Herald-Leader Editorial

Odds now working against casinos: Proliferation, online options hurt business

August 14, 2014 

The political and legal landscape for expanded gambling in Kentucky remains murky, but the economics of casino-type gambling in the U.S. are clearly much less favorable than when Kentucky first began debating this topic 20 years ago.

Consider:

■ Revel Casino, built in 2003 in Atlantic City at a cost of $2.6 billion, will close next month, as will the Trump Plaza Hotel. The Atlantic Club closed in January and Showboat is due to close at the end of this month.

■ In Connecticut, Foxwoods casino announced in May it was cutting back on its hours to save money. Both Foxwoods and Mohegan Sun casinos have regularly reported slot revenue declines the last three years. In March 2012 the New York Times published a long story under the headline "Foxwoods is Fighting for Its Life."

■ In Mississippi, Missouri and Iowa, revenues have declined and casinos closed. The Delaware legislature passed a $10 million casino bailout in July, the first of three annual installments.

This came a year after the casinos got a "one-time" $8 million bailout last year. In the meantime, Delaware Park cut purses in the middle of the current racing season because of a decline in subsidies from slots — after cutting racing days last year.

■ This week the Times reported on New York state's effort to squeeze revenue out of casinos in a story headlined, "Albany Doubling Down as Casino Boom Fades."

A word that pops up regularly in news articles and financial analyst reports on casino gambling — essentially slot machines — is "cannabalize."

New casinos make money because they are sucking revenue from competitors.

There are enough casinos to serve the people who want to gamble, Fitch Ratings explained in a report last month.

"Results could be lackluster, even if more states allow casinos, as is the case in Ohio, which we estimate cannibalized roughly one-third of its revenues from surrounding states."

The report notes that larger, longer-term trends also trouble the industry.

Unemployment and underemployment mean there's less money for gambling. Retirees, "a critical core of the existing gambler base," according to Fitch, face poor returns on savings because of low interest rates. And younger people just aren't into slots that much, preferring casino-type games on mobile devices.

In Kentucky, tracks have made an end-run around the political stalemate with instant racing, which uses machines very much like slots, with wins determined by the outcome of unidentified past races.

Although there's an unresolved battle in the courts about the legality of these machines, the Kentucky Racing Commission has allowed tracks to move ahead with them. Currently, Ellis Park in Henderson and Kentucky Downs in Franklin have instant racing.

Keeneland and The Red Mile both announced plans to build instant racing facilities earlier this year. Neither has moved forward with construction, and Keeneland said recently that its project is on hold because the demands of hosting its first-ever Breeders' Cup in the fall of 2015 are taking priority.

The most compelling argument for expanded gambling in Kentucky has been that it's the only way to recapture Kentucky money spent at casinos in neighboring states.

That may be true, but recent history nationally suggests that becoming a cannibal yourself may not yield great results even if there's a cannibal living next door.

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