When the house loses: Part 5, Backed up with money?

September 30, 2014 | Boston, Casinos, Cities, Economic development, Economics, Everett, Gambling, Housing, Infrastructure, Land use, Local issues, Real estate taxes, Speculation, US News | No comments 87 views

[Continued from yesterday's Part 4 and the preceding Part 1, Part 2, and Part 3.]

By: David A. Smith

If I had a gun for every ace I have drawn,
Loser, Grateful Dead (Jerry Garcia, Robert Hunter)

The curious land economic dynamics of developing urban casinos, as we saw in the preceding installment of this ever-expanding post, drive the casino developers to a city’s most challenging sites, because those are the only ones that combine proximity, scale, and availability – and like anaerobic bacteria, the casino developers have to clean up the sites in their own self-interest … which coincidentally aligns with the public interest:

everett_aerial

From this …

everett_casino_site

… to this

Comparison of the reality and the Everett site plan (above) show just how dramatic is the intended turnaround.  A vacant, derelict, armpit of a location will be transformed into a complete built environment.

Sources used in this post

Dice or No Dice: The Casino Debate in Massachusetts (Spring, 2011; navy font)

Economic Impact of Casinos on Home Prices, undated NAR 2013 study; red font

Boston Globe (June 30, 2013; gray font)

Revere Journal (October 16, 2013; bruise font)

Seniors in Casino Land: Tough Luck for Older Americans (Spring, 2014; teal font)

Boston Globe (April 11, 2014; emerald font)

Boston Globe (June 24, 2014; orange font)

The Atlantic (August 7, 2014)

Washington Post (August 26, 2014; olive font)

Boston Globe (September 15, 2014; turquoise font)

Boston Globe (September 16, 2014; blue font)

Boston Globe (September 16, 2014; photographs)

Massachusetts Gaming Commission web site (lavender font)

Boston Globe (September 23, 2014; magenta font)

But the public interest has a long horizon, and building a casino may be a variation of cargo-cult economics, the belief that one iconic structure will turn around a city’s; fortunes because it will instantly transform a city’s image.  Such beliefs underlie many of the sports-franchise moves and stadium-building frenzies that periodically seize some cities.

new_braves_stadium

Engineered for fifty years, financed (partly by the public!) for twenty

Outside of Las Vegas—now home to only 20% of the nation’s casino industry—casino gambling has evolved into a downscale business.

Vegas’s evolution beyond casinos has been critical to its success as a city.  Vegas has sun, low taxes, endless golf courses, and entertainment options beyond the roulette wheel.  So Las Vegas used gambling, over which it had a virtual national monopoly for three decades (Nevada being the only state to legalize gambling), to make itself into a destination city that intends to survive even when gambling is only one of many leisure-based industries (golf being another addiction).

golfing_in_vegas

All the thrills of gambling?

Atlantic City has much less of these, so it’s periodically doubled down on casino expansion.

double_down_trent

“You always double down.”

“Well, not in this particular case.”

Until the late 1970s, no state except Nevada permitted casino gambling. Then Atlantic City persuaded its state legislature to allow casinos, in hope of reviving the prosperity of the battered resort town. Hotels sprung up along the seafront. Thousands of people were hired. And the rest of Atlantic City … saw no benefits at all. All these years later, it still has desperate trouble sustaining even a single grocery store.

Yet Atlantic City is a special case; before the resort there was nothing, and the resorts-and-sins businesses (first liquor, then gambling) are predominantly commercial enterprises, not city-building residential investments.

boardwalk_empire_joe_kennedy_nucky_thompson

You can make a lot of money here … and some of it’s legal

This is the kind of gambling that’s the equivalent of bottom trawling, preying on the optimism, desperation and sometimes even addiction of vulnerable folks who wouldn’t be flying to Las Vegas or even taking the bus to Dover Downs.

It’s the kind of business plan that makes millionaires out of payday loan sharks.

I’ve previously written about payday lending, which like so many things can be good … and can be very bad.

payday_lending_24_7

Only 10% interest for a two-week loan!

Casinos can provide jobs and become important building blocks in a community. But I also saw families, careers and lives ruined by gambling addiction that devastated locals long after the big-spending tourists went home.

Gambling is addictive.  Of course, many things are addictive and not all people become addicted to addictive things.

iPhone Addicts

It says on my phone I can quit my iPhone addiction any time

Gambling, however, is costly – and when the punters lose, the house wins, and the housing loses.

As casino expansion reaches its limits, the towns and cities that turned to gambling to escape their problems may discover that they have accepted a sucker’s bet: local economies that look worse than ever, local residents tempted into new forms of self-destructive behavior, and a dwindling flow of cash to show for it all.

Things might not be so bad in metropolitan Boston, as the communities in question are small and unlikely to be completely dominated by the gambling industry:

To prevail, Wynn’s representatives also had to make a last-minute presentation on Tuesday, backed up with money, to overcome concerns about its commitment to address casino traffic through Sullivan Square in Charlestown, a notorious bottleneck.

wynn_casino_model

And the very small people wills squeeze in here

Yet of Revere, Chelsea, Charlestown, Medford, and Malden, none has a strong economy, and none (except possibly Malden) seems to be improving. So, over the last eighteen months, they have fought for the right to host the casino.

