Making the News

Cape Cod Times

Originally Published:Monday, June 21, 2010

Is Bay State too late for casino jackpot?

By Steve Decosta
Cape Cod Times

The Massachusetts House of Representatives has passed legislation to allow casino gambling and the Senate is making headway on its own legislation. No one disputes that building two or three resort casinos would create jobs and bring in much needed new revenue, but some say the benefits are probably less than they would have been three years ago, when the governor first pitched his casino plan.

"I don't know if it's going to be the bonanza of revenues that some people think it's going to be," said David Schwartz, director of the Center for Gaming Research at the University of Nevada Las Vegas. Some gaming experts, such as Schwartz, are warning that the current Northeast gambling market may already have reached its saturation point, and that it would take a lot of money to create the type of casinos that would woo gamblers from other states. But others contend that retaining some of the estimated $920 million a year that Massachusetts residents are already spending in out-of-state casinos may be enough to gamble on building our own.

The current economic climate, combined with the feeling that gambling interest may have already peaked, leads many to believe that Massachusetts could see less in licensing fees and revenues than it would have three years ago.

"Massachusetts missed the boat if it expected huge licensing fees," said Roger Gros, publisher of the Las Vegas-based Casino Connection and Global Gaming Business.

Clyde W. Barrow, who studies the New England gambling scene as director of the UMass Dartmouth Center for Policy Analysis, agreed. "Three years ago, Gov. Patrick and his staff were talking about $600 to $800 million in licensing fees for three casinos. A more realistic projection today is in the $300 million range. Steve Norton, a retired gaming executive who formerly worked for Argosy and Las Vegas Sands, speculated that fewer of the casino giants, like Las Vegas Sands, Wynn Resorts, or MGM may still be interested in Massachusetts. That could keep the bidding prices down.

There's less agreement about how the expansion of the gaming industry across the Northeast could affect anticipated revenues in Massachusetts.


Is region saturated?

Three years ago, the Northeast only had casinos in Connecticut and Atlantic City. Since then, New York, Pennsylvania, Delaware, Maryland, West Virginia and Ohio launched or expanded their gaming operations. Rhode Island is considering a proposal to allow table games at the Twin River and Newport Grand slot parlors. The New Hampshire Legislature tabled a gaming bill this year, but it's sure to resurface in the next session.

"The Northeast market is already saturated," Gros concluded. "Unlike when Foxwoods and Mohegan Sun were developing new players through the 1990s, there are fewer new players as every year passes. The drop in revenue at the Connecticut casinos has as much to do with a saturated market as it does a declining economy."

Barrow strongly disputes that.

"Saturation is one of the biggest red herrings in the Massachusetts casino debate," he said. Barrow contends that adding additional gambling facilities actually increases the potential market by making it accessible to more people. There are 40 casinos in Colorado, 9 in Illinois, 30 in Mississippi, 17 in Minnesota, 26 in Wisconsin, and 17 in Iowa, 18 in Louisiana, Barrow pointed out. "And yet some people in Massachusetts agonize over the prospect of three casinos? Give me a break!

Grant Govertsen, principal at Union Gaming Group of Las Vegas, an independent research firm and government and industry adviser that focuses on the global gaming business, said, "There is a lot of gaming in the Northeast, but there is also a very deep population base." Richard McGowan, a Boston College economist who studies gambling, doesn't think the state will see a boom like that experienced in Atlantic City, Foxwoods or Mohegan sun.

"Basically any new casinos expand the market a bit but they will only be successful if they can reclaim market share from either Atlantic City or the Connecticut Native American casinos," McGowan said.

Still, at least one consultant has advised state officials to expect even more money from gaming than it estimated two years ago.


Massachusetts market

Back in 2008, Spectrum Gaming Group of New Jersey analyzed the Massachusetts gaming market for Gov. Deval Patrick, predicting that three casinos would generate $1.5 billion in gross gaming revenues in their third year of operation.

This year, Spectrum updated its analysis for the Massachusetts Legislature. While acknowledging the impact of the recession, Spectrum still predicted that casino revenues three years out would increase to a total of $1.69 billion by factoring in changes in population estimates and an increase in their estimated gaming spending per adult.

Presuming a tax rate of 27 percent, the report predicted the state would receive more than $455 million in direct gaming tax revenue.

A big part of the revenue question is dependent on whether there are potential new gamblers to play at Massachusetts casinos or whether any money spent here would be redirected from gaming facilities in other states.

Barrow predicted that if we build it, they will come. "There is still at least $1.5 to $2 billion in unmet gaming demand in New England alone, assuming an average propensity to gamble, and that does not include the potential for spending by out-of-region tourists, business travelers and conventioneers."

Retired gaming executive Norton agreed, saying that many people in the Northeast have never been to a casino, and that existing outlets were not located near what is a very large population.

"As the broader economy improves, gaming revenues will rebound," Govertsen predicted. "Of course new facilities will cannibalize existing facilities to an extent, as they always do, but will also penetrate new customers in under-served regions."

BC's McGowan thought there probably were new customers in Massachusetts, but that the vast majority would be residents who go to Connecticut or Rhode Island, or could be drawn down from Vermont, New Hampshire and Maine.

But industry watcher Gros contended that new casinos would just cut the existing pie into smaller pieces. "There will be enough new players to sustain a casino through the short term, but the revenues aren't going to be as high as predicted by some experts. Casinos are going to become more local with players inside a 50-mile radius becoming the primary target.

"The most Massachusetts can hope is they keep their gamblers home."

One of the primary arguments of gaming proponents is the need to recapture the money that Bay Staters spend at out-of-state casinos and slot parlors, an amount Barrow has estimated at $920 million a year.

"With what's going on around you, your state needed a response," said Richard Moriarty, another partner at Union Gaming Advisors of Las Vegas. "What's going on right now is nothing more than a wealth transfer from state to state. You need to do something defensively to make sure your people aren't going to other facilities. That wealth transfer is a big problem."


Lower taxes attract gaming

While he felt that Massachusetts casinos could attract residents now heading to other states, United Gaming Group's Govertsen said, "But if they want to make Massachusetts casinos truly destination resorts that will pull people from all others, they'll need to set a low-enough tax rate to attract substantial enough capital investment to have quality products that might rival the tribal casinos in Connecticut. The higher the tax rate, the more likely they will get bare-bones facilities with limited amenities. In this case most customers would likely be locals."

Investment and the tax rate are key, all the experts agreed.

"Unless there is a major casino connected to a convention center/stadium project in the Boston area, there's not much chance that it will attract gamblers from surrounding states to simply come and gamble," Gros said. "But if they develop true integrated resorts that offer a wide variety of non-gaming amenities AND combine that with low license fees and tax rates, then there is a chance that this will work."

"It all depends on what they could offer," UNLV's Schwartz said. "It would have to be phenomenal. To compete at that level, they'd have to invest a lot of money. Is somebody going to be willing to do that?

"Three years ago you could have found a lot of people who were willing to lend money to people who wanted to build a casino. Today, I don't know."

Representatives of Foxwoods and Mohegan Sun did not respond when asked to comment on this issue.




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