As casinos spring up in the Northeast in the next few years - and Connecticut lawmakers debate adding even more - it's a wonder if the region can sustain them all.
A region has its limits. In Atlantic City, N.J., four of 12 casinos closed last year, folding under the pressure of competition by new gambling sites in other states.
The recession didn't help. Some of the casinos that failed may have had unsustainable business models. But at what point does a region have too many casinos - and is the Northeast reaching that point?
"It's a very difficult question," said professor Clyde W. Barrow, who has researched gambling and casinos for more than 20 years, particularly while he was director of the Center for Policy Analysis at the University of Massachusetts-Dartmouth, a job he left in June 2014.
The gambling business has been at the top of Connecticut legislators' minds as they consider whether to add as many as three casinos in the state, to be jointly operated by the Mohegan and Mashantucket Pequot tribes. They do so with some urgency: Ground breaks Tuesday on a new $800 million MGM Resorts International casino in Springfield, to open in 2017 or 2018.
Additional casinos will divvy up some portion of the region's existing market share. New competition for Foxwoods Resort Casino and Mohegan Sun has resulted in - and, many agree, will continue to result in - layoffs, lost casino revenue, and less tax revenue to the state from slot machines.
The tribes have said they will have to lay off 3,000 people at each casino to accommodate lower revenue when new casinos open beginning in 2017 in New York and Massachusetts. If the tribes were allowed to operate a casino along I-91 north of Hartford, their leaders say, some of those jobs could be retained, though in a different part of the state than southeastern Connecticut, home to the two largest casinos in the Western Hemisphere.
The tribes are pursuing two strategies: bolstering their flagship venues while trying to add a new casino that would be convenient to Greater Hartford customers who may be lured to MGM's new casino in Springfield.
To understand the strategy, it helps to understand gamblers.
Experts say there are two types: those willing to travel far for a destination site, and those who prefer to gamble at the nearest, most convenient venue.
The casino along I-91 would be for gamblers looking for convenience. Specifically, it would cater to Greater Hartford customers who may already be customers at Mohegan Sun and Foxwoods, but will be tempted to go to MGM Springfield when it opens because it's closer to where they live.
The heads of both tribes say the effort to add another casino in Connecticut is purely a defensive move to capture those convenience gamblers and retain an existing customers base.
"At the equilibrium point, we're fighting for the same customer. We just want to be in the fight," said Kevin "Red Eagle" Brown, chairman of the Mohegan Tribal Council.
Mashantucket Pequot Tribal Council Chairman Rodney Butler said, "Most of the population [in the Northeast] has access to convenient gaming on some level."
MGM Springfield has an advantage over either Mohegan Sun or Foxwoods by being closer to the Greater Hartford market, and MGM officials have said they plan to market the venue in Connecticut.
The best way to counter MGM's advantage, the tribal leaders have said, is to have a location that is even more convenient, meaning someplace in Connecticut between Hartford and Springfield.
MGM would not talk about how a new Connecticut casino could threaten its business plans. Spokeswoman Carole Brennan said in a statement, "We are confident that as a mixed-use urban revitalization project our innovative downtown design, tested marketing plan and strong brand will make MGM Springfield a unique destination resort casino in the Northeast."
Already Saturated?
At a legislative hearing Tuesday, Barrow, the professor, testified that the Northeast can accommodate more casinos, and that Connecticut would be able to retain some portion of the revenue it stands to lose to MGM Springfield if the tribes are allowed to open a casino on I-91.
When will the region become saturated with casinos?
"It's a really malleable thing that you can't just pin down," Barrow said.
Barrow has long been an independent academic researcher of the casino industry, particularly in the Northeast. However, he was recently hired by both tribes to look at how much revenue they stand to lose when MGM Springfield opens - and how much might be regained if the tribes open a casino north or Hartford.
His research shows that overall spending at U.S. commercial casinos increased steadily, despite a dip for the recession, from $16 billion to $38.7 billion between 1995 and 2014. In the Northeast, the total revenue at casinos increased - as did the number of casinos - in the past six years. The growth rate began to taper off between 2013 and 2014.
People talk about casino "saturation" in a region without really understanding what it means or involves, Barrow said. It depends on population and income, which grow. It also depends on the percentage of income that a group of people is willing to spend on casino gambling, Barrow said.
"That number can vary widely depending on how close the people are to casinos, but even in states that have it, I've seen it vary from about 0.3 percent to as high as 1.45 percent, in Rhode Island, in particular," Barrow said.