6. Urban casinos are always the prize in intra-urban political fights

I can tell the Queen of Diamonds by the way she shine
Come to Daddy on an inside straight

Leisure industries depend on a healthy economy elsewhere, they don’t create it themselves.

Unfortunately for the casino industry’s growth hopes, downscale America has less money to spend today than it did before 2007. Nor is downscale America sharing much in the post-2009 recovery. From a news report on the troubles of a recently opened Ohio casino:

Ameet Patel, general manager of the property, says the softness in casino revenue that he and other operators have seen –

bg_everett_03_kim_sinatra

General counsel and secretary at Wynn Resorts Kim Sinatra reacted while the gaming commission discussed its reasons for choosing Wynn Resorts.

Hence the surrounding communities all sought to create teams of (1) casino operators, preferably with balance sheets, (2) owners of large parcels of declining-value land who hope for a casino revival, and (3) local elected officials who believe or come to believe the casino will be the economic jolt they need. Wynn, for instance, went hunting for a suitable town-site partner:

Wynn, in 2012, proposed to compete for the Boston-area license with a Foxborough proposal, but withdrew due to local opposition. He found a much friendlier political reception in struggling Everett, where 86% of voters supported the Wynn plan in a referendum.

suffolk_downs_aerial

Suffolk Downs: with subway lines, plenty of space, proximity … needs a new use, doesn’t it?

Suffolk Downs also lost a referendum last year, when East Boston voters rejected the track’s casino plans on the East Boston side of the city line. That surprise defeat led track officials to join with Mohegan Sun for a new proposal entirely in Revere.

Leisure-based economies can cycle economic activity, and they can create service jobs, but essentially they are drawing economic activity in either of two ways.  They can draw it out of hiding, a point personalized by a great Washington Post (August 26, 2014; green font) column by Petula Dvorak, written as an open letter to Baltimore’s mayor:

petula_dvorak

All the studies and numbers bear it out — proximity to gambling means that more irresponsible gambling will happen. And I’m not telling you this as someone who is guessing.

Gambling is a negative-sum game; except in players-only configurations like poker, every gambling game(*) versus the house is stacked in the house’s favor, so while any individual may win, in the aggregate, the house gets richer, and the punters get poorer, every day.

playing_roulette

You can concentrate on looking cool because there’s no skill involved

 [ (*) Editorial exception: In single-deck blackjack, the player can gain an advantage by counting cards – so casinos routinely ban players who show they can count. – Ed.]

ben_affleck_counting

I went to Cambridge Rindge and Latin, where I learned to count

Having gone global, casinos have now captured all the whales (as they are now known):

arctic_whaling

We will go to the ends of the earth to harpoon gambling’s whales

So now they have shifted their market strategy from whaling to fish-farming:

Approximately 1.2% of U.S. adults are pathological gamblers. The figure doubles in a local community if a casino is located within 50 miles.

salmon_farm

Every little nicely-spaced casino can grow us more fish

The fish-farming approach to market creation explains the casino developers’ interest in eastern Massachusetts; they have actuarial proof that introduction of a new casino into an under-served market will guarantee an increase in the number of gamblers, and that increase in the number of gamblers will translate into increased net casino revenue.

While the gaming industry argues that the total number of problem gamblers remains small, that small minority is crucial to the industry’s profits: One Canadian study found that the 75% of casino customers who gamble most casually provide only 4% of casino revenues.

It’a a pretty hideous business model, but it has the survival clarity of a vampire: there’s not enough blood around, so raise more.

lugosi_dracula

You’re not considering it from my point of view

What’s true in Ohio applies nationwide. Casino revenues had still not recovered their 2007 peaks as of the spring of 2014, when again they went into reverse in most jurisdictions. Moody’s now projects that casino revenues will drop through the rest of 2014 and all of 2015, slicing industry earnings by as much as 7.5%.  

A good parasite feeds on its host, but not so much that the host dies.  As the economy suffers, casinos suffer worse.

Weaker earnings are being divided among ever multiplying numbers of casinos.

With the rise of Indian nation gaming, it became possible for almost everyone to have a casino, so long as they verified discovered a surviving sovereign Indian tribe to sponsor the casino, but these became mired in tribal politics and corruption, and states/ cities realized that rather than paying the Indians for access to their artificial monopoly, why not just open up gambling to everybody?

anonymous_activities

The larger the family of Anonymous Activities, the more revenue the state can gain by legalizing and taxing them

(Those of you wondering about the future of recreational medical marijuana in America, look no further than the last twenty years of gambling.  Sooner or later, probably sooner, it will be simpler to tax the marijuana than to route the taxation through the medical/ licensed dispensaries.)

Baltimore’s casino will be the fourth to open in Maryland, with a fifth soon to rise down the Potomac from Washington, DC. Maryland’s casinos compete with a clutch of new casinos in Philadelphia and Delaware.

Why so much building? Cities are authorizing more casinos for exactly the same reason that the existing casinos are losing business: the weak national economy.

bg_everett_02_fields

Suffolk Downs owner Richard Fields (left) was seen after the Gaming Commission made its decision.

