Enoy the snow, mid-Atlantic folks!  We're hunkered down here in Maryland.  A screen shot from the video slot 'Snow Honeys' -

When a state's major industry has fared so poorly over a long stretch, there's bound to be calls in the capital for some kind of regulatory overhaul.  Atlantic City gaming is no exception - and the industry has been stagnant or decline now for over three years: before the 'Great Recession' began.  New and increased competition from Pennsylvania and New York (possibly Delaware & West Virginia too) is the most obvious source of AC's industry troubles, beyond the impact of the recession.  But are there structural problems endemic to New Jersey's regulatory system (i.e. the NJ Casino Control Commission's functions) also to blame for gaming industry problems in AC?

That's a question now posed by New Jersey's Senate President, Steve Sweeney (D-near Philly), according to yesterday's Press of Atlantic City article. Specifically, Sweeney's concerned that the CCC hasn't done adequate due diligence in overseeing the finances of the gaming industry, most notably bankruptcy sale of the Tropicana to the Carl Icahn-led investor group:

"You have $1 billion casinos that are being sold for hundreds of millions," Sweeney said, an apparent reference to the much-delayed sale of the Tropicana Casino and Resort. A group of buyers led by billionaire investor Carl C. Icahn, who holds Tropicana's $1.4 billion mortgage, have agreed to buy the casino for $200 million.

According to the Press, Sweeney has two pressing issues: 1-a review of regulations involving license restriction in place to prevent over-consolidation, and 2-over-leveraged casinos.  Of course, both these issues have a long history in Atlantic City, dating back to the 1980s, when Donald Trump's moves led to lots of concern over one individual or entity having too much control within the town. 

Here's Sweeney on the first point:

"The first is the proportion of the Atlantic City gaming market controlled by individual casino licensees," he says. "Given the dynamic of competition from gaming in other states, and the resultant impact on all of New Jersey's casinos, it seems prudent to take a fresh look at the concentration of ownership within Atlantic City."

He continues, "The Casino Control Commission's authority to limit potentially undue economic concentration should be re-examined to ensure the public and stakeholders are properly protected."

What?  Is he concerned about too much "concentration of ownership" or too little?  This is very cryptic.  Since the Bally's-Caesar's merger (@1999) and Harrah's-Park Place transaction (@2005), Atlantic City gaming has been all about concentration, but its (arguably) best  property since 2003  -- Borgata- is a lone wolf in town.  Aside from problems highlighted above, Harrah's consolidated operations - @40-45% of the AC gaming industry - have done well via cross-marketing and efficiencies gained in administration.  So, I really don't get where Sweeney is coming from on this point.  From my perspective, market consolidation and market individuality both provide models with some success: Atlantic City's gaming industry problems are clearly elsewhere.

That gets us to Sweeney's second big concern: leveraged casinos.  The history here dates back 20+ years when some of AC's biggest players were significantly over-leveraged in the late 1980s and consequently caught up in the high interest junk bond mess that beset the capital markets of the day: the sub-prime, credit-default-swap scandal of that era.  Here, I think Sweeney's points are more relevant,  mainly for his larger concern that financial maneuvers and have a broad community impact:

"We all recognize the utilization of debt is critical for capital construction," he states. "However, the use of borrowing for leveraged buyouts, shareholder payouts and the like creates a significant financial benefit for individuals involved in the transactions but also creates additional risk - not just financial risk for the involved casinos, but also risk for casino employees, Atlantic City residents and state programs supported by casino revenues."

This is a more coherent statement: reckless over-leveraged gaming development can lead to major problems and a drive to reduce debt from shareholders and bondholders that can override all other concerns.  Sweeney's concern also reflects a long-standing mentality in Atlantic City that gaming is a community project: its not all about the bottom line for the companies involved. Makes sense that this mentality is still in place, given the origins of Atlantic City gaming in the 1970s with its enduring justification: "urban revitalization."  But is it unrealistic to maintain this concept in the touch, ultra-competitive mid-Atlantic gaming marketplace of the 2010s?  Maybe so.  If so, what does that mean for the city and surrounding 'burbs: so dependent on a single industry?  Maybe so.

*note: Apparently, incoming Gov. Christie is about to convene some kind of commission or group to thoroughly investigate various New Jersey entertainment and sports-based industries, including gaming - from a radio report heard on WHYY-Philadelphia (3 Feb 2010).

