Maybe this shows I’m just not so inspired this morning …because it’s the last day of Spring?
As I was collecting data for this post, I noticed that the Revel casino in Atlantic City filed for Chapter 11 bankruptcy protection yesterday. The pipe dream of Morgan Stanley master-of-the-universe wannabees, the Revel was supposed to be the upscale entry in a market that caters to little old ladies with buckets of quarters. Not only was the concept suspect, but the timing was awful, coinciding as it did with the peaking of the seaside town’s gambling win in 2006. Oddly, in my view, the state government pumped more than a quarter billion dollars into Revel in 2011 to help get it open. That’s a half-decade after the numbers began to show that the last thing the existing gaming operations needed was more capacity.
Revel is actually the second AC casino bankruptcy in recent months. Last November, the Atlantic Club (which was, once upon a time, the Golden Nugget) entered Chapter 11; in January it closed its doors.
Aggregate casino revenue for Atlantic City has been dropping steadily since the legalization of casino gambling in nearby Pennsylvania (casinos have since opened in Maryland, Delaware and New York. More are on the drawing board for NY and Massachusetts). The current run rate is slightly above half of the peak.
As I wrote about at the time, last year Trenton tried to breathe some new life into Atlantic City, which even in its weakened condition will chip in $150 million – $200 million in tax revenue to the state, by allowing online gambling.
Early predictions by the politicians were that online gamblers would boost aggregate casino win (the amount lost by gamblers) by $1 billion. Microeconomically minded might observe that some of this new-found money might come from gamblers betting online instead of in the physical casinos–so it might not be a pure gain. In addition, any redistribution might deepen the plight of any casino that didn’t offer an online option.
But, since the state tax on online gambling revenue is almost double that for onsite betting (15% vs. 8%), Trenton would likely come out a winner no matter what collateral damage might occur.
results so far
Through May, online gambling has generated $53.5 million in casino win, or about $10 million a month. On the same measure, physical casinos are down by 6.5% year-on-year, or about $74.0 million. …Ouch.
While it’s still early days, online gambling in New Jersey so far seems to be a bust for everyone except the tax collector. So Las Vegas may have little to worry about.
Also, in the Northeast US at least, there appears to be a relatively fixed amount of money that people are willing to spend on gambling in the local area. New casino openings–of which there are plenty in the pipeline–don’t appear to add much to aggregate demand, but rather mostly shift money from one pocket to another–and add to overall industry costs. This implies continuing trouble for overbuilt areas like Atlantic City, or, eventually, any of the other states that are adding capacity.