States put down bets on gaming expansion

Del. takes early lead, but its neighbors plan to keep their money

By GINGER GIBSON — Sunday, July 12, 2009

The News Journal

When Delaware legalized sports betting and table games this spring, neighboring states began to fight back.

But the First State is well positioned. Armed with sports betting — offered by no other state east of the Mississippi — and table games, experts say Delaware could become a gambling destination to give Atlantic City a run for its money.

Gambling has proved a lucrative business for cash-starved states, providing revenue that doesn’t require raising income and business taxes.

Maryland and Pennsylvania — which have recently legalized slots gambling — are taking a serious look at legalizing table games so as not to be left in Delaware’s wake. New Jersey, which already has the full spread of casino games, has gone to court to get into sports betting.

Few expect Maryland or Pennsylvania to move quickly enough to prevent Delaware from taking an early lead in table games. With three decades as the unchallenged gambling mecca of the East Coast, New Jersey has the most to lose.

The big question among those who follow the gaming industry is whether Delaware will build casinos that will attract new crowds and whether the three locations where gambling is already allowed will expand substantially.

Gov. Jack Markell, who initially proposed adding up to three new casinos, now says he is waiting for a study, due by October, on what impact new venues would have on the current racinos: Dover Downs, Delaware Park and Harrington Raceway.

“What’s most important is that we have the sports lottery as an advantage,” Markell said.

House Majority Leader Pete Schwartzkopf agrees that sports betting will give the state an edge, but said authorizing new projects, such as the proposed resort DelPointe in Millsboro, would help the state become a destination.

“It would tap the more than 5 million people who come to the beach area,” said Schwartzkopf, D-Rehoboth Beach.

Keith Foley, an analyst for Moody’s Investor Services who was the primary author of a study on gambling in the region, likens the changes in the mid-Atlantic and Northeast to “keeping up with the Joneses.”

Foley predicted that Pennsylvania will legalize table games within five years. He found Maryland a tougher call. Much of the fight among the states will be focused on luring gamblers from the greater Philadelphia area, many of whom now go to Atlantic City.

“Atlantic City had a monopoly in the Northeast,” Foley said. “Unless Atlantic City has something that distinguishes itself, why go to Atlantic City?”

Pennsylvania shuddered on May 14, when Markell signed the sports betting and table games legislation, said David Y. Miller, associate professor at the University of Pittsburgh Graduate School of Public and International Affairs.

“We’ve been forced by financial issues to get into the gambling business in the first place,” Miller said. “In a good fiscal condition, we probably would never have done much more than get our toe wet in gaming.”

Just starting to realize the fruits of legalized slots-only casinos, Pennsylvania lawmakers must now consider a response to the threat Delaware poses to the new stream of gaming money, Miller said.

The traditional voices against gambling from the central part of Pennsylvania were all but silent during the slots debate because Pennsylvania’s finances were so dire, Miller said, adding that he expects more opposition to any proposal to expand gaming.

Miller believes Pennsylvania legislators eventually will approve table games, but probably not for a few years. But if Delaware severely cuts into casino revenues around Philadelphia, they could be forced to act sooner.

Two of Pennsylvania’s newest casinos — Harrah’s in Chester and Sands Casino in Bethlehem — could see the impact of Delaware’s threat first, since both are only short drives from the state line — Harrah’s is less than 10 minutes away. The impact to the economy in the Philadelphia area could also speed the process, if the city’s legislative delegation gets behind the effort.

“The Philadelphia delegation historically has been very powerful,” Miller said.

Maryland plays catch-up

Maryland might be a little further behind in the process of getting into table games, mainly because it still hasn’t gotten its newly approved slot machine operations up and running, according James Karmel, associate professor of history at Harford Community College in Bel Air, Md.

Karmel, whose research focuses on gambling, doesn’t foresee Maryland making the move within the next two years, but does see table games eventually.

It took Maryland more than a decade to sign off on slot machines, from the time the idea was first suggested in the mid-1990s until last fall, when voters approved the measure in a referendum.

Former Democratic Gov. Parris N. Glendening, who served from 1995 to 2003, was staunchly opposed to any gambling beyond horse racing, Karmel said.

After Glendening left office, Karmel said, the Legislature fought over site locations, how much the state would give in tax credits or incentives, and what the impact on communities could be.

But with those politics out of the way and the overwhelming support that the slots referendum saw in the fall, Karmel said, it could be much easier to get table games approved.

“They want to see how the slots work out,” he said.

Once Delaware implements its gambling additions, there will be one thing New Jersey won’t have: sports betting.

But New Jersey state Sen. Raymond Lesniak, D-Union, is working to change that.

Challenge to U.S. law

Lesniak filed a suit in U.S. District Court in Trenton to overturn the federal law that bars sports betting in all but four states: Delaware, Nevada, Oregon and Montana. Those states were grandfathered in because they had at least experimented with sports betting before the federal law was passed.