Casinos have been being locally or even regionally overbuilt for a couple of decades now; the strong economy just concealed that for a while.  Meanwhile, the casino operators are, most likely, engaged in a game of consolidation and survival – but it’s important that the cities and states not excessively finance the infrastructure, as they did with sports stadia, lest they be stuck with the bill for decades. 

The casino market is nearing saturation, if it is not already saturated. Two casinos have closed in Mississippi this year

casino_magic_biloxi

Closing, then reopening?  Casino Magic in Biloxi

[Continued tomorrow in Part 6.]

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When the house loses: Part 4, Impossible business risk?

September 29, 2014 | Boston, Casinos, Cities, Economic development, Economics, Everett, Gambling, Housing, Infrastructure, Land use, Local issues, Real estate taxes, Speculation, US News | No comments 87 views

[Continued from Friday's Part 3 and the preceding Part 1 and Part 2.]

By: David A. Smith

And you know I’m only in it for the gold

Loser, Grateful Dead (Jerry Garcia, Robert Hunter)

As we’ve seen so far in this extended post, casinos are in business to make money – which is perfectly proper and aboveboard – and their business model requires people to bet more than they will win back; so, like any other business, they are seeking to take money from people and give them something (mainly experiences, plus shots of hope and adrenaline) in return.  Because they are leisure industries, casinos are extractive, so if they are going to produce net economic benefits to their communities, these need to be external to the business operation – as in, say, improving property values or community infrastructure.

Sources used in this post

Dice or No Dice: The Casino Debate in Massachusetts (Spring, 2011; navy font)

Economic Impact of Casinos on Home Prices, undated NAR 2013 study; red font

Boston Globe (June 30, 2013; gray font)

Revere Journal (October 16, 2013; bruise font)

Seniors in Casino Land: Tough Luck for Older Americans (Spring, 2014; teal font)

Boston Globe (April 11, 2014; emerald font)

Boston Globe (June 24, 2014; orange font)

The Atlantic (August 7, 2014)

Washington Post (August 26, 2014; olive font)

Boston Globe (September 15, 2014; turquoise font)

Boston Globe (September 16, 2014; blue font)

Boston Globe (September 16, 2014; photographs)

Massachusetts Gaming Commission web site (lavender font)

Boston Globe (September 23, 2014; magenta font)

And this, it appears, they in fact do:

how_about_that

Who knew?

4. Urban casinos require upgrading municipal infrastructure, especially transportation

everett_site_in_blue

A blue wasteland with nothing going for it … except size and potential transportation links

As it happens, over the last forty years I’ve driven by the Everett site hundreds of times (Route 16 is a major locals-dominated east-west interurban road – and never gone anywhere near the proposed casino site, because it’s a visual wasteland of high grasses, distant power plant smokestacks, and no reason whatsoever to go over that way. 

All that will change if and when the casino comes, because that same spot will be a huge destination:

Also at the meeting with the Wynn group and state environmental officials on Wednesday, Medford’s community development director questioned why the casino’s preliminary traffic plan has not addressed her city’s concerns, particularly regarding the area around the MBTA’s Wellington Station.

“I’m concerned about the distribution of traffic,” Lauren DiLorenzo [Medford Director of Community Development – Ed.] said during the meeting at Everett City Hall, and asked why Wellington Circle was not in the traffic study.

That’s totally reasonable; Wellington Circle has long been a chronic traffic jam in the happening; as the ‘circle’ implies, it brings together multiple high-volume roads with pre-frustrated drivers trying to make their way through the maelstrom.

wellington_traffic_winter

It’s always crowded in Wellington

Wellington Circle, less than a mile from the proposed casino, marks the intersection of routes 16 and 28. Wynn estimates the casino will generate more than 29,384 vehicle trips on a weekday, and more than 35,754 trips on a Saturday.

Assuming a ‘vehicle trip’ is a euphemism for two journeys (one in, one out), arithmetic suggests that this is 2,800 additional cars per hour, or 45 more cars a minute.

wellington_radius

If you take the T, we want you to transfer to walking, not driving … but the casino won’t be walkable

Gordon said traffic engineers still are studying a number of area intersections.

“We know [Wellington] is a critical area,” he said.

“There is no question it will be part of our traffic analysis.”

Though of course, the locals do themselves no favors by extravagant requests (Medford Transcript, April 16, 2014):

Wynn’s casino application includes plans to spend $1 million on traffic improvements in Medford, including traffic signal upgrades and timing optimization at Wellington Circle and a study for long-term improvements.

Undoubtedly the casino will also offer free and frequent shuttle bus service – every casino I’ve seen in America offers that, even from the Days Inn in a podunk town.

yakima_casino_shuttle_bus

Are you calling my casino’s town Podunk?*

Wynn estimates 5% of patrons who drive to the casino would get there via Route 16 from the west, through Medford.

In October, Mayor Michael J. McGlynn said he would demand $100 million from Wynn [Why limit the claim to $100 million? Why not ask for a billion? – Ed.] to build an underpass at Wellington Circle.

mayor_mcglynn

You’re right, a billion’s a better starting point for negotiations

Mr. McGlynn has been mayor since 1988; before then he was in the Massachusetts House, and before then he was a student.  As we’ve seen, such a career trajectory can result in a certain increasingly questionable hubris.