Aside from how much money each person spends on gambling, there's a question of how many people will actually go to a casino.
Broadly, across the U.S., Americans spent more on gambling in a steady increase that was interrupted only by the 2008 recession and recovery, from $16 billion to $38.7 billion between 1995 and 2014. Will the total amount of money customers spend at casinos in the Northeast increase? It did from 2009 to 2013, but then total spending at casinos was relatively flat between 2013 and 2014.
Moody's Investor Service analyst and Senior Vice President Keith Foley said many people believe the Northeast casino market is already saturated.
Foley said he thinks any additional casinos in the Northeast will take part of the existing market share. In other words, Connecticut's casinos will lose revenue to the new casinos that are opening up in Massachusetts and New York, but Foley said overall spending is likely to remain flat.
"Basically what happens when all this new supply comes in New England, it's flat. The market share just shifts," Foley said. "I don't think anybody would argue it's not saturated."
If recent history is any indicator, existing casinos have a lot to lose when new ones open nearby.
For example, the combined revenue of Atlantic City casinos was $2.74 billion last year, down from $5.2 billion in 2006, as the New Jersey destination lost to competition in Pennsylvania, according to The Associated Press.
Closer to home, expanded gambling venues in Rhode Island, New York and elsewhere ate a portion of total revenues at both Foxwoods Resort Casino and Mohegan Sun. Combined revenues for both Connecticut casinos declined by 39 percent in the past eight years to $1.9 billion last year from a peak of $3.2 billion in 2006.
The casinos laid off workers as a result. At Foxwoods, where revenues declined 43 percent in the past eight years, the casino's workforce has been reduced to 7,558 employees from a peak of about 12,800 in 2006. At Mohegan Sun, where revenues dipped 35 percent in the past eight years, the casino has 7,205 workers, down from a high of about 10,500 in 2006.
That's a total of 8,500 casino workers in Connecticut who were laid off since 2006.
Planning For A Decline
A new slots parlor that will open in a few months in Massachusetts, not far from Connecticut's northeast corner, is expecting a decline in revenue when resort casinos open in the Bay State.
Penn National Gaming won the sole license to operate a slots parlor in Massachusetts, which is separate from the three regional casinos proposed in the state - one for each of three regions: western Massachusetts, Greater Boston and southeastern Massachusetts.
Penn is spending $225 million to develop Plainridge Park Casino in Plainville, Mass., at what is now Plainridge Racecourse, a harness racing track. The expanded venue, now under construction, will have 1,250 slot machines, video poker, video blackjack and other electronic gaming machines. In Penn's application to the Massachusetts Gaming Commission, the company estimates that revenues will decline in revenue in 2017 and 2018 as other resort casinos open up in Springfield and Everett, Mass.
Penn's average projected annual revenues at Plainridge, starting with 2015, are $248.9 million; $273.8 million; $227.3 million; $128.3 million; and $138.2 million. The company noted that its revenue projections assume that resort casinos will be operational in the third year Plainridge is open, when revenues start to decline.
"Projections are based on a variety [of] complex and somewhat unpredictable set of factors, such as: current economic conditions (including the effects of local and national economic, credit, capital market, housing, and energy conditions on the economy in general and on the local gaming and lodging industries in particular), current capital market conditions, the current competitive set and the current laws in this and adjoining states," Penn wrote in its application to Massachusetts gaming regulators.
"The inherent difficulty of developing these projections increases as the projections become longer term," Penn wrote.
The chairmen of both the Mohegan and Mashantucket Pequot tribes say they expect to decrease their workforce by another 3,000 employees each when new casinos open up in Massachusetts and New York if they aren't allowed to open up additional venues, particularly one on I-91 north of Hartford.
Mohegan's chairman, Brown, said he thinks another 12,000 jobs will be lost in indirect employment, meaning people who are vendors with the casinos or who benefit by doing business with its employees who buy cars, houses and other goods and services in the region.
Both tribes are investing in their flagship casinos to better compete with new venues opening in the coming years.
Foxwoods will open an 85-store mall in May called Tanger Outlets Foxwoods. At Mohegan Sun, the Mohegan tribe is adding 50 retailers and building a 400-room Earth Hotel to its existing stock of 1,200 rooms at the casino's Sky Hotel, which will allow the resort to better accommodate conventions, among other events.
Whether the investments will bring in a new group of customers, such as convention groups that haven't previously booked an event at the casino or new gamblers, remains to be seen.
