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08/13/2010

The Fate of the Gambling Industry in New Jersey

Casino gambling and horse racing are two big businesses in my home state of New Jersey, but with losses mounting in both, for various reasons, including rapidly increasing competition from neighboring states, the new Republican Governor, Chris Christie, is proposing a radical step; that the state choose the casino industry in Atlantic City (A.C.) over support for racing, and, further, take over the casino district in A.C. through the creation of a new body that would control everything around the casinos, including the policing of it. The New Jersey Sports & Exposition Authority would be eliminated, to save costs, and the marketing budget of the new casino board would certainly be more than the pathetic $4 million it is today.

“Atlantic City is dying. The question is, are we going to allow the same doctors who put the patient in this condition to treat the patient?” asked the governor. “If anybody’s got a better idea, come forward with it…It’s not going to fix itself.”

Under the plan, aside from taking over Atlantic City’s casino operations, operations at the Meadowlands Racetrack would be shut down and Monmouth Park’s track would be sold, hopefully. Other facilities, such as the Izod Center, where the New Jersey Nets played until this coming season, will be sold, leased, or torn down.

With the plan to close down racing at the Meadowlands, Hall of Fame harness driver John Campbell urged, “This is not a lost cause. There is a lot of potential here if we can change the culture of the grandstand food and services and upgrade our technology, (but) they are not giving us the opportunity to do that.” [Sorry, Mr. Campbell, it’s too late. Monmouth Park, for reasons I won’t get into in this space, is a different matter. It can be successful.]

With the casino operations in the south of the state, and the racing up north, you can see how this whole debate in picking the winners and losers is dividing the state along North-South lines. Many politicians, especially Democratic ones in the north, are also saying it’s about jobs. One study estimates that a shutdown of New Jersey’s racing industry will cost 7,000 jobs, and if racing died some 57,000 acres of land devoted to the horse business would be lost.

---

It was back in 1978 that the first casino opened operations in A.C., Resorts Casino Hotel, and as the industry expanded, and boomed during good times, The Casino Reinvestment Development Authority was created to funnel casino money into public improvements and housing. To date, the authority has pumped more than $1.5 billion into A.C. since 1984, with an additional $300 million on other transportation and economic development projects in the state. I don’t think you’ll find anyone in my state who doesn’t agree that this was throwing money down a rat hole.

By 1992, competition nationwide was growing and A.C. was no longer the only game in town outside of Las Vegas. Today, in the northeast alone there are 41 casinos with 20 more planned. A.C. itself compounded the problem by not doing anything to improve the casino district as the area suffered from massive corruption in town. Even the Miss America pageant said bye-bye in 2005.

In 2006, when casino revenue in New Jersey peaked at $5.2 billion, the state’s 11 casinos forked over more than $500 million in taxes. By 2009, though, with revenue down to $3.9 billion (the lowest since 1997), the tax haul had decreased to $312 million and is expected to drop to $275 million this year.

[Note: Nationally, commercial casino revenues have fallen from a high of $34.13 billion in 2006 to $30.74 billion in ’09. Total casino employment now stands in excess of 328,000…down 29,000 from the peak. Atlantic City’s casino-related employment has fallen from 50,000 to 38,000. ]

Why the big drop for New Jersey? It was in 2006 that Pennsylvania opened the first of what would be 9 slot-machine parlors, with another 5 on the drawing board. Neighboring Delaware also introduced 3 racetrack/slot operations and then this summer, both Pennsylvania and Delaware began to offer table games for the first time and these are meeting with wild success, at least initially, but, all are chasing a smaller portion of the pie with such rapid expansion.

The revenues for the 11 casinos in New Jersey basically broke even in April, but May’s declined 9% over year ago levels, and June’s were down 11% to $286.8 million, of which $206.9 million was slots and $79.9 million was table games. It’s estimated that the advent of table games from Pennsylvania and Delaware could take $300 million away each year from A.C.