Hyperbolic demands aside, for any infill-site casino traffic and transportation are a substantial challenge, because existing transportation infrastructure was engineered for the lower-density city that existed fifty or a hundred years ago, and the casino’s entry will add new ‘pulse demand’ – arriving and departing in waves tied to workday patterns.  Hence every traffic nod or intersection within a radius will be affected:

Wynn’s proposal looked as if it might get hung up on Sullivan Square and the commission’s insistence that the developer accept fines for casino traffic through the intersection that exceed set targets, as an incentive for the company to encourage patrons to use public transportation.

sullivan_square_pigeon

Pigeon keeping watch at Sullivan Square

As an occasional user of Sullivan Square’s subway station, I can attest that it is singularly unpleasant: crowded, noisy, fairly dirty (dozens of buses), and in short a place people transit as quickly as they can.  Nobody will leap at the chance to take the T to Sullivan to get to a casino.

The developer at first rejected the condition as an “impossible business risk.”

But the commission held firm in a tense hearing Monday.

sullivan_square_radius

Another delightful intermodal facility

Faced with possible elimination, Wynn executives offered a proposal Tuesday that may have saved the project. The company brought more money to the table for a long-term fix for the intersection and agreed to the commission’s demand for fines on excess traffic so long as the payments were capped at $20 million over 10 years.

Once it’s capped, it’s just a cost, not a risk factor.

5. Urban casinos locate in lower-income metropolitan towns

7_eleven_entry

Through these portals pass the rich and the famous

If my local 7-Eleven is a microcosm of the urban workforce, then it’s likely the Everett casino will do a land-office business from among Boston’s working poor, for while I indulge in Diet Coke at intervals, I am in a tiny minority compared to the astonishing stream of people, at all hours of the day, who are buying lottery tickets or redeeming lottery tickets to use the proceeds to buy more lottery tickets.

lottery_patriots_payout

Bet! Pay! Lose!

Affluent and educated people visit casinos less often than poorer people do for the same reasons that they smoke less and drink less and weigh less.

Even though Massachusetts runs the nation’s least-stacked lottery, its payout ratios are still terrible (San Francisco Chronicle, March 14, 2012; brown font):

Despite their high payout ratios, the odds of winning the lottery are still long. The states with the most generous paybacks (percentage of ticket sales returned in prizes) were:

1. Massachusetts (71.9%)
2. Oregon (67.2%)
3. Tennessee (65.2%)
4. Missouri (64.6%)
5. Georgia (62.9%)

Of every dollar you spend on the lottery, you would be equally well served, on average, by just throwing away 28 cents from it.  For poor people, lottery tickets have a higher marginal cost than taxes do, and the lottery is voluntary.  When I stand behind those folks with my $1.27 Diet Coke refill, watching them spend twenty bucks on multiple scratch cards, I confess I am doing that arithmetic – because the numbers are astounding:

The states with the highest annual lottery spending per adult were:

1. Massachusetts ($860.70 or 1.3% of personal income per adult)

In other words, if we assume that only one adult in ten plays the lottery, those who play are spending 13% of their income, and losing 3.5% of it in the process.  I sure hope the entertainment is worth it, but that’s doubtful.

mass_lottery

Nobody makes you play

2. Georgia ($470.73 or 1.00%)
3. New York ($450.57 or 0.72%)
4. New Jersey ($387.28 or 0.58%)
5. Maryland ($386.05 or 0.60%)

Massachusetts, to its credit, returns 95% of the lottery’s gains back to the communities as unrestricted funds ($802 million in 2011 alone).

At the same time, state-run lotteries are, well, statewide, which means that if a particular community gets a casino, and if it then converts lottery players into casino gamblers, it will suck the lottery revenue from those other cities and towns into the casino.  Thus building a casino in Everett may well be a strategy that effectively reduces the lottery take from Medford, Malden, Revere, Somerville, Chelsea, Charlestown, and other cities and towns in a further ring.

everett_1852

Everett, 1852: Note the railway lines which still survive today

The B&M became the Orange Line, and the Grand Junction is now commuter rail

everett_1875

Everett was originally the southern half of Malden; it gained independence in 1870

Baltimore is a troubled city, as you know from The Wire. Like many troubled cities, Baltimore has turned to casino gambling as its solution.

the_wire

Things ain’t going so well

On August 26, a new Caesar’s casino will open on the site of an old chemical factory

atlantic_good_way_to_wreck_local_economy

Will lightning strike?

[Note: contaminated site cleanup, just as in Everett – Ed.]

[Continued tomorrow in Part 5.]

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When the house loses: Part 3, Predictable for this type of site?

September 26, 2014 | Boston, Casinos, Cities, Economic development, Economics, Everett, Gambling, Housing, Infrastructure, Land use, Local issues, Real estate taxes, Speculation, US News | No comments 124 views

[Continued from yesterday's Part 2 and the preceding Part 1.]

