Northeast casino boom boils down to ‘states need money’

June 16, 2018 3:11 PM
  • Mark Gruetze, CDC Gaming Reports
June 16, 2018 3:11 PM
  • Mark Gruetze, CDC Gaming Reports

A glance at a casino map of the Northeastern United States explains why the industry and the states worry about saturation weakening the market.

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Pennsylvania’s 12th major casino is scheduled to open this year in Philadelphia, the metro area’s fourth gambling site. The Keystone State recently awarded licenses for five mini-casinos, and it is set to launch Internet gaming and regulated sports betting this year.

Hard Rock and Oceans Resort casinos are scheduled to open June 28 in Atlantic City.

In New York, MGM Resorts International last month announced the purchase of Empire City Casino and Yonkers Raceway, just north of New York City. Rivers Casino in Schenectady opened in 2017 and the $1.2 billion Resorts World in the Catskills opened this year.

In Massachusetts, MGM Springfield is scheduled to open in August.

The reason for all the expansion is simple, according to Ed Sutor, president and CEO of Dover Downs Hotel & Casino in Delaware: “States need money.”

“They have huge demands on their resources and budgets,” he said, and casinos are an attractive answer because they can increase government revenue without a direct tax on the voting public.

“That hasn’t changed in 35 years,” he added.

Sutor commented Thursday during a panel discussion on “Casinos Gone Wild: Northeast Market Update” at the 22nd annual East Coast Gaming Congress, held at Harrah’s Atlantic City. Also on the panel were Karlos LaSane, regional vice president of government relations and community affairs for Caesars Entertainment; Gordon Medenica, director of the Maryland Lottery and Gaming Control Agency; and Jorge Perez, senior vice president and chief financial officer of MGM Resorts. Joseph Weinert, executive vice president of Spectrum Gaming Group, moderated.

Medenica called Northeast casino saturation “clearly a fact of life” and said policy makers need a better understanding of how the gaming industry works.

“There’s a direct trade-off between tax rates and the (casinos’) ability to be competitive,” he said. “For casinos to survive, to be profitable, and to raise money for good causes, we in the public sector must find it necessary to understand that balance.”

For example, he described Pennsylvania’s proposed 34 percent tax on regulated sports betting as “almost killing the golden goose before laying its first egg.”

LaSane, Perez, and Sutor said high tax rates can keep casinos from spending on additional amenities that would attract more customers and create more jobs. Sutor said Dover Downs was taxed around 20 percent when it opened in 1996, but after seven increases the rate is close to 60 percent. Delaware collects 43 percent on slot revenue, almost 30 percent on table revenue, and a $3 million annual license fee. He said the casino had spent $2 million in architectural fees for a new garage but scrapped the project because of the company’s tax bill.

Perez said the projected tax bill is “the determining factor” in whether MGM enters a market.

“There’s a balance between tax revenue generated from a high tax rate vs. a tax rate which enables developers to create additional amenities and add more jobs,” he said. “You manage to have a better economic impact with a balanced tax rate.”

LaSane pointed to the Gaming Congress’s location as an example of the benefits of a low tax rate. Caesars spent more than $125 million on the Waterfront Conference Center, which opened in 2015 at Harrah’s Atlantic City. New Jersey taxes casino revenue at 8 percent. That is more than one point higher than Nevada’s 6.75 percent tax rate. New Jersey was the first state outside Nevada to legalize casino gambling, and the first Atlantic City casino opened 40 years ago.

“The lower the tax rate, the higher the investment,” LaSane said. “All one has to do is look at Illinois. We have presence in Illinois but not nearly the capital investment because of the high tax rate (there).”

Medenica, the Maryland gaming commission director, said states have to worry about saturation, just as casinos do.

“We as states are competing with other states,” he said. “Some policy-making decisions relate to what the other states are doing.”

However, he disagreed about singling out tax rates for casino problems.

“High tax environments can still lead to fairly successful casino programs,” he said, citing the success of MGM’s National Harbor project in Maryland, south of Washington, D.C. “I don’t think tax rates per se are a barrier to casino performance.”

Maryland initially taxed slot revenue at 67 percent but reduced that rate for existing casinos when National Harbor opened. Table game revenue is taxed at 20 percent.