Connecticut’s casino boom going bust

Bay State should be wary of hopping on gambling bandwagon

Massachusetts officials repeatedly cited the spectacular success of Connecticut’s two casinos, Foxwoods and Mohegan Sun, when making the case for legalizing casinos in the Bay State. With a casino repeal measure on the November Massachusetts ballot, it’s worth taking a look at how Connecticut’s casino story has been playing out.

Opened in the early and mid-1990s, Foxwoods and Mohegan Sun got off to blistering starts. Facing no competition other than from Atlantic City, 250 miles away, they quickly became the two biggest and most profitable casinos on the planet, attracting over half their combined customers from out of state, creating 20,000 casino jobs, and sending hundreds of millions of dollars a year to the state treasury in Hartford.

But the casinos’ revenue has been declining for the past eight years, and we in Connecticut have been learning more and more about the downside of bringing casinos into the state.

For starters, the casinos’ presence has created a pervasive gambling culture in southeastern Connecticut, they’ve skewed the region’s economy heavily toward low-paying service jobs, and they were followed by a sharp spike in the number of Connecticut residents seeking treatment for gambling addiction.

One of the most remarkable findings from a 2009 state-sponsored study was that there had been a 400 percent increase in arrests for embezzlement in Connecticut since the casinos opened, a rate of increase 10 times the national average. A columnist for the New London Day, the area’s largest newspaper, described southeastern Connecticut as the embezzlement capital of America.

Moreover, although the casinos have unquestionably created jobs for their employees and billions in revenue for their owners and the state, those jobs and revenue have come from the gambling losses of their customers, leaving those individuals with less money to spend on other goods and services. At the same time, the casinos have done little to generate spin-off businesses or long-term economic growth for the region. Nor, apparently, have they done much in the final analysis to strengthen the state’s finances. Connecticut receives 25 percent of its casinos’ slots revenue, which has provided the state with more than $6.5 billion dollars over the past 20 years. Yet Connecticut today is in the worst financial shape in its history, with the highest debt and unfunded liabilities relative to state GDP of any state in the nation, according to Barron’s Financial Weekly.

Despite these factors, the conventional wisdom has been that Connecticut’s casinos have been a net economic plus for the state because of their success in attracting so many out-of-state gamblers who leave their money in Connecticut and take their problems home with them.

We don’t know whether that is true or not because the study has never been done, but we do know that the regional monopoly that allowed Connecticut’s casinos to attract so many out-of-staters has now largely disappeared as the Northeast has become increasingly oversaturated with casinos.

When Foxwoods opened in 1992, there were only 10 other casinos in the 12 states comprising the Northeast, all of them in Atlantic City. Today, there are 57 casinos in the Northeast and the number could go to 77 based on those being proposed.

As a result of the growing competition – particularly from Rhode Island’s Twin River Casino and the slots casinos at Aqueduct and Yonkers Racetracks in New York – Connecticut’s slot revenue is now down 34 percent from its peak, with the state government’s take falling from $430 million to under $300 million today. Connecticut’s casinos are laying off employees and increasingly replacing full-time jobs with part-time jobs to reduce wage costs and eliminate benefits, while Foxwoods, which has already defaulted on a half billion dollars of loans, continues to be deeply in debt.

Increased competition is wreaking even greater havoc in Atlantic City, where casino revenue is down 46 percent. The Atlantic Club shut down in January, the Showboat and Trump Plaza are expected to close shortly, and the city’s newest casino, the $2.4 billion Revel, which just opened in April of 2012, has already filed for bankruptcy protection twice and appears likely to close by the end of the year.

Nationally, revenues are down for casinos in a growing number of markets, while Moody’s Investors Service recently downgraded its outlook for the US casino industry as a whole from “stable” to “negative.”

Nevertheless, casino proponents continue to argue that Massachusetts’ casino plan will provide a major economic boost for the state by attracting large numbers of out-of-state gamblers and setting aside enough casino revenue to “mitigate” the costs that will inevitably result from encouraging hundreds of thousands of Massachusetts residents who do not currently gamble to do so.

Perhaps they’re right. But the odds are heavily against it for two reasons.

First, Massachusetts’ proposed casinos may choose to portray themselves as “destination casinos” for out-of-towners and out-of-staters, but the proliferation of casinos across America, and increasingly across the world, is turning most US casinos outside Las Vegas into primarily “convenience” casinos for local people.

Second, there is a growing body of evidence that bringing casinos into a new region is simply not worth it.

Nowhere has the downside been laid out more clearly than in a 2013 report from the Council on Casinos, an independent, nonpartisan group of scholars and public policy leaders assembled by the institute for American Values in New York.

“From time to time in American history,” the report begins, “a new institution takes root across the country, and in doing so, changes the nation – changes the physical landscape, impacts the patterns and habits of daily life, affects citizens’ and communities’ economic outcomes, and in some cases even alters relationships between the governing and the governed, the more privileged and the less privileged.”

That, according to the report, is precisely the impact the new casinos are having as they spread across the country, relying on problem gamblers for their revenue base, using highly addictive gambling machines to generate most of their profits, and encouraging increasing numbers of low-income people to gamble away their money, thereby contributing to economic and social inequality in our society. In sum, the report concludes, the new casinos’ long-term costs greatly exceed their benefits. They drain wealth from communities, undermine public health, weaken nearby businesses, and reduce voluntarism, civic participation, family stability, and other forms of social capital that are the heart of a successful community.

Despite the growing costs, both the federal government and most states continue to promote more gambling. On the federal level, the executive branch has adopted positions supporting the further expansion of Indian casinos and the legalization of Internet gambling, while a growing number of state governments are locked in casino border wars in which states late to the casino game are authorizing new casinos and states earlier to the game are seeking to bolster their existing casinos with tax concessions, online betting, reduced regulation, and other measures designed to forestall layoffs and keep the easy money flowing.

Meet the Author
With the social and public health costs of casinos increasing and the economic arguments that have been used to justify those costs unraveling, the question for Massachusetts voters this fall is whether it makes sense for their state to join the game.

Robert Steele is a former Republican US congressman from Connecticut and the author of The Curse: Big-Time Gambling’s Seduction of a Small New England Town. His website is rhsteele.com.