By: David A. Smith

Don’t you push me baby, ‘cause I’m all alone
Well I know a little something you won’t ever know

Loser, Grateful Dead (Jerry Garcia, Robert Hunter)

In yesterday’s installment of this multi-part post we saw that casinos generate substantial localized cash flow, and this money must come from somewhere – either from siphoning off revenue from other casinos (in Massachusetts’ case, probably out of state) or by inducing non-gamblers to become gamblers.

gas_bandit

Siphoning is easy: just suck

That siphoning is a downside – but there’s an upside, in the land that the prospective casino developer must choose in order to have a footprint to support the new money-spinning operation.

Sources used in this post

Dice or No Dice: The Casino Debate in Massachusetts (Spring, 2011; navy font)

Economic Impact of Casinos on Home Prices, undated NAR 2013 study; red font

Boston Globe (June 30, 2013; gray font)

Revere Journal (October 16, 2013; bruise font)

Boston Globe (April 11, 2014; emerald font)

Boston Globe (June 24, 2014; orange font)

The Atlantic (August 7, 2014)

Washington Post (August 26, 2014; olive font)

Boston Globe (September 15, 2014; teal font)

Boston Globe (September 16, 2014; blue font)

Boston Globe (September 16, 2014; photographs)

Massachusetts Gaming Commission web site (lavender font)

Boston Globe (September 23, 2014; magenta font)

3. Urban casinos usually redevelop blighted land

In looking into this story, I saw that, unremarked by all the press covering the issues, the sites chosen for urban casinos seem invariably to be curious real estate: blighted, in fact, by any reasonable definition.  

Crushed brick, rocks, and thick weeds cover much of the 32.4 acres of industrial land on the Mystic River where Las Vegas developer Steve Wynn proposes to build a glamorous $1.2 billion resort casino.

bg_monsanto_chris_gordon

Chris Gordon (right), project manager for Wynn, toured the industrial site Wednesday with state and local officials.

Because they are blighted, these sites are extremely expensive to renovate:

Before any work could begin at the site, chemicals buried in the soil, ground water, and river sediment must be remediated to comply with the state’s strict environmental regulations.

Ash, arsenic, and lead are among the remnants of toxic materials tainting the land, according to an environmental consultant hired by the Wynn group. Monsanto Chemical Co. operated a processing plant on the land for decades until closing it in 1992.

For an economically rational real estate developer to choose blighted or contaminated land implies the most powerful forms of land use economics must be applying, and they are manifestly apparent. 

bg_everett_08_monsanto

A site only a casino developer could love: the Everett site

New urban casinos are built on physically contaminated or disinvested land because such land is the right combination of:

1. Well located relative to blue-collar people.

Stebbins also noted that the reuse of the vacant Everett site would be a tremendous benefit to the region.

bruce_stebbins

Commissioner Stebbins likes revitalization

2. Available for purchase because it is vacant, fallow, or under-developed

“The site is quite contaminated,” said Chris Gordon, the project manager for Wynn, at a meeting with state environmental officials Wednesday in Everett that included a tour of the site. “It’s predictable for this type of site … ”

md-public-works-perna

Baltimore, clearing debris at Russell and Bayard Streets to make way for the new Horseshoe casino

That one throwaway comment speaks volumes.

“We want to make sure the site is cleaned to a very high standard.”

3. – and has been so for quite some time, as the proposed seller will have to wait and wait for its money.

Wynn has an option to buy the Everett site from the property’s owner, FBT Everett Realty.

Still, Wynn faces competition from two other proposals, including one at the Suffolk Downs racetrack on the Revere-East Boston line.

4. Relatively inexpensive, to compensate for the post-acquisition costs of site remediation and then site preparation even before the first block is laid or footing is sunk.

The cleanup likely will involve both removing soil from the site, and treating some soil that will be left in place. “It’s probably going to be a combination,” Gordon said.

Remediation of the site is an essential component of Wynn’s application for a casino license filed with the Massachusetts Gaming Commission.

FBT, an affiliate of DeNunzio Realty of Cambridge, has set up monitoring wells around the site to measure the level of contaminants. Dustin DeNunzio, a principal with DeNunzio Realty, did not respond to a call seeking comment.  [But see this – Ed.]

bg_everett_10_mystic

Believe it or not, that irregular body of water is the Mystic River.

Train tracks in foreground; Route 99 and its auto bridge behind.

Power plant just beyond Route 99

Boston in the distance

5. Zoned or rezonable for casino use.

Everett voters on June 22 overwhelmingly approved a ballot question to allow the casino to be built in the small industrial city.

6. Large enough to support a massive increase in density and sophistication of the built environment.

Wynn’s project would involve building a 19-story hotel tower with 551 rooms, a 24-hour casino, a spa, conference meeting space, shops, and restaurants. Public amenities include a winter garden to be built in a greenhouse, a harbor walk, biking paths, and a dock for water shuttle service.

According to Wynn’s environmental notice filed with the state’s Executive Office of Energy and Environmental Affairs, the hotel tower would reach about 300 feet. The building would include 2.8 million square feet of space. The casino will occupy 7.5% of the space, Gordon said. An estimated 392,700 gallons of water would be used each day on the site, the filing states.

The Wynn group said it will clean the land to a higher standard, because it plans extensive landscaping and an underground parking garage. “We’ll be excavating land for the garages that otherwise wouldn’t be disturbed,” Gordon said.

