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Associated Press/Photo by Curt Hudson

Losing bet

Business | Dark economic clouds have a silver lining: Casinos are hurting

Issue: "On the road again," May 9, 2009

Pastor John Richardson didn't want to move to Sin City. But when an affluent entrepreneur offered Richardson's wife a job managing his rental properties in Las Vegas, what seemed a wise economic move also moved Richardson into a new area of ministry: helping down-and-out gamblers.

Richardson pastors a 150-member congregation at Lone Mountain Missionary Baptist Church, about 15 minutes north of the Strip, Vegas' glittering epicenter.

"I've been down there. I've preached, I've counseled," said Richardson, a city pastor with a country drawl imported from Royal, Ark. "Most of the men and some of the women I've spoken to attribute their homelessness to gambling. The devil and Las Vegas paint this beautiful picture: 'Come here! Become an instant millionaire! Live your dreams!' Then they come here and feed that machine, feed that machine, and the next thing you know, they've lost it all."

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Richardson's congregation has rallied around a Mississippi man who lost his savings, then his wife, after becoming enmeshed in compulsive gambling. Perhaps poetically, some gambling moguls are now losing, too. Across the country, casinos small and large are amputating selected operations, scrambling to service debt, closing entire properties, and sliding into bankruptcy.

In an economic storm that is also taking down such pillar industries as banking and insurance, some see the trickle-down decline of institutionalized gambling as a silver lining.

Tom Grey, field director of StopPredatoryGambling.org, notes that addiction, crime, and financial failure are "part and parcel of legalized gambling." In a mature market, for example, compulsive gambling typically seizes 1.5 percent to 2.5 percent of the population, according to addiction research conducted at Harvard University. Personal bankruptcy rates in U.S. counties with casinos are twice that in counties with none. Crime also spirals: Three years after casinos opened in Atlantic City, per capita crime jumped from 50th in the nation to first.

In sanctioning lotteries and casinos, even state governments have stacked the odds against the citizenry and become part of the "house," Grey said: "They've made us losers, but the current economy gives us a chance to reset ourselves as a people."

In tough times past, gambling was considered recession-proof. Las Vegas and Atlantic City, the thinking went, "put out a product that people wanted and would pay for no matter what the economy was doing," said Jim Couch, a professor of economics at the University of North Alabama.

Casinos' ever-swelling bottom lines reinforced that notion. Between 2003 and 2007, the U.S. gambling industry boomed even as the economy began to cool. A Revere Research index of publicly traded casino-hotel companies rose from less than $80 per share five years ago to peak at $389.42 in October 2007.

But a confluence of trends set the stage for change. First, anyone with internet access can gamble from home. And while betting used to be localized to Vegas, Atlantic City, and a smattering of racetracks, 48 states now have some form of gambling, including lotteries, pari-mutuel (or racetrack) betting, and Indian or commercial casinos. Nine states have true riverboat casinos that allow gambling in domestic waters. Since most casinos draw 80 percent of their customer base from within a 50-mile radius, both trends have rendered road trips unnecessary-and these days, unaffordable for some.

"With increased competition, there's less novelty to gambling," Couch said. "Our big gambling centers are taking hits and that hasn't happened in past economic downturns."

By May 2008, the Revere index had dropped to $258.65. Then the bottom fell out: This time last year, Wynn Resorts was trading at around $100 per share. But on April 3, 2009, traders were swapping Wynn shares for about 28 bucks apiece. In April 2008, MGM Mirage stock was $60 a share. This April, the firm's shares hovered around $3.76 per share.

MGM Mirage is facing default and may not be able to meet its obligations to investors in 2009. Other industry casualties include Trump Entertainment, which ran out of cash in March and filed for bankruptcy. Detroit's three casinos are heavily in the red, while two West Virginia casinos are also bleeding cash. Citing waning traffic at its 53 casinos, Harrah's Entertainment last month said it might have to fold. According to Securities and Exchange Commission filings, the privately held chain faces $24.5 billion in outstanding debt.

In late March, billionaire investor Carl Icahn tendered a fire-sale $200 million bid for the iconic Tropicana Casino and Resort in Atlantic City. A year ago, bids for the ailing property were more than four times that. The New Jersey gaming commission yanked the Tropicana's casino license in 2007; in 2008 the casino filed for Chapter 11 bankruptcy. Icahn's bid set the floor in a bankruptcy court auction.

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