If the total amount spent on gambling remains flat, then how much of Connecticut's market share will the other states take? And, how much could be kept if Connecticut added additional casinos?
Some of those details will be revealed in the report that Barrow is preparing for the tribes, which he expects to release this week. The tribes are paying him to research the issue, though he said he did the research at "an arm's length" from them and without any of their proprietary information - just well-accepted methodology and publicly available figures.
Legislators got a glimpse of Barrows' newest research during a legislative hearing last Tuesday. Barrows testified that he expects Connecticut casinos could lose $702 million annually to new casinos in Massachusetts and New York when they open in 2017 and beyond.
Blocking Action
Whether the tribes will be able to recapture some of that lost revenue, and how much, depends on what they build, said Foley, the Moody's analyst.
"They're not planning on building big things, and a few miles away ... MGM could potentially build something that is worth passing them by," Foley said.
Even Barrow's own research has found that 75 percent to 80 percent of visitors to Foxwoods and Mohegan Sun never go to Twin River Casino in Lincoln, R.I., which is a smaller venue.
"What our research has shown in New England is that the people who are looking for the big bells and whistles, the Mohegan Sun, they will drive right past a small casino like Twin River [Casino in Lincoln, R.I.] to get there," Barrow said.
But Barrow said the "convenience" gamblers in Connecticut will go to the closer venue. These are folks who play slot machines, primarily, and table games, to a lesser degree, he said.
"They don't go there to eat," Barrow said. "They don't go there to watch shows. They don't go there to stay overnight. They tend to come within a 35-to-40-minute radius. And they will visit both types of facilities, but their preference is, most of the time, to visit the closest one. They're just looking for a slot machine. Period. ... And that's really, I think, what these satellite facilities are aimed at."
As an illustration of convenience gambling, about 15 percent of Foxwoods' customer base comes from Rhode Island, Barrow said.
"Eight miles further west in Mohegan, that number drops to 5 percent, for two, basically comparable facilities," Barrow said. "In other words, people will not drive the extra eight miles. And if you look at the visitations from New York, it's exactly the opposite."
Mohegan has more New York customers than Foxwoods.
"Coming the other direction, they won't drive the extra eight miles," Barrow said. "So, proximity is a very important factor for most casino gamblers."
A region has its limits. In Atlantic City, N.J., four of 12 casinos closed last year, folding under the pressure of competition by new gambling sites in other states.
The recession didn't help. Some of the casinos that failed may have had unsustainable business models. But at what point does a region have too many casinos - and is the Northeast reaching that point?
"It's a very difficult question," said professor Clyde W. Barrow, who has researched gambling and casinos for more than 20 years, particularly while he was director of the Center for Policy Analysis at the University of Massachusetts-Dartmouth, a job he left in June 2014.
The gambling business has been at the top of Connecticut legislators' minds as they consider whether to add as many as three casinos in the state, to be jointly operated by the Mohegan and Mashantucket Pequot tribes. They do so with some urgency: Ground breaks Tuesday on a new $800 million MGM Resorts International casino in Springfield, to open in 2017 or 2018.
Additional casinos will divvy up some portion of the region's existing market share. New competition for Foxwoods Resort Casino and Mohegan Sun has resulted in - and, many agree, will continue to result in - layoffs, lost casino revenue, and less tax revenue to the state from slot machines.
The tribes have said they will have to lay off 3,000 people at each casino to accommodate lower revenue when new casinos open beginning in 2017 in New York and Massachusetts. If the tribes were allowed to operate a casino along I-91 north of Hartford, their leaders say, some of those jobs could be retained, though in a different part of the state than southeastern Connecticut, home to the two largest casinos in the Western Hemisphere.
The tribes are pursuing two strategies: bolstering their flagship venues while trying to add a new casino that would be convenient to Greater Hartford customers who may be lured to MGM's new casino in Springfield.
To understand the strategy, it helps to understand gamblers.
Experts say there are two types: those willing to travel far for a destination site, and those who prefer to gamble at the nearest, most convenient venue.
The casino along I-91 would be for gamblers looking for convenience. Specifically, it would cater to Greater Hartford customers who may already be customers at Mohegan Sun and Foxwoods, but will be tempted to go to MGM Springfield when it opens because it's closer to where they live.
The heads of both tribes say the effort to add another casino in Connecticut is purely a defensive move to capture those convenience gamblers and retain an existing customers base.
