Cuomo casino plan has doubters

PHOTOGRAPHER: David Lombardo

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Gov. Andrew Cuomo’s bet on three upstate casinos may deal a losing hand to the state’s racinos.

If a constitutional amendment allowing seven non-Indian live-table casinos in New York is approved, the governor wants an initial round of three casinos that will be anchors for resort destinations. He envisions these operations as regional job creators that will compete with casinos in neighboring states while not harming the state’s nine racetrack casinos.

The amendment and enacting legislation need to be passed in less than a month, with the regular legislative session ending on June 20.

Cuomo has said live-table casinos would be able to coexist with the state’s nine racinos, which offer horse racing and electronic gambling. As an example, earlier this month he noted that Turning Stone, a live-table Indian casino, operates seven miles away from Vernon Downs Casino, a racino. “I don’t think one is the enemy of the other,” he said.

But Jeff Gural, owner of Vernon Downs, rejected that opinion, saying, “There’s not enough business to go around.”

He is also the owner of the Tioga Downs & Casino, which is a racino in the Southern Tier that he hopes will become a live-table casino.

“Three new casinos upstate, if they were put anywhere near the existing racinos, would just take money from them,” Gural said. “If it’s close to a racino, it would just cannibalize it.”

A decrease in business at the racinos could potentially jeopardize some of the approximately 6,000 jobs at the state’s nine racinos.

Cuomo has said the casinos will cater to people who currently gamble at live-table casinos in neighboring states, including Pennsylvania, Connecticut and New Jersey.

The governor has divided upstate into six regions for purposes of casino planning, and eliminated two of them as possible casino sites after reaching deals with Indian tribes that already operate casinos there.

Each of the remaining four regions is 100 miles or less from one of the state’s existing racinos. This proximity, Gural said, would be close enough to take business from the racinos. “Typically, people go to the closest casino,” he said.

Because of this, he argued that a live-table casino in the Catskills wouldn’t necessarily attract people from New York City, as envisioned by the governor. Gural noted that the drives from New York City to existing casinos in Pennsylvania, Connecticut and New Jersey are comparable to a drive from New York City to the Catskills.

Gambling expert Steve Rittvo, who represents clients potentially interested in New York’s casino market, said the specifics of the governor’s plan could determine whether racinos and non-Indian casinos could coexist. It’s possible they could succeed in parallel, he said, but conceded: “It’s hard for me to say they’re good things for each other.”

Cuomo has expressed some confidence in clustering, which assumes adjacent gambling interests can be a good thing. Proponents of clustering argue it makes an area more attractive for gamblers and a market will grow.

Rittvo countered that the market will grow, “but it’s not going to double.” The result, in the case of live-table casinos being placed near racinos, he said, will be a revenue decline for the racinos.

Noting the limitations on revenue growth, Gural said, “The issue is that we’re not creating new customers.”

Destination resorts

A major part of the governor’s vision is that casinos will be part of destination resorts that transform an economically struggling area into a hotbed of tourism.

This is unrealistic in upstate New York, and perhaps impossible, according to James Featherstonhaugh, president of the New York Gaming Association, which represents the state’s nine racinos. All nine racinos want licenses for live-table games.

Featherstonhaugh, who is also director at the Saratoga Casino & Raceway, noted that New York City and Saratoga Springs were destination locations before they got racinos.

“Destination resort gambling is not the future,” he said. “Convenience gaming is the future.”

He has argued that the only true U.S. gambling destination is Las Vegas, with gambling decisions in the Northeast based solely on the convenience of a drive.

Based on the peak success of Foxwoods Resort Casino in Connecticut, Rittvo said that it is possible to create a destination resort in upstate New York areas that aren’t already tourist destinations. “Casinos enhance resort locations, as they have in Saratoga … but you can also have a casino resort that isn’t in an entertainment location be successful,” he said.

Whether people will drive past gambling options, like Indian casinos or non-Indian casinos in neighboring states, is dependent on the nongaming attractions that a site can offer, said Rittvo.

Part of the challenge in creating resort destinations is the investment it requires, Gural said. Aside from developing a casino, the operator would need to spend money on additional attractions, like a golf course, spa and entertainment facilities. Gural said this is a “risky” proposition for areas that aren’t already tourist destinations.

“Spending that much money in upstate New York is tricky,” he said.

Impact on revenues

The governor has said he wants taxes from the three casinos to be divided among the state, which would use the money to fund education; the host county; and the neighboring counties. The effective tax rates for the casinos, which would determine the disbursements, would be part of the bidding process.

Rittvo said past examples of setting the tax rates through a bidding process have resulted in bidders overestimating what they can afford. In those cases, he said the state has to lower the tax rates so the casino can survive.

Because of the different odds for live-table games and electronic games, it is anticipated that any new casino will pay a lower effective tax rate than the racinos, which give about half their net revenue back to the state. Because of that higher tax rate, Featherstonhaugh has noted that the state would get a better bang for its buck from a racino than a casino.

For example, the effective tax rate in Las Vegas would mean someone would have to gamble $7 for the state to have the same benefit as $1 gambled in a New York racino. Differing tax rates in the Northeast meant that New York’s nine racinos generated more than three times the state revenue as the 12 live-table casinos in New Jersey last year, according to a study from the American Gaming Association.

In the most recent fiscal year, the Saratoga Casino & Raceway contributed $76 million to the state and almost $832 million total came from all nine racinos.

The constitutional casino amendment needs to be approved by the state Legislature by June 20 and then pass a statewide referendum.

Cuomo’s plan for opening the first round of casinos, after it is authorized by constitutional amendment, would need approval of the state Legislature. He has not yet submitted the measure to the Legislature.