A Gamble Down The Boardwalk
ATLANTIC CITY–Americans who think more legalized gambling can ease their state and local tax burdens should take a close look at the travails of this struggling New Jersey seaside resort.
Because betting is now legal in neighboring states, gambling here is way down. The casino hotels have slashed their workforces, cut real wages and, citing falling property values, received huge property tax refunds — with more refunds likely.
The city has sold $103 million of bonds to finance casino property tax refunds, bonds that with interest will cost the average homeowner more than $2,100 over the next two decades, Michael Stinson, the city finance director, said.
The city is about to sell another $35 million in bonds, while the Press of Atlantic City reports that $40 million more may have to be borrowed next year. If all that happens the average homeowner eventually may be out more than $3,600 in added taxes.
That may well understate the added costs to local taxpayers in the next few years as the gambling business is likely to shrink even more, as Mayor Lorenzo Langford told me. Each time another casino opens in nearby states, “the Atlantic City market should expect to see some lost business,” Mayor Langford said, and “one or more of the weaker casinos may close.”
Two temples of chance are gone already. The Sands was swept away in 2006 by the winds of change, while another casino once named the Atlantis sank, like its mythic namesake, beneath a sea of red ink in 1999.
“Atlantic City is in trouble, and I don’t see any way out, even if they get sports betting and Internet” gambling, I. Nelson Rose, the Whittier College of Law gambling expert, told me.
Everyone I spoke to during four visits this summer expects a big casino in the New Jersey Meadowlands in a few years, which I believe would add to pressure to bring casinos to Manhattan. Both are historically big markets for Atlantic City.
Gamblers lost $3.3 billion in Atlantic City last year, down 39 percent from the more than $5.4 billion (in 2011 dollars) that players lost in 1996, according to the Center for Gaming Research at the University of Nevada, Las Vegas.
Because it has a national convention business, Las Vegas has fared better than Atlantic City. Player losses in Las Vegas grew 8 percent in real terms between 1996 and 2011, the center says.
Between 2001 and 2011 the number of Atlantic City casino hotel jobs fell by 30 percent, according to the Bureau of Labor Statistics. Of 27,700 casino hotel jobs lost nationwide during that period, almost half, 13,300, vanished in Atlantic City.
Casino hotel worker wages fell nearly $4,300 in real dollars, a painful 11 percent decline in a one-industry town, the data show.
Industry and city officials, many of whom I know from the four years I reported on the gambling industry, put a brave face on the future. They said the future lies in diversifying, in relying less on slots and table games than a combination of retail outlets (more than 100 already operate here), fine dining, nightclubs and the beach.
They pointed to a new model for the future: Atlantic City Revel, designed as a spa and resort that includes a casino rather than a gambling hall with hotel rooms. It is the first new casino here in a decade.
With its wavy blue glass exterior, Revel, is the first property to embrace the sea as a theme.
Kevin DeSanctis, a former New Jersey state trooper and an experienced casino executive who runs the joint, said the aim was to draw people to Atlantic City for more than gambling.
What do people do after a night of gambling? Revel’s answer: fancy dining, the beach, a nightclub, a burlesque stage and pop music acts like The Eagles.
Morgan Stanley, one of the too big to fail banks, owned a 90 percent stake in Revel, expanding its own betting beyond credit derivatives to casino games. While derivative bets can sour, with taxpayers forced to cover the bad bets, a casino itself is a sure bet for the owner. The only games legalized come with odds favoring the house, meaning that overall players must be losers.
Two years ago, rather than double down on its $932 million bet, Morgan Stanley folded, losing its stake in Revel. DeSanctis took over, but he had to raise $1.5 billion more just to get the doors open.
So far the Revel resort is not bringing in enough money to pay its mortgage. Since opening April 2 it has lost more than $35 million. DeSanctis is arranging a $100 million credit line to get through the cold months.
Moody’s lowered the credit ratings on Revel debt, suggesting those who bought its bond may also have made a bad bet on this new model for Atlantic City.
All these facts should prompt taxpayers to think carefully about embracing more gambling as a way to ease their tax burdens.
The liberties of the people, and all private wealth, depend on stable government that defines and protects rights and property alike. So why would we roll the dice on financing the foundation of our society?
This opinion piece originally appeared at Reuters.com