 Update 1: Christie did, in fact, announce the commission,  saying that that the Meadowlands complex is signifiacantly underused.  The commission will meet until June 30, and will likely deal with a heated debate between the casinos and racetracks over placing VLTs at the tracks.  Nobody from the casino industry is on the seven person commission, but three sports people are, including former major league pitcher Al Leiter.

Into Delaware...the state Senate may vote on the bill as early as tomorrow, sending it to the governor to sign.  The tax is relatively high for table games (29%) -- much higher than Pennsylvania's 16%, but the fees are also lower and could be as low as $5 million for the three racinos if they reach a certain quote for capital improvements.

Unlike PA - where horseracing interests opposed table games- there's a nice bonus for the horseracing industry: 4.5% ot the new revenues.   The state projects 700 more gaming jobs and 40 more regulatory positions from adding table games, according to this Delaware Online piece.

I like the progress on gaming for Delaware (though not the splits), and once again appreciate the efforts of the legislature and pro-gaming governor.  However, the racinos are happy -- after the diminished returns on sports betting.  Meanwhile, there's growing momentum in Maryland to catch up: a logical move -- I've been saying (and writing ) for two years that there never was much logic to the slots-only approach, and finally -- finally - that perspective has gained some real political traction.   However, with 2010 being a state election year-- don't expect much progress in Maryland until at least 2011.

Update 1/29/10: This is a done deal -- Delaware will get table games: play should begin in May.

Finally, table games are a reality in Pennsylvania - Gov. Ed Rendell signed the compromise bill into law today.  Here are some key points:

• fees: $16.5 million for large casinos, $7.5 million for new resort casinos
• 250 table games for large casinos, 50 for resorts
• splits: 16% state/84% industry for year 1, 14% state/86% thereafter
• $3 million for problem gambling fund
• resort casinos allowed 100 more slot achines (max. 600)
• state will allow a third new casino license (two more licenses are still open from 2004 legalization bill)
• new ethics rules for PA GCB & casino employees

Quick & dirty analysis:

• Pennsylvania took a major step towards mid-Atlantic gaming supremacy today
• the fees & splits are industry-friendly for the labor-intensive table games (read: low profit margins)
• $$ towards problem gambling fund is admirable
• limitation on numbers of table games is problematic, but not overly-restrictive
• after almost five months of legislative back-and-forth, PA leaders did the right thing by legalizing table games in a way that will grow the state's gaming industry, create many well-paying jobs and contribute substantial revenue to the state govt. & local governments

From the Bloodhorse:

A Delaware bankruptcy judge Jan. 5 agreed to postpone Magna Entertainment Corp.'s sale of two horse racing tracks in Maryland and rejected a bid by the former track owners to lock up slot machine gambling rights at one site. Magna attorney Brian Rosen told Judge Mary Walrath that an auction of the assets of the Maryland Jockey Club, including Laurel Park and Pimlico Race Course, was being postponed from Jan. 8 to Jan. 21. The postponement came after attorneys for Maryland argued in a court filing Monday that Magna has not complied with an agreement promising that all bidders for the Maryland assets would be required to keep the Preakness Stakes (gr. I) at Pimlico, the second horse race in the Triple Crown, in Maryland.

 Apparently, Magna's potential bidders haven't formally agreed to keep the Preakness in Maryland to the state's satisfaction yet, and the state's attorneys are concerned.  As well, the Francis failed in its bid to gain any proceeds on any eventual gaming revenues from Pimlico or Laurel.

The last point stemmed from the 2002 profit-sharing deal that the DeFrancis family (via Maryland Jockey Club) and Magna made over future gaming.  Now, that's basically moot with Cordish's Maryland Live! casino project fully approved and moving forward in Anne Arundel. 

That deal never made much sense to me from Magna's financial perspective, and it intertwined gaming and Maryland horse racing from that point to some Marylanders.  That didn't help the cause of a successful gaming launch in the state, as the racing industry spiraled downwards between 2002 and 2009.    

Meanwhile, the Jockey Club is behind the rear-guard, petition effort to get a referendum up to block the Cordish casino in Anne Arundel County.  Right now, I think the prospect of that project stopping is remote.  

Here are GA's top ten stories in mid-Atlantic for 2009:

1. Atlantic City’s decline: as the mainstay in the regional gaming industry, this was a big deal.  Overall,revenues continued to plummet – double-digit declines in revenue from 2008, major investors gone, the huge Pinnacle site in the middle of the Boardwalk still a vacant lot.   Despite a surge of optimism that the decline had abated earlier in the year, things just got worse as the year progressed.

