9-25-07)

Florida August revenue fell 2.4% from July to $18.3 million. (Gaming Industry Weekly Report, 9-17-07)

Illinois August gaming revenue rose 7.1% to $172.7 million. (Gaming Industry Weekly Report, 9-17-07)

Indiana gaming revenue rose 5.9% with same store revenue up 1.4%. (Gaming Industry Weekly Report, 9-17-07)

Iowa August revenue rose 16.2% to $122.8 million but on a same store basis, revenue was up 3.4%. (Gaming Industry Weekly Report, 9-17-07)

Louisiana's state-licensed casinos won $213.1 million in August, up slightly from the $209.5 million taken in August 2006. (Alan Sayre, Associated Press, 9-19-07)

Mississippi August gaming revenues rose 18.9% to $239.8 million. (Gaming Industry Weekly Report, 9-24-07)

Missouri revenue rose 3.2% in August to $134.9 million. (Gaming Industry Weekly Report, 9-17-07)

Nevada July revenue rose 10.3% to $1.146 billion. (Gaming Industry Weekly Report, 9-17-07)

Pennsylvania's August gaming revenue was down 3.1% to $103.1 million from July. (Gaming Industry Weekly Report, 9-17-07)

Gaming is no longer isolated; it isn't limited to any one state or region, and because of the continual expansion, gaming is going to continue to be more and more competitive. It will be more expensive to operate because of competition, but it will also be more expensive because of the increasing costs of entry and regulation; and it will become almost prohibitively expensive to build properties of the size necessary to justify the licensing costs and the intensity of the competition.