In the summer of 2010, New Jersey Governor Chris Christie travelled by helicopter to Atlantic City for what the local media described as a historic press conference. The news out of the city had been growing steadily worse, and by the time of Christie’s appearance it was clear that, nearly four decades after it had legalized gambling in an attempt to avoid economic ruin, Atlantic City was back where it had started. Standing in front of Boardwalk Hall, next to the mayor and members of the city council, Christie declared, “Atlantic City is dying.” The city, once known as the World’s Playground, had become unclean and unsafe. The number of visitors had fallen, and casino revenues were plummeting. Christie then announced a plan to return Atlantic City to its rightful place as the East Coast’s premier entertainment destination. There would be a sparkling new tourist district, with more conventions, restaurants, retail outlets, and non-gambling attractions. Also in development were bold new marketing plans and nonstop air routes to deliver fresh gamblers. Atlantic City, the Governor promised, would become “Las Vegas East.”
Four years later, Christie’s plan has failed. Four of Atlantic City’s twelve casinos have gone out of business this year, including Revel, an estimated $2.3-billion jewel that opened just two years ago; another, the Trump Taj Mahal, has announced that it could close within weeks. An estimated eight thousand jobs have already been lost, and thousands more seem likely to follow. Since Christie’s 2010 press conference, the assessed value of all the property in the city has declined by nearly half.
While it would be easy to conclude that Atlantic City’s demise is the predictable result of decades of well-documented greed, corruption, and incompetent leadership, the city is in fact one of the first casualties of a nationwide casino arms race. Eager for new jobs and new revenues that don’t require raising taxes, states from coast to coast have turned to gambling: in 1978, only Nevada and New Jersey had commercial casinos; today, twenty-four states do. Atlantic City once had the densely populated Northeast all to itself, but now nearly every state in the region is home to casinos. And with both New York and Massachusetts poised to open massive new gambling resorts, the competition for the fixed number of gamblers there will only get tougher. “It’s a war,” Father Richard McGowan, a professor of management at Boston College who studies the gambling industry, said. “It’s remarkable to me how the states are fighting each other for gambling revenue.”
The first casino in Atlantic City opened in 1978. From that moment on, the city built its business by catering to gamblers from surrounding states. It held a casino monopoly on the region until 1992, when the Foxwoods tribal casino opened in Connecticut, and Rhode Island authorized slot machines at a racetrack not far from the Massachusetts border. A few years after that, slots appeared at racetracks in Delaware and West Virginia, and a second tribal casino, Mohegan Sun, opened in Connecticut. Even with the new competition, Atlantic City’s casino business grew at an impressive rate. “From 1983 to 1999, Atlantic City casinos were actually earning more than the ones on the Las Vegas strip,” David G. Schwartz, the director of the Center for Gaming Research at the University of Nevada-Las Vegas, told me. “Las Vegas was very afraid. In the nineteen-eighties, Atlantic City looked like it was going to knock off Las Vegas.” Atlantic City gambling revenues went up year after year, without exception, before peaking at $5.2 billion in 2006.
That same year, the first casino in Pennsylvania opened. The state had long been a lucrative market for Atlantic City, which lies just sixty miles southeast of the Pennsylvania border. For decades, Pennsylvania’s leaders had watched with frustration as residents drove across the state line to wager an estimated billion dollars or more a year, contributing millions in tax dollars annually to New Jersey. Finally, in 2004, Pennsylvania authorized fourteen casino licenses (twelve have so far been awarded) in locations concentrated along the state’s eastern and western borders. By the end of 2007, the first full year Pennsylvania casinos were in operation, they had taken in a billion dollars and paid four hundred and seventy-three million dollars in taxes to the state. Atlantic City, meanwhile, experienced its first-ever decline, a drop of nearly six per cent. Business at the Pennsylvania casinos continued to expand over the next few years, while Atlantic City suffered. In 2012, Pennsylvania casinos generated $3.16 billion in revenue, surpassing New Jersey as the country’s No. 2 market.
Watching all of this unfold was Maryland, which, having supplied Atlantic City and Delaware with gamblers for years, was now serving them up to Pennsylvania as well. Why, state leaders wondered, should Maryland continue to give away millions of dollars each year? Why indeed. In 2008, it, too, authorized casinos, the first of which opened two years later. By 2013, Maryland casinos were earning seven hundred and forty-seven million dollars, while neighboring Pennsylvania experienced its first decline. The new competition in Maryland only added to the woes in Atlantic City, which saw its lowest revenues since 1989, and Delaware, where slot income dropped to levels not seen since 1998.
What does it matter, you may ask, if the gambling market is saturated and revenues in a given market begin to fall? Isn’t that the risk that casino moguls and publicly traded companies run in a free-market system? From one perspective, yes, casino companies can make enormous profits, and it’s therefore appropriate that they bear some risk. But this isn’t an entirely free-market enterprise, and the casino operators aren’t the only ones bearing the risk—each state that has licensed a commercial casino has become a partner in that business. The states collect tens of millions of dollars in one-time fees for each casino license they issue, and hundreds of millions more each year in tax revenues. The trouble starts when they become dependent on gambling revenues to pay their bills.