A silver lining?  Revel Entertainment found financing from China to finish the $2 billion mega-casino on the Boardwalk’s east end, but will it be enough to revive AC gaming when it finally opens?  There’s a lot to revive – thousands of jobs, a town’s worth and future prospects.  AC probably needs more than that.  Here’s a casino gross revenue  snapshot for the past three Novembers in AC gaming, from the New Jersey Casino Control Commission:

•   Nov. 2009 - total gross revenue = $299.3 million (13.4% decrease from 2008)
•    Nov. 2008 - total gross revenue = $345.5 million (7.8% decrease from 2007)
•   Nov. 2007 – total gross revenue = $374.7 million (7.7% decrease from 2006

**Nov. 2007 to Nov 2009: 20.1% decrease in gross revenue for AC casinos

  2.       Pennsylvania power: since 2006, the pattern has become clear: Atlantic City’s loss is Pennsylvania’s gain, when it comes to gaming.  Pennsylvania revenues in November 2009 were up from Nov. 2009, and December’s numbers should be just as good or better with the grand opening of the new, upscale ‘Parx’ casino on Dec. 18 to replace the old Philadelphia Park.  Sands Bethlehem opened to great success and fanfare in June, and cut into the Poconos and Philadelphia revenue streams, but not enough to slow the momentum.  And there was a major revenue upswing in the Fall in those regions that positively impacted all but Mt. Airy, which has been hit hardest by Sands’ opening.

Sands Bethlehem apparently attracted new players from New Jersey and New York.  Meanwhile, the Rivers casino opened in Pittsburgh in August with 3,000 slot machines and has held steady at approximately $16 million in revenue per month since then.   Finally, the state moved ever-so-close to adding table games through a mind-numbing legislative budget process that appears to be almost resolved, thus paving the way for table games in 2010. 

Here’s a revenue snapshot for the past three Novembers in PA gaming, courtesy of the Pennsylvania Gaming Control Board:

•   Nov. 2009 - total gross revenue = $166.3 million  (26.8% increase from 2008) 
•   Nov. 2008 - total gross revenue = $131.2 million (29.1% increase from 2007)
•  Nov. 2007 – total gross revenue = $101.6 million

** Nov. 2007 to Nov 2009:  63.6% increase in gross revenue for Pennsylvania casinos

 3.       Delaware sports betting: this was a big story that received no small amount of national attention.  Sports people everywhere paid close attention - ESPN covered it, USA Today, etc. – but the federal courts dealt the initiative a major blow by disallowing single game, straight-up betting and limited the betting to 3-game parlay bets on NFL games.  That decision cut sports lottery revenues, but still made some money for the state and generated some buzz surrounding the Delaware racinos.   Though, it was not nearly enough to alleviate pressure for table games in the state (see #6), industry and political pressure for more casinos.

Just the fact of legal sports betting outside Nevada is big news and has helped to generate efforts (particularly from New Jersey legislators), to overturn the 1992 law that banned sports betting outside the four grand-fathered states.  Over-turning the federal restrictions on online gambling is currently facing mounting pressure on Congress, thanks especially to organized online poker players.  The Delaware sports betting debate also exposed a certain hypocrisy of professional sports leagues, which benefit from lottery tie-ins and casino advertising while officially opposing legalized sports betting.

One day, that will probably end when financial types realize the tremendous money to be made from promotions involving pro teams and slot machines (for example) and a willingness to embrace to the natural connection between sport and gambling that has existed for ages.  This connection need not be limited to horse racing.  NASCAR’s recent embrace of Dover Downs racino’s close proximity to its Dover racetrack is a positive example that other sport leaders should look towards.

4.       Maryland’s mixed beginning: with lots of hype, Maryland gaming got off to a mixed start in 2009.  The original bidding for the five site licenses was disappointing, with only four valid applications for the five sites.  This made the state’s approval process easier due to the lack of site competition, but then local zoning and property transaction problems arose at the two biggest sites (Baltimore & Anne Arundel).  As well, two of the three successfully-bid sites came in with significantly lower numbers of VLTs then allowed, thus decreasing potential revenue.  On the upside, Maryland did attract two strong industry players- the Cordish Company & Penn National – and in December, finally resolved the local zoning controversy  that bedeviled the Arundel Mills application for most of the year.  

