Developer: Pols can’t keep approving new casinos

Posted May 17, 2012, at 4:47 p.m.

ATLANTIC CITY, N.J. — Casinos are not like Starbucks stores: You really can’t have one on every corner.

That’s the word from David Cordish, whose company is opening a huge new casino next month in Maryland.

Yet Cordish warns that the expansion of casino gambling can’t go on unchecked forever. A big problem is the attitude of politicians across the country who view casinos as free money.

“I don’t know how we can control the politicians; they certainly don’t understand the word ‘oversaturation,'” Cordish said. “They think you can have casinos like Starbucks.”

If that attitude continues, Cordish said, “it’s going to implode on them.”

That sentiment was voiced repeatedly at The East Coast Gaming Congress, a major annual casino industry conference, held this year in the newly opened Revel casino resort in Atlantic City. The $2.4 billion Revel is being counted on to help turn around Atlantic City’s five-year slump. But several experts at the forum said the solution to Atlantic City’s woes is the closure of one or more of its 12 casinos because there are simply too many.

“Here in Atlantic City, we have assets for sale that literally nobody wants to buy,” said Gary Loveman, president of Caesars Entertainment, which counts four Atlantic City gambling halls among its 56 casinos. “There is simply too much supply in Atlantic City. The supply doesn’t go away. That’s a very bad thing. The problem here? Nobody ever closes.”

During a panel of Wall Street experts, Andrew Zarnett, managing director of Deutsche Bank Securities, said Revel might hurt, rather than help, Atlantic City’s overall casino market.

“Everybody’s a loser; when you add supply to a market that’s not growing very much, everybody gets cannibalized,” he said. “We need some of this capacity to close and go away. I would have thought that would have happened two years ago, but the properties are still here.”

Zarnett said he doubts any Atlantic City casino will close until they see whether New Jersey will approve Internet gambling and throw the struggling properties a lifeline. He also predicted that New York will approve a casino in Manhattan within five years.

Not all the news from Atlantic City was bad, though: Figures released Thursday by state regulators showed the casinos saw a 17 percent increase in gross operating profit for the first quarter of this year, following a 26 percent increase in the fourth quarter of last year.

The expansion of casino gambling has continued rapidly over the last several years, nowhere more fiercely than in the Northeast. There is serious disagreement within the industry as to whether the market is oversaturated or whether there is room for further growth. But most agree it is tougher to do business in the Northeast casino market than it ever has been before.

The Cordish Co.’s Maryland Live!, opening on June 6, will have 4,750 slot machines and cost $500 million.

“Thanks, David, for bringing 4,700 new slots to this market,” joked Don Marrandino, eastern division president of Caesars Entertainment. “That’s great news for us.”

Cordish said the casino market needs the stability of knowing how many operators there are going to be, particularly with the 67 percent tax Maryland imposes on its casinos.

He said the state will have four casinos with more slot machines “than anything in Las Vegas. It’s an experiment that nobody knows how it’s going to turn out. A contest I don’t want to win is Maryland will probably be the king of the oversaturated market with the highest tax rate. It’s a real problem.

“What happens when you put mega-casinos close together is they generally not only oversaturate the market, they don’t work,” Cordish said. In the Washington, D.C., region soon, he added, “you’ll have four of the largest casinos in the country operating within a short drive of one another.”

But new casinos keep coming. Timothy Wilmott, president of Penn National Gaming, which has 26 casinos nationwide, said the company is interested in new markets in Massachusetts and Texas and is opening new casinos in Ohio soon.

And Virginia McDowell, CEO of St. Louis-based Isle of Capri Casinos, which owns 15 casinos in six states, said there are excellent new markets that don’t yet have casino gambling. The company plans two more, including one in Pittsburgh. She listed Massachusetts, Texas and Florida as prime spots for new casinos and said even traditionally hostile states such as Georgia, the Carolinas and Kentucky are considering legalizing them.

“Frankly, some of these opportunities are the best untapped gambling markets in the United States,” she said. But, McDowell said, “the industry lets its best growth opportunities die on the vine, choosing instead to fight each other.”

Mitchell Etess, CEO of Mohegan Sun in Connecticut, said the state’s two Native Indian-run casinos once had few competitors.

“It used to be just Atlantic City and Connecticut” that offered casino gambling on the East Coast. “The Northeast is going to get a little more crowded.”

And part of that will be due to Mohegan Sun, which is also seeking a casino license in Massachusetts.