7. Capable of parcel assembly via eminent domain, political skullduggery, intimidation or a combination of all three.

Under state law, as the property owner, FBT is required to remediate the land to a standard acceptable for redevelopment.

So that will entail more ‘stakeholders’ and more douceurs.

All this, mind you, for a site that by ordinary real estate or urban economics has negative value, as made clear by the photograph below.

wellington_space_distant

From space, it looks like legacy industrial … because it is

Assembly Square in Somerville is a large mall complex that’s gone through many rounds of stores and theatres and restaurants, openings and closings.  As you might deduce from its boundaries – Interstate 93, the train tracks of subway and commuter rail lines – it’s a place you observe idly while transiting from where you are to where you want to be.  This chunk of the Mystic River (where the optimistically named Malden River joins it) was for decades light industrial, and now is either that or low-end retail, as suggested by the dots of gas tanks and big rectangular roofs of megastores: Costco, Gateway, Home Depot.  Great stores for good-price shopping (the Boss shops there based on flyers) but hardly the stuff of neighborhood-building.  And Route 99 is a classic here-to-there road, where you could stop along the way, and you pass older and under-maintained homes, but if you stopped here, you’d be living here, and if you were living here, it was because that was what you could afford.

In fact, this whole area is bounded by four speed-through roads: I-93 to the South, Route 28 to the west, Route 16 to the north, and Route 99 to the east, and it’s generally fair to say that there is nothing residential inside that irregular quadrilateral; it’s all either retail/ industrial or unused waterfront.

Although still in the planning stages, the cleanup has drawn the scrutiny of local officials.

Somerville Mayor Joseph Curtatone on June 13 submitted a petition to FBT to designate the land a “public involvement plan site, ’’ so that residents of neighboring communities would have the right to voice their opinions on how the site is remediated.

The designation, which is allowed by state law, aims to ensure the public has a say in a private redevelopment. FBT must draft a plan that includes a public comment period and public access to information regarding its cleanup initiative, a state spokesman said.

Somerville is across the Mystic River from Everett. And the Mystic at this point may not be mighty but is wide, so unless the cleanup spills barrels of sludge that have long been buried in the muck (which, I suppose, is possible, it being a chemical company and all), Somerville should have little to fear, and much to gain in the form of new jobs for its residents.

“They have to come up with a plan so that the public can get involved in the entire process,” said Ed Coletta, a state Department of Environmental Protection spokesman.

The same is true of the Baltimore site that David Frum was chiding:

– a little more than two miles from the famous Inner Harbor and Camden Yards baseball stadium.

And there’s the next element of casino development: the impact on transportation, and transportation infrastructure.

wellington_circle_from_space

It looks easy to transit only if you’re far above it: Wellington Circle, Medford

[Continued Monday in Part 4.]

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When the house loses: Part 2, Keeping glam money here?

September 25, 2014 | Infrastructure, Land use, Local issues, Real estate taxes, Speculation, US News | No comments 100 views

[Continued from yesterday's Part 1.]

By: David A. Smith

Last fair deal in the country,
Sweet Suzie, last fair deal in the town

Loser, Grateful Dead (Jerry Garcia, Robert Hunter)

In yesterday’s post, the first or fa long series about the impending arrival of a casino in eastern Massachusetts and its projected impact on the cities and towns, their communities, and their housing, we saw that whatever else a casino will do, it will certainly bring a lot of money flowing through the building.  Indeed, the $700-800 million a year in gambling revenue means the difference between punter losses and punter winnings, and to keep things simple, we can call that $2,000,000 a day. 

Yet the truly bad news about casinos is not found in the tax receipts. It’s found in the casinos’ economic and social impact on the towns that welcome them.

revel_atlantic_city

Revel in Atlantic City: closed, but reopening as something else?

If we assume, more or less arbitrarily, that the house edge is 5% on table games and 10% on slot machines, with the sources evenly split, then the casino needs roughly $26 million a day in total betting, or $10 billion a year. 

Sources used in this post

Dice or No Dice: The Casino Debate in Massachusetts (Spring, 2011; navy font)

Economic Impact of Casinos on Home Prices, undated NAR 2013 study; red font

Boston Globe (June 30, 2013; gray font)

Revere Journal (October 16, 2013; bruise font)

Boston Globe (April 11, 2014; emerald font)

Boston Globe (June 24, 2014; orange font)

The Atlantic (August 7, 2014)

Washington Post (August 26, 2014; olive font)

Boston Globe (September 15, 2014; teal font)

Boston Globe (September 16, 2014; blue font)

Boston Globe (September 16, 2014; photographs)

Massachusetts Gaming Commission web site (lavender font)

Boston Globe (September 23, 2014; magenta font)

That’s an immense sum, and represents a huge economic impact on the host city and surrounding communities – if everything goes according to plan. 

On what may be its most important decision, the panel deliberated in public for five days over two weeks, after months of private evaluations to compare the projects across five categories.

In their negotiations with cities, casinos are operating from the same platform of information advantage that they have with individual punters, and they seek to structure the game so they have favorable odds:

The promise however comes increasingly hedged with fine print.

