Making the News

Boston Globe

Originally Published:Friday, August 29, 2008

Michael Pollock - managing director of the Spectrum Gaming Group, which recently completed a gambling study for the state - said the national downturn in the gambling industry is unprecedented. In the past, the industry managed to ride out business cycles, leading some to consider casinos to be recession-proof.

But the current slide is different, Pollock said. Today's turbulence is closely tied to a bust in the housing market. High housing prices fueled the kind of confidence and even exuberance that fills casino floors and sometimes financed casino spending through home equity loans, he said.

Moreover, the industry was a lot smaller in the last recessions and less dependent on casual or new gamblers. "This industry is in uncharted waters right now," Pollock said.


Added slots fail to halt slide in N.E. gambling

By Sean P. Murphy
Boston Globe

Soaring gas prices, job losses, and other components of New England's struggling economy have taken a bite out of slot machine revenues, resulting in the first significant, sustained dip in the region's gambling market since Connecticut opened its tribal casinos in the 1990s.

Slot machine players wagered 6.5 percent less at the two Connecticut casinos and two Rhode Island slot parlors in July, compared with July 2007, a decrease of $137 million.

The downturn, reflective of a national slide in gambling revenues, has taken hold even as New England gambling operators have increased the supply of slot machines. About 1,300 new machines were placed on line in Connecticut and Rhode Island in the last year. And today, Mohegan Sun in Connecticut is hosting the grand opening of a $925 million expansion, adding 650 machines.

Mitchell Etess, Mohegan Sun president and chief executive, said yesterday that the economic downturn "clearly is having a negative impact" on Mohegan Sun and Foxwoods, Connecticut's other casino. "But this is a very solid market and will turn around," he said.

For years, Foxwoods and Mohegan Sun and the Twin River and Newport Grand slot parlors in Rhode Island added more slot machines to keep up with increasing demand. But now the demand appears to be more than satisfied, at least temporarily.

What will happen in the future is difficult to predict, gambling analysts said. The divergent trends - more slot machines, less demand from gamblers - could complicate the debate over whether to legalize casinos in Massachusetts. Governor Deval Patrick proposed a plan to license three casinos in Massachusetts last year; it was defeated by the Legislature, but advocates and opponents expect that the issue to emerge again in 2009.

"It's got to give people pause, and surely it will give opponents to casinos in Massachusetts new arguments" about market saturation, said Arthur Wright, a University of Connecticut economist who has tracked the industry for years.

The economic downturn alone means that bids for Massachusetts gambling licenses, pegged by Patrick last year at a minimum $200 million each, would be substantially less, because of increased borrowing costs, Wright said. And it may well preclude some would-be bidders from getting into the game because they cannot line up financing, he said.

Kofi Jones, a spokeswoman for the Patrick administration, said it was premature to discuss future casino initiatives.

The one location that could be immune to market saturation in New England is in metropolitan Boston, however. With its high per-capita earnings, dense population, and huge tourist market, the Hub remains an attractive location for a new megacasino, he said.

Laura Everett - a spokeswoman for Casino Free Mass, a coalition of groups opposed to an expansion of legalized gambling - said a casino in or near Boston may succeed for the investors, but would do so at the expense of other businesses in the vicinity.

"Casinos suck up all the available discretionary spending in a area, and that means owners of restaurants and other small business need to be very concerned," she said.

Locating a casino in a urban area also ratchets up the social costs, especially for less affluent patrons who can least afford gambling losses, Everett said.

Wright's analysis of whether a saturation point is being reached indicates that locating casinos in areas of Massachusetts outside metropolitan Boston, including the proposed Mashpee Wampanoag casino in Middleborough, would involve more economic risk for developers.

But Scott Ferson, a spokesman for the tribe and the investors in the $1 billion Middleborough proposal, said the downturn raises no great concerns. Even though Middleborough is 40 miles from Boston, he said, "people in New England like casinos, and they have shown they're willing to drive to them by going to Connecticut all these years."

Nationally, the gambling picture is a little better than in New England, said the American Gaming Association, an industry lobby that tracks commercial casinos. Holly Thomsen, a spokeswoman for the organization, said gambling revenue in casinos was down 2 percent in the second quarter of 2008, compared to the previous year, in the 12 states where they are legal, excluding Indian-operated casinos.

Measuring by the full quarter, instead of just July, slot revenues at Foxwoods and Mohegan Sun declined by more than 4 percent.

Michael Pollock - managing director of the Spectrum Gaming Group, which recently completed a gambling study for the state - said the national downturn in the gambling industry is unprecedented. In the past, the industry managed to ride out business cycles, leading some to consider casinos to be recession-proof.

But the current slide is different, Pollock said. Today's turbulence is closely tied to a bust in the housing market. High housing prices fueled the kind of confidence and even exuberance that fills casino floors and sometimes financed casino spending through home equity loans, he said.

Moreover, the industry was a lot smaller in the last recessions and less dependent on casual or new gamblers. "This industry is in uncharted waters right now," Pollock said.

The downturn has been particular unforgiving at Twin River, where investors say they are on the verge of bankruptcy and are trying to negotiate a deal with the state to reduce the amount they pay to the state in taxes.

The investors, including some who put money into developing Mohegan Sun in the 1990s, took on $577 million in loans to buy the old Lincoln Park racetrack and refurbish it. They doubled the amount of "video lottery terminals," which operate similarly to slot machines, to 4,741, and have added 24-hour operations on weekends. While those moves have increased revenues, they have not been enough to cover the higher debt costs.

The owners - including Len Wolman and Sol Kerzner, the developers of the proposed Mashpee Wampanoag casino in Middleborough - have received a credit downgrade and are negotiating with lenders.

Sean Murphy's email address is [email protected].

 

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