August 11, 2010 / 3:56 PM / 9 years ago

U.S states embrace sputtering casinos to plug gaps

MIAMI, Aug 11 (Reuters) - State governments eager for paydays in hard times are doubling down on gambling even though America’s casino industry is still sliding from a peak reached three years ago.

Desperate for revenue to ease budget shortfalls totaling an expected $127 billion or more this fiscal year alone, lawmakers and governors are championing casino deals and looking past flashing signs of distress.

Atlantic City, which once had the only casinos on America’s densely populated East Coast, is losing so much business to rivals that New Jersey’s governor is pressing a plan for the state government to take over the faded seaside resort’s gambling area.

Pennsylvania, New Jersey’s neighbor reveling in the success of new casinos and its slot machine parlors, is seeing downturns in tax collections from casinos open more than two years, according to analyst Lucy Dadayan at the Rockefeller Institute of Government.

And Nevada, a pioneer of legalized gambling in America and the home to the famous Las Vegas strip, has the biggest gap of any state between spending and income as a percentage of its budget, according to the Center on Budget and Policy Priorities think tank.

Big casinos run in Las Vegas and other U.S. markets by overly indebted entertainment corporations are tumbling into receivership and aggravating Nevada’s sky-high jobless rate of 14.2 percent, the nation’s worst.

Patron spending at casinos not operated by Native Americans peaked in 2007 at $34.13 billion, just before the start of the last recession, and last year tallied only $30.74 billion, according to the American Gaming Association trade group.

Moody’s Investors Service said in a recent report the casino industry had never endured a shakeout as severe as the the last three years and a full-throated return of gamblers to slot machines and gaming tables was impossible to forecast.

But gambling, whether at new casinos, repurposed racetracks or with video devices, holds center stage in Northeastern and other states as a possible means of replacing state revenue lost to high unemployment, diminished consumer and property sales taxes and other recession woes.


Advocates say gambling brings in taxes and creates jobs.

“What we are seeing now is a tipping point,” said economics professor Bill Eadington of the University of Nevada in Reno. “Until two or three years ago, there was reluctance in some states worried about social costs to let gambling expand too much. That’s no longer the case.”

Political leaders in Massachusetts largely agree on okaying casinos in the state but are deadlocked over whether to permit slot machines at racetracks.

Pennsylvania authorized table games in July at its slot machine parlors, which had delivered $1.2 billion in taxes to the state in the 12 months through June. Much of Pennsylvania’s gambling bounty comes from punters who would otherwise visit Atlantic City, where July’s casinos take was 5 percent off a year earlier’s revenues.

Operators in Maryland this week rolled out slot machines and are working toward an autumn opening of the state’s first casino along an interstate — shortly after three racetrack casinos in adjacent Delaware added table games.

Ohio recently cleared the way for casinos, and voters in Maine this November will decide on gambling in a referendum.

All together, at least two dozen states have considered expanding gambling in the last two years, even as revenue at states and local governments from all forms of legal gambling declined by 2.9 percent in fiscal 2009 from fiscal 2008, according to the Rockefeller Institute in Albany, New York.

State governments’ interest in gambling as a revenue source, typically good for about 3 percent of annual revenue in states that allow and tax it, picks up dramatically in bad times as tax revenue sags, according to Eadington.

“What happens is that the high-road arguments against legalized gambling evaporate. They don’t have the same cache in bad times,” Eadington said.

Governments, including the federal government actively looking at permitting online wagering, will likely legalize additional types of gambling, especially if casinos stall financially, according to Eadington.

“There’s convenience gaming, such as in bars; video lotteries; sports betting and Internet gambling,” Eadington said. “California even looked at interstate poker.”

Dadayan, who is working on a new study of states’ gambling revenue, said the sector’s growth may be tapped out, both for existing operations and states that may enter the business, at least for the immediate future.

“The market has reached a saturation point, if the casinos keep coming out with the same type of gaming,” Dadayan said. “If they keep the same type of gaming, in terms of the same table games and the same machines, the market for those sorts of activities may have reached the saturation point.” (Additional reporting by Ciara Linnane and Joan Gralla in New York and Karen Pierog in Chicago, editing by Philip Barbara)

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