From what I can glean, the commission took its job seriously and weighed a lot of evidence, including tightening up the proposals to eliminate the developers’ potential to wriggle later.

eating_live_octopus

Stop wriggling; this is what we agreed upon

The commission spent three days of its deliberations painstakingly hammering out proposed conditions on each developer, should they win, to address weaknesses in the applications.

Casinos may be the ultimate market – the place where money talks and everything else is merely show.  So the operators’ willingness to invest capital seems the best possible bona fides – and that is after spending what I will speculate is upwards of $5 million apiece just to bring to ripeness the two proposals to ripeness via negotiations with aspiring cities (in this case, Everett and Revere, after being unable to reach agreement with Boston).  Then too, they’ll be lobbying furiously between now and November:

For the developers pursuing casinos in Massachusetts, the ruling puts about $1.7 billion a year in projected gambling revenue in jeopardy. The companies are expected to spend heavily to save the emerging Massachusetts market.

Another rule in Vegas: If you want to play the game, bring a big stack of chips.

fossilman_final_table

And it never hurts to hold great cards

Zuniga said Wynn’s stronger financials better fortify the proposal to withstand changes in the market or an economic downturn.

enrique_zuniga

Zuniga likes a strong balance sheet

McHugh disagreed, saying the Wynn proposal may have a tougher time getting the necessary state and local permits to proceed.

james_mchugh

McHugh doubts they’ll get the approvals they need

2. Casinos create many jobs … but mostly low-wage ones

I grew up around casinos in a resort town on Lake Tahoe. My immigrant parents got their start in America working in a casino. Most of my high school jobs were in casinos. My brother and I took pictures with the Caesars Santa, my tap-dancing recitals were on the Sahara stage, My thirteenth birthday party was dinner at Harrah’s.

The capital investment is of course appealing, but what really makes elected officials salivate, understandably enough, is the prospect of jobs:

Commissioners Gayle Cameron, Enrique Zuniga, and Bruce Stebbins each said they were leaning to Wynn, citing Wynn’s advantage on economic issues.

“I think good-paying jobs [are] absolutely part of this process,” said Cameron.

That’s certainly what the residents hope for:

bg_everett_11_ragucci_parziale

Residents Christine Ragucci (left) and Norma Parziale were ecstatic.

Wynn’s proposal was just bigger and richer, capturing the license on economic factors. Wynn offered a stronger development financing plan, a much larger construction investment, and a bigger projected workforce and payroll.

Revenue comes, but is it good revenue? 

Possibly not, because the revenue has to come from the same people whom the casino intends to employ:

Imagine what happens in a city like Baltimore, where a quarter of the 622,000 residents live below the poverty line.

If casinos are not drawing money out of hiding, they are attracting it from elsewhere.  That was Vegas’s secret – importing money from around the country, and today from around the world – but what happens when gamblers needn’t travel far to get their action?  Then gambling goes down-market:

– has been driven by a key demographic: women older than 50 who used to bet $50 to $75 per visit. The weak recovery has squeezed their gambling budgets, and their trips to casinos are fewer, he says.

Petula Dvorak, the Washington Post columnist, underscores that point:

The myth that you’re keeping glam Vegas money here in the state is a dream. I’m sorry, but Mr. and Mrs. Tuxedo aren’t thanking their lucky poker chips that they have Baltimore instead of the Bellagio to blow their fortunes on.

mr_mrs_smith

Where will you do your gambling, Mr. and Mrs. Tuxedo?

Destination gambling is one thing. But this new scheme in Baltimore is not competing with Monaco and Macau.

Nor will the Boston-area casino.  Instead, it’ll either siphon off people who now go to Connecticut (Foxwoods, Mohegan Sun) or New Hampshire … or it’ll turn non-gamblers in Massachusetts into Massachusetts gamblers. 

gambling_flush

A winning hand?

[Continued tomorrow in Part 3.]

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When the house loses: Part 1, $700 million a year?

September 24, 2014 | Boston, Casinos, Cities, Economic development, Economics, Everett, Gambling, Housing, Infrastructure, Land use, Local issues, Real estate taxes, Speculation, US News | No comments 120 views

By: David A. Smith

All that I am asking for is ten gold dollars
I could pay you back with one good hand

Loser, Grateful Dead (Jerry Garcia, Robert Hunter)

1888_gold_dollar_obverse

Gold has been coveted since prehistory because it is small, rare, and valuable

In Las Vegas they remind gamblers, The house always wins, but in the inverted logic of Vegas, ‘house’ means casino, and when it comes to cities and casinos, the house – the city and its inhabitants – seem always to lose, as shown in a David Frum essay in The Atlantic (August 7, 2014):

A Good Way to Wreck a Local Economy: Build Casinos

Maybe casinos aren’t guaranteed or even likely to wreck the local economy, but they certainly have a habit of showing up in places that are troubled even after the casinos’ arrival – which is all the more relevant as metropolitan Boston has just finished an eighteen-month battle of deception, maneuver, and politics that ended with the Massachusetts Gaming Commission awarding the sole metro-area license:

After five days of nail-biting deliberations, the state gambling commission voted 3 to 1 [It’s a five-person board; the chair recused on a conflict of interest, possibly UMass’s publishing of a 2011 study, Dice or No Dice: The Casino Debate in Massachusetts – Ed.] in favor of Wynn’s vision to turn a forlorn plot of polluted land on the Mystic River, just north of Boston in Everett, into a gleaming $1.6 billion gambling resort.

bg_everett_15_maquette

Will it Wynn?  In November, voters statewide will decide whether the casino law will be repealed.