"At the equilibrium point, we're fighting for the same customer. We just want to be in the fight," said Kevin "Red Eagle" Brown, chairman of the Mohegan Tribal Council.
Mashantucket Pequot Tribal Council Chairman Rodney Butler said, "Most of the population [in the Northeast] has access to convenient gaming on some level."
MGM Springfield has an advantage over either Mohegan Sun or Foxwoods by being closer to the Greater Hartford market, and MGM officials have said they plan to market the venue in Connecticut.
The best way to counter MGM's advantage, the tribal leaders have said, is to have a location that is even more convenient, meaning someplace in Connecticut between Hartford and Springfield.
MGM would not talk about how a new Connecticut casino could threaten its business plans. Spokeswoman Carole Brennan said in a statement, "We are confident that as a mixed-use urban revitalization project our innovative downtown design, tested marketing plan and strong brand will make MGM Springfield a unique destination resort casino in the Northeast."
Already Saturated?
At a legislative hearing Tuesday, Barrow, the professor, testified that the Northeast can accommodate more casinos, and that Connecticut would be able to retain some portion of the revenue it stands to lose to MGM Springfield if the tribes are allowed to open a casino on I-91.
When will the region become saturated with casinos?
"It's a really malleable thing that you can't just pin down," Barrow said.
Barrow has long been an independent academic researcher of the casino industry, particularly in the Northeast. However, he was recently hired by both tribes to look at how much revenue they stand to lose when MGM Springfield opens - and how much might be regained if the tribes open a casino north or Hartford.
His research shows that overall spending at U.S. commercial casinos increased steadily, despite a dip for the recession, from $16 billion to $38.7 billion between 1995 and 2014. In the Northeast, the total revenue at casinos increased - as did the number of casinos - in the past six years. The growth rate began to taper off between 2013 and 2014.
People talk about casino "saturation" in a region without really understanding what it means or involves, Barrow said. It depends on population and income, which grow. It also depends on the percentage of income that a group of people is willing to spend on casino gambling, Barrow said.
"That number can vary widely depending on how close the people are to casinos, but even in states that have it, I've seen it vary from about 0.3 percent to as high as 1.45 percent, in Rhode Island, in particular," Barrow said.
Aside from how much money each person spends on gambling, there's a question of how many people will actually go to a casino.
Broadly, across the U.S., Americans spent more on gambling in a steady increase that was interrupted only by the 2008 recession and recovery, from $16 billion to $38.7 billion between 1995 and 2014. Will the total amount of money customers spend at casinos in the Northeast increase? It did from 2009 to 2013, but then total spending at casinos was relatively flat between 2013 and 2014.
Moody's Investor Service analyst and Senior Vice President Keith Foley said many people believe the Northeast casino market is already saturated.
Foley said he thinks any additional casinos in the Northeast will take part of the existing market share. In other words, Connecticut's casinos will lose revenue to the new casinos that are opening up in Massachusetts and New York, but Foley said overall spending is likely to remain flat.
"Basically what happens when all this new supply comes in New England, it's flat. The market share just shifts," Foley said. "I don't think anybody would argue it's not saturated."
If recent history is any indicator, existing casinos have a lot to lose when new ones open nearby.
For example, the combined revenue of Atlantic City casinos was $2.74 billion last year, down from $5.2 billion in 2006, as the New Jersey destination lost to competition in Pennsylvania, according to The Associated Press.
Closer to home, expanded gambling venues in Rhode Island, New York and elsewhere ate a portion of total revenues at both Foxwoods Resort Casino and Mohegan Sun. Combined revenues for both Connecticut casinos declined by 39 percent in the past eight years to $1.9 billion last year from a peak of $3.2 billion in 2006.
The casinos laid off workers as a result. At Foxwoods, where revenues declined 43 percent in the past eight years, the casino's workforce has been reduced to 7,558 employees from a peak of about 12,800 in 2006. At Mohegan Sun, where revenues dipped 35 percent in the past eight years, the casino has 7,205 workers, down from a high of about 10,500 in 2006.
That's a total of 8,500 casino workers in Connecticut who were laid off since 2006.
Planning For A Decline
A new slots parlor that will open in a few months in Massachusetts, not far from Connecticut's northeast corner, is expecting a decline in revenue when resort casinos open in the Bay State.
Penn National Gaming won the sole license to operate a slots parlor in Massachusetts, which is separate from the three regional casinos proposed in the state - one for each of three regions: western Massachusetts, Greater Boston and southeastern Massachusetts.
