Friday, March 23, 2012

Documenting the Ugly Side of American Casinos; Country’s Largest is in Severe Trouble

Actually, There is not Pretty Side to Casinos, Gambling or the Entire Industry

At one point in time in the recent history of the United States there was casino gambling only in the state of Nevada.  The rest of the country recognized that prosperity purchased by casino gambling was not real prosperity, and the destructive nature of the product was something to be avoided if at all possible. 

It wasn’t possible.  Because casino gambling brings huge amounts of revenue to state coffers, over the last several decades rules against allowing casino’s have been so relaxed that they are now ubiquitous.  The New York Times article cited below sums it up.

Resistance to gambling, however, has been overwhelmed by the need for new sources of public revenue in an era when it has become nearly impossible, at any level of government, to raise taxes or even to let temporary tax cuts expire. A kind of self-perpetuating momentum fuels gambling’s growth: the more states that legalize it, the more politicians in states that haven’t done so argue that if their citizens are going to throw money into slot machines, they might as well do it at home. 

 And the largest of these, the Foxwoods complex in Connecticut has now expanded so much and borrowed so much money that it is in danger of failing.  The New York Times chronicles it potential demise.

The initial lender to Foxwoods was Genting, a Malaysian conglomerate, but the tribe is now indebted to an enormous tangle of banks and bondholders. The fact that Foxwoods is on sovereign tribal land complicates everything. It means the lenders cannot foreclose and take control of the gambling operation but also that Foxwoods probably doesn’t qualify for Chapter 11 — a conundrum that Butera described as “sort of like being stuck in no man’s land” and one that financial backers of Indian casinos apparently did not foresee until Foxwoods tanked. “We have six layers of creditors and, within each layer, 20 to 40 institutions,” Butera told me.“It’s unbelievable. What you have to do is convince them that $2.3 billion of debt is not worth $2.3 billion. And it’s not. Our junior debt was trading at 5 cents on the dollar. So you want to come to a place where even though the lenders are getting a haircut on the face value, they know they’re getting an incredible lift on what it’s actually worth. That’s the magic.”

Having fun yet?

Okay, the financial aspects are pretty boring.  But the story also documents what customer do when visiting casinos, and not that does not sound like fun.  First of all the glitter may not be all that great.

Foxwoods, under any circumstances, is not really sexy. It’s New England. The furniture in the hotel rooms is big and overstuffed and makes you think about curling up and reading a book. (A renovation to modernize them is under way.) Some of the retail space in the vast corridors between its four large casinos is meant to look like a flea market.

And the story confirms what anyone who has ever visited a casino has seen and known.  The players are not having fun.

“Sometimes, it’s a beautiful day out, and you think to yourself, Oh, God, nobody’s going to come in here,” Scott Butera told me in one of our conversations. “But they do. Our crowd wants to sit in front of a slot machine, smoke a cigarette and drink. They’re not going water skiing out at Mystic Seaport.”

A substantial number of casino patrons have mobility issues, and you see a lot of wheelchairs.

But realistically speaking, casino gambling is not going away.  It will only expand, infecting areas that are currently barren of that plague.  The players are addicted to the slot machines, ATM’s in reverse as the article calls them, and the governments are addicted to the revenues.  And no, addiction has never been a winning economic strategy for any country.  

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