 Meanwhile, the original Baltimore application went down due to numerous application fee delays and the overall shakiness of the investor group that formed to apply for the casino (Baltimore City Entertainment Group).   But, the upside to that is the potential for another major player with solid finances and a gaming track record to come in to Maryland when the site is re-bid in early 2010.  Maryland needs a relatively quick and positive process for the Baltimore site as its neighboring states push ahead quickly in the now highly-competitive mid-Atlantic gaming marketplace.  

Maryland’s high gaming tax (67%) remains a problem that will impact the development of Maryland gaming by way of limiting destination resort investment until it is addressed.  This probably won't take place until at least 2011 -  maybe earlier for the still un-bid Rocky Gap site in western Allegheny county.  As well, the constitutional process required to expand Maryland gaming may prove difficult, if and when legislators decide to move in the direction of table games.

  5.       Aqueduct VLTs: Yes, this has been difficult, with the state rejecting Delaware North’s bid in March. There’s been all sorts of frustrating political delays involved in this process and Delaware North’s lost bid was a severe setback.  But it is moving forward and promising to shake up New York’s gaming market, currently dominated by Empire Resorts (Yonkers’ raceway). 

Aqueduct gaming has bidders that include partnerships involving MGM Mirage, Penn National, Hard Rock International and Delaware North (again), in an improved financial situation from 2008, though one that’s certainly still dicey.  Wynn Resorts pulled its bid, but the others are still in.  It’s a little out-of-the way for some in New York, but Aqueduct’s myriad public transport connections and easy access for Long Islander’s gives it a very lucrative potential. 

 6.       Delaware table games:  Delaware’s state legislature pushed forward on table games, with likely approval pending and the games set to come to Delaware’s three racinos by mid-2010.  And, the state-industry split should be favorable to the industry to actually make some revenue for both the racinos and the state.   Of all the new mid-Atlantic gaming states, Delaware’s political dynamics are most favorably disposed to a prosperous gaming industry.

  7.       Table games at Charles Town: West Virginia’s Jefferson County voted to approve table games in early December, thus allowing Penn National to implement them at Charles Town Races and Slots.  They should be in place by mid-2010, bringing hundreds of new, good jobs to the region and increasing Charles Town’s traffic from the Baltimore-Washington region.   As well, this well help Charles Town in its competition with Pittsburgh’s Rivers casino, opened in August 2009 (and likely to add table games soon as well).   Like Delaware’s expansion, Maryland’s foray into gaming partially spurred this move—with 30-35% of Charles Town’s players coming from Maryland.

 8.       Magna Entertainment’s bankruptcy:  Mainly this impacted Maryland gaming via the botched VLT  application for Magna’s Laurel racetrack.   Magna went to court to have the application reviewed, to no avail, and meanwhile pursued bankruptcy.  This meant court-supervised auctions for its Maryland tracks: Laurel & Pimlico.

Maryland politicians feared losing the Preakness and stepped in by enabling the governor to utilize eminent domain, if necessary, to acquire and operate Pimlico to preserve the Preakness in Maryland (with no small controversy involved).   Fortunately for them, this didn't come to pass, and likely won’t, with the tracks soon to be auctioned off with a judge-approved stipulation that the winning bidder for Pimlico agrees to keep the Preakness in Maryland.

  9.       Shinnecock tribe moves closer towards federal recognition: After years of bureaucratic delays and hedging by the Bush administration, the Obama administration recently announced that eastern Long Island’s Shinnecock tribe met the criteria for federal recognition, thus paving the way for a long-planned Class II casino on the tribe’s 800 acres in the Hamptons, or a full-fledged Class III casino on other land—if that can be negotiated by the state and via the National Indian Gaming Commission, without potential objection in the wake of the Carcieri vs. Salazar ruling. (see #10)

 The Shinnecocks would prefer an off-reservation site with its lucrative Class III potential.  The tribe faces a friendlier political climate than before with the more pro-Indian Obama administration and Gov. Patterson’s office.   From a revenue perspective, this might pay off via the type of deal that the state of Florida struck with the Seminoles (finally) this year, or Connecticut’s lucrative tribal deals.  Expect plenty of industry opposition to such a prospect, however.   

10. Carcieri vs. Salazar: Last February, the United States Supreme Court ruled that only tribes federally recognized in a 1934 law had a right to federal land-in-trust gaming (off reservation).  This instantly put the kibosh on the Massachusetts’ Mashpee Wampanoag plans for a Cape Cod/Boston-area casino, and may yet stall Shinnecock ambitions in New York.  