---

Back to the battle between casinos and horse racing, for years the casinos have been subsidizing the racing industry to the tune of $30 million and under the Christie plan this would cease. The casinos provided this stipend in return for the racetracks not being allowed to operate slot-machine parlors, which would obviously be competition for A.C. But Monmouth and the Meadowlands argue that A.C. is already losing out to slots in Pennsylvania and Delaware so why not keep the revenue in New Jersey. As it is, northern N.J. also loses out some to racetrack/slot combinations in New York locales such as Monticello and Yonkers. [Last year, I went to Monticello with a buddy to see some harness racing (and more importantly the nearby Woodstock Festival museum), and there were literally 10 people…10…in the grandstands watching pitiful fields of five horses per race. But the attached slot-machine parlor was pretty well packed. Now, however, Monticello’s slots are losing out to new operations in northeastern Pennsylvania, across the border, so you can see how the market gets increasingly fragmented.]

The Meadowlands and Monmouth Park are expected to lose $20 million this year, even with the subsidy.

Personally, having been in Atlantic City this past weekend for the first time in at least ten years, I was reminded of the terrific potential for the place. The beach is super, the boardwalk is great (but could be better), and on top of casino gambling, if that’s your thing, you get some great acts there. [I saw the Black Eyed Peas, for example…just OK in my book.]

So I’m all for Gov. Christie’s plan. Opponents say, among other things, that the last thing anyone should want is government running casinos, but I strongly believe an exception can be made here as long as the state really gets behind it.

But what Atlantic City also desperately needs is sports betting, legislation for which faces many a hurdle.

Lastly, on a different but related topic, the House Financial Services Committee has passed a bill that would legalize online gambling. I concur with this as well, though in all honesty I have never partaken of it myself and can’t see doing so. [The stock market is enough action for me.] Americans spend $15 billion on illegal online gambling each year but would spend an estimated $50 billion if it were legal, at which point the feds propose to take 2% in the form of a tax. Donald Trump is one of the few casino operators who is in favor of the move; other casino owners, including Indian tribes, saying legalizing online gaming would take too much away from their businesses. Trump argues, however, that it’s more about the operator. A successful casino can be so in any environment with the right vision and execution, says The Donald.

Sources: Star-Ledger, Pocono-Record, Wall Street Journal, New York Times, AP.

Wall Street History will return in two weeks.

Brian Trumbore



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Wall Street History

08/13/2010

The Fate of the Gambling Industry in New Jersey

Casino gambling and horse racing are two big businesses in my home state of New Jersey, but with losses mounting in both, for various reasons, including rapidly increasing competition from neighboring states, the new Republican Governor, Chris Christie, is proposing a radical step; that the state choose the casino industry in Atlantic City (A.C.) over support for racing, and, further, take over the casino district in A.C. through the creation of a new body that would control everything around the casinos, including the policing of it. The New Jersey Sports & Exposition Authority would be eliminated, to save costs, and the marketing budget of the new casino board would certainly be more than the pathetic $4 million it is today.

“Atlantic City is dying. The question is, are we going to allow the same doctors who put the patient in this condition to treat the patient?” asked the governor. “If anybody’s got a better idea, come forward with it…It’s not going to fix itself.”

Under the plan, aside from taking over Atlantic City’s casino operations, operations at the Meadowlands Racetrack would be shut down and Monmouth Park’s track would be sold, hopefully. Other facilities, such as the Izod Center, where the New Jersey Nets played until this coming season, will be sold, leased, or torn down.

With the plan to close down racing at the Meadowlands, Hall of Fame harness driver John Campbell urged, “This is not a lost cause. There is a lot of potential here if we can change the culture of the grandstand food and services and upgrade our technology, (but) they are not giving us the opportunity to do that.” [Sorry, Mr. Campbell, it’s too late. Monmouth Park, for reasons I won’t get into in this space, is a different matter. It can be successful.]

With the casino operations in the south of the state, and the racing up north, you can see how this whole debate in picking the winners and losers is dividing the state along North-South lines. Many politicians, especially Democratic ones in the north, are also saying it’s about jobs. One study estimates that a shutdown of New Jersey’s racing industry will cost 7,000 jobs, and if racing died some 57,000 acres of land devoted to the horse business would be lost.

