The house always wins. Except when it doesn’t. That’s a lesson learned recently in Delaware, where the state’s three racetrack casinos have seen major revenue declines in recent years, falling from $230 million in 2011 to $217 million last year, a 5.5 percent drop. (Only neighboring New Jersey saw a bigger fall-off, losing 8.2 percent of gaming revenues in 2012.)
In the wake of the declines, Delaware racino owners pushed for lower taxes, but they got something else: a bailout. In June, Gov. Jack Markell took the unusual step of giving a one-time $8 million payout to be split among the state’s three racinos.
The problem? Oversaturation. When Delaware’s first casino opened in 1995, it was essentially the only gaming in town. Gamblers drove from Pennsylvania, Maryland and Virginia to try their luck in Delaware. But the first of Pennsylvania’s 11 casinos opened in 2007; the first of three Maryland facilities opened in 2010. Delaware was surrounded.
It’s become a familiar trajectory in the mid-Atlantic and elsewhere, as legalized gambling has expanded in the past couple of decades. New casinos open big, but revenues level off or decline when other options open nearby. In the early 1990s, six states allowed commercial casinos. Today, 18 states do, and a total of 30 offer some kind of commercial gaming, including on tribal lands.
Too often, says Jim Butkiewicz, an economics professor at the University of Delaware, states are overly optimistic about the impact of casinos. “The government, in a sense, has been gambling on gambling,” he says. Rather than a bailout, Butkiewicz says it may make sense for Delaware to allow one of its racinos to close, in order to help de-saturate its own gaming industry. “Not everybody is going to survive this market.”
But despite oversaturation in some locales, casinos on the whole still represent a rather good bet for states, says Douglas Walker, an economics professor at the College of Charleston and an expert on the economic effects of gambling. Even with current downturns in Delaware and New Jersey, Walker says, the long-term impact of gaming is positive for state revenue growth and positive for wages and employment at the local level.
Walker’s point is that even if a region has a glut of casinos, states are still collecting tax revenue from them. “If the state’s only goal is to increase tax revenues,” he says, “then adding more casinos will still probably do that.”
After all, even with Delaware’s recent dip in returns, gaming is still the state’s fourth-largest source of revenue. That’s likely one reason Gov. Markell opted for a bailout rather than a permanent tax-rate reduction.
“Governments love gambling because people are paying taxes voluntarily,” Butkiewicz says. “So they’re winners.”