Penn is spending $225 million to develop Plainridge Park Casino in Plainville, Mass., at what is now Plainridge Racecourse, a harness racing track. The expanded venue, now under construction, will have 1,250 slot machines, video poker, video blackjack and other electronic gaming machines. In Penn's application to the Massachusetts Gaming Commission, the company estimates that revenues will decline in revenue in 2017 and 2018 as other resort casinos open up in Springfield and Everett, Mass.
Penn's average projected annual revenues at Plainridge, starting with 2015, are $248.9 million; $273.8 million; $227.3 million; $128.3 million; and $138.2 million. The company noted that its revenue projections assume that resort casinos will be operational in the third year Plainridge is open, when revenues start to decline.
"Projections are based on a variety [of] complex and somewhat unpredictable set of factors, such as: current economic conditions (including the effects of local and national economic, credit, capital market, housing, and energy conditions on the economy in general and on the local gaming and lodging industries in particular), current capital market conditions, the current competitive set and the current laws in this and adjoining states," Penn wrote in its application to Massachusetts gaming regulators.
"The inherent difficulty of developing these projections increases as the projections become longer term," Penn wrote.
The chairmen of both the Mohegan and Mashantucket Pequot tribes say they expect to decrease their workforce by another 3,000 employees each when new casinos open up in Massachusetts and New York if they aren't allowed to open up additional venues, particularly one on I-91 north of Hartford.
Mohegan's chairman, Brown, said he thinks another 12,000 jobs will be lost in indirect employment, meaning people who are vendors with the casinos or who benefit by doing business with its employees who buy cars, houses and other goods and services in the region.
Both tribes are investing in their flagship casinos to better compete with new venues opening in the coming years.
Foxwoods will open an 85-store mall in May called Tanger Outlets Foxwoods. At Mohegan Sun, the Mohegan tribe is adding 50 retailers and building a 400-room Earth Hotel to its existing stock of 1,200 rooms at the casino's Sky Hotel, which will allow the resort to better accommodate conventions, among other events.
Whether the investments will bring in a new group of customers, such as convention groups that haven't previously booked an event at the casino or new gamblers, remains to be seen.
If the total amount spent on gambling remains flat, then how much of Connecticut's market share will the other states take? And, how much could be kept if Connecticut added additional casinos?
Some of those details will be revealed in the report that Barrow is preparing for the tribes, which he expects to release this week. The tribes are paying him to research the issue, though he said he did the research at "an arm's length" from them and without any of their proprietary information - just well-accepted methodology and publicly available figures.
Legislators got a glimpse of Barrows' newest research during a legislative hearing last Tuesday. Barrows testified that he expects Connecticut casinos could lose $702 million annually to new casinos in Massachusetts and New York when they open in 2017 and beyond.
Blocking Action
Whether the tribes will be able to recapture some of that lost revenue, and how much, depends on what they build, said Foley, the Moody's analyst.
"They're not planning on building big things, and a few miles away ... MGM could potentially build something that is worth passing them by," Foley said.
Even Barrow's own research has found that 75 percent to 80 percent of visitors to Foxwoods and Mohegan Sun never go to Twin River Casino in Lincoln, R.I., which is a smaller venue.
"What our research has shown in New England is that the people who are looking for the big bells and whistles, the Mohegan Sun, they will drive right past a small casino like Twin River [Casino in Lincoln, R.I.] to get there," Barrow said.
But Barrow said the "convenience" gamblers in Connecticut will go to the closer venue. These are folks who play slot machines, primarily, and table games, to a lesser degree, he said.
"They don't go there to eat," Barrow said. "They don't go there to watch shows. They don't go there to stay overnight. They tend to come within a 35-to-40-minute radius. And they will visit both types of facilities, but their preference is, most of the time, to visit the closest one. They're just looking for a slot machine. Period. ... And that's really, I think, what these satellite facilities are aimed at."
As an illustration of convenience gambling, about 15 percent of Foxwoods' customer base comes from Rhode Island, Barrow said.
"Eight miles further west in Mohegan, that number drops to 5 percent, for two, basically comparable facilities," Barrow said. "In other words, people will not drive the extra eight miles. And if you look at the visitations from New York, it's exactly the opposite."
Mohegan has more New York customers than Foxwoods.
"Coming the other direction, they won't drive the extra eight miles," Barrow said. "So, proximity is a very important factor for most casino gamblers."
