Mind if I smoke? Casino Competition in NJ

Mind if I Smoke? Casino Competition in NJ

The Form 10-Q for Trump Entertainment Resorts, Inc. (located here: http://biz.yahoo.com/e/070808/trmp10-q.html) shows disappointing results for Trump casinos in the Atlantic City, NJ market. Revenues are down significantly, which management attributes to three factors:
(1) Increased competition. The report notes that “new slots-only casinos opened in Bensalem and Chester, Pennsylvania (both in the Philadelphia market) and Wilkes-Barre, Pennsylvania with a total of approximately 5,100 slot machines. In addition, in late 2006 Yonkers Raceway opened its approximately 4,100 video lottery terminal facility.” Those new electronic gaming devices are apparently siphoning away patrons that might otherwise have driven to the shore to gamble in Atlantic city.

(2) Smoking restrictions. Unlike surrounding markets, New Jersey regulators imposed smoking restrictions on their casinos, which took effect this year. It requires 25 percent of the casino floors to be nonsmoking, though as yet there is no requirement for physical separation, but plans must be submitted by September 15, requiring additional capital investment. (As one commentator has quipped, having a “smoking section” of a restaurant is like having a “urinating” section of a swimming pool. I think that person really does not like smoking – though I think the point about smoke circulation is often a valid one.) On this point, management states: “While we are unable to quantify the impact of these smoking restrictions, we believe these smoking restrictions have negatively impacted our gaming revenues as our competition in adjacent states continues to permit smoking.”

(3) A player-rewards program, “Trump one”, which rewards losers (I mean, gamblers whose wagers exceed winnings) with points toward complementary goods. Implementing this program, which is obviously aimed at player loyalty, cost a lot in initial complementary goods.

These factors suggest that gaming is becoming a more competitive business. Though we often think of a casino license as a license to print money, it is not always so, particularly when expansion proceeds beyond the market’s ability to sustain it. Competition through awards programs, as well as competition through capital spending to make the environment more attractive, will occur. Not all competitors will win. More significantly, state coffers will not fill as quickly from casino taxes to the extent gamblers are losing less in state. This may put pressure to reduce constraining regulations. Apparently, the high dollar taxes per pack imposed on smokers are still not driving all of them away, and those smokers like to gamble.

For more commentary on these topics, see our book: Governing Fortune: Casino Gambling in America (University of Michigan Press 2007) (Sorry about shameless self promotion.)
You can find it on Amazon.com - search by title.

EAM