---

It was back in 1978 that the first casino opened operations in A.C., Resorts Casino Hotel, and as the industry expanded, and boomed during good times, The Casino Reinvestment Development Authority was created to funnel casino money into public improvements and housing. To date, the authority has pumped more than $1.5 billion into A.C. since 1984, with an additional $300 million on other transportation and economic development projects in the state. I don’t think you’ll find anyone in my state who doesn’t agree that this was throwing money down a rat hole.

By 1992, competition nationwide was growing and A.C. was no longer the only game in town outside of Las Vegas. Today, in the northeast alone there are 41 casinos with 20 more planned. A.C. itself compounded the problem by not doing anything to improve the casino district as the area suffered from massive corruption in town. Even the Miss America pageant said bye-bye in 2005.

In 2006, when casino revenue in New Jersey peaked at $5.2 billion, the state’s 11 casinos forked over more than $500 million in taxes. By 2009, though, with revenue down to $3.9 billion (the lowest since 1997), the tax haul had decreased to $312 million and is expected to drop to $275 million this year.

[Note: Nationally, commercial casino revenues have fallen from a high of $34.13 billion in 2006 to $30.74 billion in ’09. Total casino employment now stands in excess of 328,000…down 29,000 from the peak. Atlantic City’s casino-related employment has fallen from 50,000 to 38,000. ]

Why the big drop for New Jersey? It was in 2006 that Pennsylvania opened the first of what would be 9 slot-machine parlors, with another 5 on the drawing board. Neighboring Delaware also introduced 3 racetrack/slot operations and then this summer, both Pennsylvania and Delaware began to offer table games for the first time and these are meeting with wild success, at least initially, but, all are chasing a smaller portion of the pie with such rapid expansion.

The revenues for the 11 casinos in New Jersey basically broke even in April, but May’s declined 9% over year ago levels, and June’s were down 11% to $286.8 million, of which $206.9 million was slots and $79.9 million was table games. It’s estimated that the advent of table games from Pennsylvania and Delaware could take $300 million away each year from A.C.

---

Back to the battle between casinos and horse racing, for years the casinos have been subsidizing the racing industry to the tune of $30 million and under the Christie plan this would cease. The casinos provided this stipend in return for the racetracks not being allowed to operate slot-machine parlors, which would obviously be competition for A.C. But Monmouth and the Meadowlands argue that A.C. is already losing out to slots in Pennsylvania and Delaware so why not keep the revenue in New Jersey. As it is, northern N.J. also loses out some to racetrack/slot combinations in New York locales such as Monticello and Yonkers. [Last year, I went to Monticello with a buddy to see some harness racing (and more importantly the nearby Woodstock Festival museum), and there were literally 10 people…10…in the grandstands watching pitiful fields of five horses per race. But the attached slot-machine parlor was pretty well packed. Now, however, Monticello’s slots are losing out to new operations in northeastern Pennsylvania, across the border, so you can see how the market gets increasingly fragmented.]

The Meadowlands and Monmouth Park are expected to lose $20 million this year, even with the subsidy.

Personally, having been in Atlantic City this past weekend for the first time in at least ten years, I was reminded of the terrific potential for the place. The beach is super, the boardwalk is great (but could be better), and on top of casino gambling, if that’s your thing, you get some great acts there. [I saw the Black Eyed Peas, for example…just OK in my book.]

So I’m all for Gov. Christie’s plan. Opponents say, among other things, that the last thing anyone should want is government running casinos, but I strongly believe an exception can be made here as long as the state really gets behind it.

But what Atlantic City also desperately needs is sports betting, legislation for which faces many a hurdle.

Lastly, on a different but related topic, the House Financial Services Committee has passed a bill that would legalize online gambling. I concur with this as well, though in all honesty I have never partaken of it myself and can’t see doing so. [The stock market is enough action for me.] Americans spend $15 billion on illegal online gambling each year but would spend an estimated $50 billion if it were legal, at which point the feds propose to take 2% in the form of a tax. Donald Trump is one of the few casino operators who is in favor of the move; other casino owners, including Indian tribes, saying legalizing online gaming would take too much away from their businesses. Trump argues, however, that it’s more about the operator. A successful casino can be so in any environment with the right vision and execution, says The Donald.

Sources: Star-Ledger, Pocono-Record, Wall Street Journal, New York Times, AP.

Wall Street History will return in two weeks.

Brian Trumbore