A city is a triad of jobs, housing, and the means to get efficiently and cheaply between them (transportation), and every mayor, and every city council, always wants more of each – but there is only so much space in the city (except when the city goes up, which is expensive), so every investment of infrastructure must be evaluated as to how much it will boost each of these. Are casinos, which offers many jobs but low-wage ones, worth it?

Sources used in this post

Dice or No Dice: The Casino Debate in Massachusetts (Spring, 2011; navy font)

Economic Impact of Casinos on Home Prices, undated NAR 2013 study; red font

Boston Globe (June 30, 2013; gray font)

Boston Globe (April 11, 2014; emerald font)

Boston Globe (June 24, 2014; orange font)

The Atlantic (August 7, 2014)

Washington Post (August 26, 2014; olive font)

Boston Globe (September 15, 2014; teal font)

Boston Globe (September 16, 2014; blue font)

Boston Globe (September 16, 2014; photographs)

Massachusetts Gaming Commission web site (lavender font)

Boston Globe (September 23, 2014; magenta font)

The economic and political considerations are especially timely here, as first depressed Springfield, and now as Boston and Everett and Chelsea and Revere have been conducting a meat-market/ beauty-contest to attract a mega-casino, one of three new ones to be allowed in Massachusetts – or will they be?

The state’s highest court decided Tuesday [June 23, 2014 – Ed.] that a casino repeal measure can appear on the November ballot, touching off a ferocious referendum campaign over one of the most charged issues in a generation and jeopardizing the future of the billion-dollar industry in Massachusetts.

When pitching for regulatory approval, casino developers (like Vegas’s own Steve Wynn and Connecticut’s Mohegan Sun) claim, and their supporters believe, that new casinos will bring jobs, tourists, taxes, and stronger urban economics to the city lucky enough to provide the land that hosts the new edifice, like Las Vegas, a town that would not have existed but for gambling and government’s edge effect:

flamingo_1946

The original Vegas casino” the Flamingo, 1946

flamingo_original_and_future_roads

The Flamingo, the strip, and a lot of desert

vegas_strip_1968

The Strip in 1968: 37 years ahead of Sheikh Zayed Road in Dubai

sheikh_zayed_road_1980s

Sheikh Zayed Road in the 1980s

sheikh_zayed_road_dubai

Sheikh Zayed Road, Dubai

Wins like that haven’t been common in casino-urbanization, as for every Las Vegas there’s an Atlantic City, a town that has repeatedly thrown the dice on sin biz, with recurring urban bankruptcies to show for it.

[For my multi-part history of Atlantic City’s flutters with casinos, see Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7.]

The long-awaited ruling by the Supreme Judicial Court [now] overshadows the state’s nearly three-year debate over where casinos should be built and reignites an argument over whether they should be allowed at all.

three_new_casinos

That’s one for Region A, one for Region B, and one (maybe) for Region C

The law was enacted through the legislature, meaning that the citizens themselves never voted directly whether to authorize it (though Governor Patrick has been advocating for legalized gambling since 2007) and now, with casinos selected for Springfield and for Boston.

Should Massachusetts keep casinos, or repeal the authorization? 

markey_warren

We’re agreeing to disagree on this

Massachusetts’ two senators are split on the question.

1. Casinos bring big private investment and promise economic development

Casinos promise a new and easy flow of revenues to hard pressed local governments.

To anxious politicians, casinos look like adrenaline for the economy, always being touted as revenue and jobs generators; as the Massachusetts Gaming Commission says in a scroll on its home page:

The arrival of expanded gaming is anticipated to create between 8,000-10,000 construction jobs, 8,000-10,000 permanent jobs and $300-$500 million in increased revenue. – See more at: http://massgaming.com/#sthash.hNhYws32.dpuf

Despite searching, I could find no analytical backup for the MGC’s jobs and revenue estimate, which is mildly distracting:

handwaving

Who needs evidence?  Just use the numbers

But some elements are definite, as they were minimum bid conditions:

The licensing fee for each resort casino will be a minimum of $85 million and requires a capital investment, to include a hotel facility, of at least $500 million.

The Commonwealth will receive 25% of gross gaming revenues.

Make no mistake, the state’s share of the revenues is enormous, and clearly influences the state’s perspective on the merits of gaming (as the industry insists on calling it).

The slots facility, which will hold up to 1,250 slot machines, has a $25 million license fee, and a minimum capital investment of $125 million.  The slots facility will be taxed at 40% of its gross gaming revenue.

bg_everett_casino_map

You get all this, just for saying Yes

Of the three locations, naturally enough it’s the metro-Boston one that is most valuable:

The crown jewel of the state’s casino law has always been the Greater Boston license, which is projected to be worth about $700 million to more than $800 million a year in gambling revenue.

[Continued tomorrow in Part 2.]

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