However, the Obama administration and many members of Congress vehemently disagreed with the decision, and a process to get past the ruling has already begun with a Senate sub-committee recently approving a so-called “Carcieri Fix” bill.  This could be an interesting showdown to come in the Senate, with majority leader Harry Ried (D-Nevada) opposed to land-in-trust gaming.  He’s apparently just fine with the Carcieri decision.

In Atlantic City, they pay very close attention to anything that happens in Pennsylvania gaming, hence this little nugget I read today from the Press of Atlantic City, via AP:

Top Pennsylvania legislators apparently have resolved a key disagreement holding up casino gambling expansion.

 Two people briefed on a telephone conversation Wednesday among legislative leaders say the group agreed on a provision that would allow new applicants for Pennsylvania's last remaining resort casino license.

The agreement also would possibly create another license in 2017.

The legislation would also legalize table games at slot-machine casinos in an effort to raise revenue for the cash-strapped state.

 Of course, there's been hopeful signs on PA table games before that haven't borne out, but  certainly this appears to be good news if you are looking forward to the added revenue, jobs and recreational opportunities on PA table games.

Pennsylvania governor Ed Rendell has done a complete turn on table games in the past four months. Now, he's the strongest advocate, as he grows increasingly frustrated with Assembly delays in passing a table games bill.  Now, he's fed up, threatening state layoffs, the closure of state parks and the shutdown of the state museum in Harrisburg.  (That's a cool museum, would hate to see it closed) from www.philly.com:

Gov. Rendell yesterday upped the ante in his bid to balance the state budget, saying that without a table-games bill he would have to close the State Museum of Pennsylvania and some state parks in addition to laying off at least 1,000 more government employees. Rendell last week said layoffs of 1,000 more state workers were "imminent" if no gambling bill was on his desk by Jan. 8. The bill - the final unresolved part of the state budget the governor signed in October after a 101-day impasse - would bring in $250 million in license fees and taxes that Rendell said is necessary to keep the government running.

The House passed its bill, but the Senate is stalled and the two sides have been wrangling over fees and splits for four months.  This should have been resolved well before the budget was concluded: I still can't fathom the logic of passing a budget that includes table games revenue without actually agreeing to terms that would allow accurate revenue projections.  Hopefully, the table games split will end up at approximately 15/85, a reasonable outcome for the casinos and the state.

Unfortunately, the Pennsylvania case demonstrates one problem related to tying state budgets too closely to gaming revenues.  Politics often gets in the way of the desired outcome (a balanced budget).  Gaming revenue is also variable, and whilst you can depend on a certain broad range of revenue in any given year, dips of 10-15% are typical depending on economic circumstances.  Better to project the income as supplementary (to specifically add to an existing fund for higher education, aid to seniors, etc.), rather than necessary to balance state ledgers.  

As predicted in this space last week, the Anne Arundel County Council finally (finally!) approved zoning for the Cordish Company's Live! casino at Arundel Mills mall.  With the county executive on record in support & the Location Commission having already approved the proposal, this was the last major hurdle blocking development.  Hopefully, the approval comes in time for Cordish to maintain its timeline for opening in mid-2011.  The council also approved zoning for an alternate gaming site, but that vote is meaningless with nothing else by way of proposal, bid or the legal possibility of two Arundel casinos.

Of course, I'm not naive enough to think the NIMBY and anti-gaming coalition that has delayed this voet for almost a year will simply fold up and walk away.  We should know soon whether the red-shirted coalition will make good on its legal threat to sue, based on some sort of homeowner's covenant that it claims will legally bar the development.  However, the Location Commission was also supposed to investigate this issue before proceeding, and it obviously didn't block approval at that level.

So, we'll see what happens, but tonight - a little celebration is in order: the Arundel Mills casino will give Maryland a great shot at  reaping anticipated state revenue and local economic benefits from gaming.

is this: the Anne Arundel County appears to be tilting in favor of Cordish's Arundel Mills proposal.  Two news items this morning lead to this conclusion:

1-pro-casino councilman Ed Middlebrooks may step back in after recusal following an ethics panel decision, and

2-last night, the council approved the addition of a pro-casino replacement (Charles Ferrar) for the anti-casino member (Josh Cohen), who is now Annapolis mayor

This sets up a more favorable circumstance for Monday night's council meeting (12/21) for the Arundel Mills casino.  With commission approval already in place, that is the last hurdle for Cordish.  A yay vote for Arundel Mills may also significantly reduce interest in Magna's auction of Laurel and Pimlico, and would certainly drive down the price of the tracks.