State weighs gambling market, new casinos

As New York lawmakers eye legislation next year to legalize up to seven casinos, increased competition from casinos sprouting across the Northeast and a struggling economy already have spread the gambling dollar thin, experts say.

With Pennsylvania opening new venues and Massachusetts on the verge of doing so, older casinos in Connecticut and New Jersey have been hurt. In the first quarter of 2012, gambling revenue in Connecticut fell to $317.6 million, a 3.8 percent drop compared with a year earlier, according to a Moody's Investors Service report. Atlantic City revenue dropped by 6 percent to $746 million during the same period.

In New York, however, first-quarter gambling revenue rose by 58.9 percent, primarily because of the Resorts World video gambling machines at Aqueduct Racetrack in Queens, which opened in the fall. Take Aqueduct out of the equation and gaming revenue went up 1.2 percent in the state, the report said.

The key question is whether an expansion of gambling in New York would lead to more gaming dollars -- and tax revenue -- staying in the state or whether the market will become oversaturated.

"You can build a new casino and that new casino can carve out a successful market and generate an impressive return on investment," said Andrew Zarnett, an analyst at Deutsche Bank who covers the gaming industry. The "side effect is that they end up taking share away from other markets."

In 2006,for example, there were 71,000 gaming positions in the Atlantic coast market, from Washington, D.C., to Massachusetts, Zarnett said. A gaming position is a slot machine or a seat at a gaming table. Today that has grown 31 percent to an estimated 93,000 gaming positions, he said.

"There are more gamblers, but not enough to absorb all that supply," Zarnett said.Gov. Andrew M. Cuomo has embraced gambling as an economic development tool. The State Legislature passed a constitutional amendment in March that would allow seven casinos to be built in the state. Lawmakers must pass it again next year, and then the amendment must be approved by voters in a referendum.

David Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas, said expanded gambling would probably be viable for New York. "I'm sure that if the companies investing didn't have a return on investment, they wouldn't try to do it," he said. "It would definitely impact Connecticut and New Jersey and maybe Pennsylvania."

Aqueduct already has. In a conference call with investors last month, Mohegan Sun executives said the racino has eaten into revenue at their Connecticut casino more than expected.

"What we didn't anticipate was the acceptance of the non-live table games as a replacement for table games," said Mitchell Etess, chief executive of the Mohegan Tribal Gaming Authority. Etess said they attributed a 3 percent drop in both slot machine and table game revenue to competition from Aqueduct.

Almost half of the $2.41 billion video-bets in New York State last month -- $1.13 billion -- were placed on Aqueduct's 4,984 machines, according to state Division of Lottery data.

Gamblers at the Queens facility bet more money than their counterparts in other parts of the state, feeding an average of $226,473 into each machine last month, compared with an average $140,676 statewide. The month before Aqueduct opened in October, gamblers wagered a total of $1.3 billion at the eight casino/racetrack facilities called "racinos."