In Delaware, gambling taxes have accounted for eight per cent of the state budget. That left the state vulnerable when the owners of its three aging racetrack casinos began demanding financial concessions in order to preserve jobs. The legislature voted to split eight million dollars among the casinos. This year, the operators came back, seeking more money and a new deal. Representative Charles Potter, Jr., told me that their message was, “We can’t compete, we can’t compete.” But they refused to show legislators their books to prove it. “If you can’t compete,” Potter said, “why should we be throwing money down a hole?” Still, the possibility of layoffs or closures made for a powerful argument. The legislature voted to give the casinos ten million dollars this year, eleven million in 2015, and twelve million in 2016. “We have allowed gambling-tax revenue to become too big a part of our budget,” Potter told me. “I hate to have it as a fixed part of our budget.”
In Rhode Island, gaming is the state’s third-largest source of revenue, bringing in hundreds of millions per year. When Twin River Casino, in Lincoln, filed for bankruptcy in 2009, the state considered buying it outright. An investment group agreed to purchase Twin River in 2010, but only after Rhode Island threw in $3.7 million in annual subsidies and promised to make good on any losses the casino might see in the face of competition from a new slots parlor that was slated to open.
As casinos have proliferated elsewhere in the country, the pattern has repeated. Kansas recently welcomed its first casinos, and before long was enjoying more than three hundred and fifty million dollars in annual gaming revenues; meanwhile, Colorado, Indiana, and Missouri began experiencing downturns. Perhaps the starkest example outside the East Coast has been in Tunica County, Mississippi, which is located near Memphis, Tennessee. Tunica County’s introduction of casinos, in 1992, ushered in an era of such growth and prosperity that it was referred to as the Tunica Miracle. By the next decade, however, the casino business began to slide, in part because of competition from Oklahoma, Missouri, and Arkansas. Last year, Tunica’s gambling revenues were down by about forty per cent from their peak, and employment numbers were about half of what they’d once been. In June, Caesars Entertainment closed the mammoth Harrah’s Tunica—a twenty-two-hundred-acre expanse that included twelve hundred hotel rooms, a golf course, and a shooting range, and that had often been described since it opened, in 1996, as the largest casino between Atlantic City and Las Vegas.
The fate of Harrah’s Tunica, in turn, raises questions about the approach being taken by a new entrant to the race: Massachusetts. That state, fed up with losing an estimated billion dollars a year in gambling business to Rhode Island and Connecticut, passed a law in 2011 authorizing three casinos and one slots-only facility. (A ballot measure that would have repealed the law was defeated earlier this month.) Those bidding for the licenses had to commit to spending at least five hundred million dollars, and to building a hotel. The state wanted resort casinos, along the lines of Harrah’s Tunica—large projects that would generate jobs in addition to tax revenue. One of the Massachusetts licenses has been awarded to the casino mogul Steve Wynn, who plans to build a $1.6-billion development just a few miles from downtown Boston, which he says will employ thirty-three hundred people and generate as much as eight hundred million dollars in annual revenue. Another license has been granted to MGM, which will spend eight hundred million dollars on a casino that it projects will create three thousand jobs in the economically distressed city of Springfield.
The scale of these projects might make sense in Boston, but how busy is the hotel at the Springfield casino going to be? Perhaps if MGM had presented a scaled-back project requiring lower overhead costs, it wouldn’t seem like such an obvious candidate for state subsidies in a few years.
All of which brings us back to Atlantic City, whose plan, nearly forty years ago, to challenge Las Vegas set in motion the gambling arms race that now threatens its own survival. Schwartz, the director of the Center for Gaming Research at U.N.L.V. and an Atlantic City native, told me that the city’s initial success inspired Las Vegas, during the nineteen-nineties, to tear down and then rebuild its famed Strip. But there was no full-scale counter-reinvention when Atlantic City’s properties began to age, or when other states entered the race. “The rivals were always the people down at the other end of the boardwalk, not the people in the other states,” Schwartz said. “Las Vegas has been really good about marketing itself, about working together to compete as a destination.”
There was a time when Atlantic City could have replicated that formula and made itself the East Coast equivalent of Las Vegas, but when Christie unveiled his plan to save Atlantic City in 2010, his strategies were ten years out of date. Gamblers today prioritize convenience and frequent casinos that are close to where they live. While enormous flagship properties with luxury hotels and fabulous restaurants may continue to succeed in major cities, states are making a mistake when they approve upscale resorts, with their outsize operating costs, in remote areas. Rather than resuscitating local economies, these kinds of projects too often run into financial difficulties—especially when the state next door decides to put a casino of its own just down the road. Already, this threatens to happen to Massachusetts. With construction on the MGM project in Springfield scarcely begun, Connecticut’s Mohegan tribe and at least one state legislator, concerned about the incoming competition, have announced their desire to build a new attraction along Interstate 91.