Lesniak found inspiration for the lawsuit after a large illegal gambling ring was discovered in New Jersey around Super Bowl Sunday. If betting was rampant in the state, and it was legal and taxable in Nevada, why shouldn’t New Jersey be able to do the same?

“It was a waste of legal resources to deal with this illegal activity when people can just go to Nevada and do the same thing legally,” Lesniak said. “Then came, of course, the big budget crunch that all of the states are feeling with the economy going down. Then Delaware’s move to have legalized sports betting, it’s going to have a direct impact on the state of New Jersey.”

New Jersey Gov. Jon Corzine threw his support behind the lawsuit last month, which could delay arguments that were expected to be heard in federal district court this fall.

Lesniak is confident of getting a favorable ruling within a year.

“This is not a hail Mary pass,” Lesniak said. “It’s not a slam dunk, either. I consider it something like Tiger Woods lining up a 15-foot putt that he has to make for a championship. I think the odds are in our favor that we’re going to win this.”

Much depends on what Delaware does with its advantage.

In Markell’s initial proposal to legalize sports betting, the authorization of three new gambling sites was included. But that addition was quickly stripped out when the racinos put up a fight.

Foley said Moody’s examination of casino competition on the East Coast concluded that capital investment, reflected in the grandiosity of the casinos, would be a deciding factor.

New Jersey casinos haven’t had large construction or redesign investments in the past decade, aside from the Borgata, Foley’s report found. New casinos, like those in Pennsylvania, have surpassed Atlantic City.

On Friday, New Jersey — the nation’s second-largest gambling market — got its first look at the impact of the Sands Bethlehem in Pennsylvania, a short drive from some of its best marketing areas in northern New Jersey and New York. For June, the first full month that the Sands was open and traditionally one of the strongest months for Atlantic City, revenue at New Jersey casinos fell 13.6 percent from a year ago.

If Delaware were to improve current sites or construct new sites that include the kind of amenities seen at Atlantic City’s Borgata, it could become more of a tourist destination, especially given the added attraction of sports betting, Foley said.

Two proposals for new casinos have been floated: DelPointe, which has a plan and is attempting to get slots approval in the Legislature; and a less solid proposal to add a casino in Wilmington, either on the Riverfront or the Seventh Street Peninsula.

Double threat

Karmel said Delaware building a top-notch facility, especially in Sussex County, could pose a big threat to Maryland and New Jersey.

There are plans to build a casino at Ocean Downs in Ocean City, Md., but the casino won’t include a hotel or restaurants. And it won’t have table games.

Karmel said New Jersey’s last advantage would be the beach and proximity to the boardwalk.

“If you put something like that on the beach in Delaware, there goes Atlantic City’s competitive edge,” Karmel said. “A big, nice luxurious casino on the boardwalk in Rehoboth would be a big draw, even to people in South Jersey who could just hop on the ferry.”

Dover Downs CEO Ed Sutor, who runs the only casino in Delaware that currently has an adjacent hotel, said the company built the high-end hotel to attract bigger-budget players from out of state, who must pass Harrington or Delaware Park to reach Dover.

“A hotel extends the amount of play time over two days,” Sutor said. “It’s part of our marketing strategy. We go after the upper end of the market. We like to cater to people who have better budgets, and we put in amenities that these customers are used to because we know they also go to Atlantic City.”

On the other hand, he said, Harrington uses a local busing program to attract players, mostly from Delaware.

New money

Schwartzkopf, who has authored a bill to give gambling at DelPointe the go-ahead, said supporting new venues should be simple: They could bring in more out-of-state gamblers and create hundreds of jobs in Delaware.

“Harrington says they already tap the beach market, but I don’t believe that,” Schwartzkopf said. “People aren’t going to drive two hours to the beach and then drive an hour to Harrington.”

Schwartzkopf said DelPointe would keep gamblers from going to Ocean City to gamble and thus keep tax dollars in Delaware. He pointed to the project’s proposed hotel, restaurants and indoor water park.

“Some of the legislators have the wrong idea about this. They’re trying to protect a single casino,” Schwartzkopf said, referring to the notion that another facility would run Harrington out of business. “The state is still the winner in this thing.”

Schwartzkopf isn’t opposed to putting a casino in Wilmington, but added that DelPointe still remains in line with the goal of protecting the horse racing industry since it has a harness racing license.

And Sutor is sticking to the industry’s original argument: Any new casinos would be detrimental to the current three casinos and possibly drive Harrington out of business, resulting in a loss of jobs.

“If we put in the additional casinos, it will just whack up this existing pie into smaller pieces, and we don’t think that is good for the existing casinos or the horse racing industry or the state,” Sutor said.

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