When is Enough, Enough and When Is It Too Much?

A recent and interesting editorial from the South Jersey Times suggested that New Jersey gaming regulators should have questioned the number of casinos in Atlantic City. The editorial rightly asserts the regulators only thought of preventing criminals from entering the industry and never thought of protecting the industry from anything, least of all from competition.

Voters in New Jersey in 1974 rejected casino gambling in a statewide referendum, but when the question was posed again in 1976 with the stipulation that the slots and gaming tables be restricted to Atlantic City, voters said “yes.” Many believed casino gambling would revive the faded seaside town to its former glory. Everyone would be employed and hard times would be a thing of the past…To regulate gaming, the Casino Control Commission was formed in 1977. Its primary role was to keep the criminal element, organized or otherwise, out of the new industry. As the gaming industry grew and changed, the commission’s role has been tweaked over the years, but did the creators of the commission back in the 1970s forget to add a key duty? The commission should not only have monitored potential criminal associations, but determined whether Atlantic City could sustain the number of gaming halls that wanted to open there. South Jersey Times Editorial Board, 9-14-14

That is an opinion that I share with those editors. Since the inception of gaming in New Jersey, too much emphasis has been put on control and none has been put on competitiveness. The regulators treated the casino licensees as if they were criminals and members of some Las Vegas mob. Too keep those mobsters honest, New Jersey invented what it considered to be an airtight system of regulations. Nothing and no one could slip past them. Indeed, it was nearly perfect and airtight – nothing slipped by them. The casinos in Atlantic City were all built from the regulatory cookie cutter mold and that was fine for a long time. It was fine until it failed because those cookie cutter casinos could not compete with the newer and more exciting casinos built around them.

By now, this is old hat, but it does bring up a very important issue. The editorial argued that the “Casino Control Commission should have the power to say “no” to opening or reopening any new gaming halls until it determines what the market can realistically support.” That too, is a point I have argued, but it is not consistent with our economic system. In a capitalist society the market is supposed to decide the winners and losers, not the lawmakers. However, there is one slight twist; the regulators and lawmakers do control casinos in a way most businesses are not controlled. Casinos cannot adjust freely to competition, except in Nevada. Nevada regulatory structure is less controlling and allows casinos to adjust to the competitive pressures. In other states, changes in design, slot machine mix and even the addition of some amenities must be approved by regulators. Regulators are policeman by nature; their job is to prevent wrongdoing, to keep everything in that tightly controlled box. In Atlantic City they were very successful.

However, that too is in conflict with our economic system. It is impossible to let the market determine the winners and losers when regulations in one jurisdiction limit the ability of casinos to respond to competition from other jurisdictions with different regulations and controls. And that leaves us in a quandary. Either the level of regulation has to be drastically reduced or the regulators have to assume a larger responsibility. If regulators are going to control every aspect of operations, they will have to protect the industry and limit the number of licenses and thereby help licensees to succeed.

Iowa is wrestling with the issue now; the state’s control board has the authority to deny a license based on its assessment of the level of market saturation. But even that only deals with internal market saturation and does not take into account casinos in other states. It is an issue that should be on the agenda in other states also. In Illinois every time a new license is discussed, the discussion always revolves around the benefits to a given community – or the state’s coffers – and not its overall impact on the other casinos in the state. It should also be part of the discussion in Mississippi where it is not getting any attention. Instead, supporters of new casinos on the coast point to the slight increases in gaming revenue in the last year as sign there is room for more casinos. In the current environment, every law, regulation or license that would expand casino capacity should be considered in the light of saturation.

It is a complicated issue and probably has no simple, one size fits all solution. However, the recent events in Atlantic City demonstrate just how important it is. The casino industry has grown and expanded significantly in the last decade, and if it has not reached a point of total saturation, it certainly is close in some areas. Without some thought given to the total casino environment, there will be more stories like the very sad tale of Atlantic City in 2014.


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