The Biscayne Times

May 30th
The Casino Effect PDF Print E-mail
Written by Erik Bojnansky - BT Senior Writer   
February 2012

According to professor John Kindt, it is destructive -- always and without exception

Casinos_1According to John Warren Kindt, a professor of business and legal policy at the University of Illinois, the City of Miami will experience a burst of economic activity if the Genting Group, a Malaysian-based corporation, wins the right to build Resorts World Miami, a $3.8 billion casino complex where the Miami Herald building and Omni Mall now stand.

“Generally there is a bump lasting about two to three years,” says Kindt, who has studied casinos for two decades. “There are new construction jobs and a lot of activity as money is coming in.”

But Kindt warns that the bump won’t last: “Once the project is completed, and slot machines come in, [the casino] takes everything.”

After that Miami will lose jobs as businesses within a 35-mile radius of casinos like Resorts World Miami see their profits shrink, says Kindt, thanks to local residents gambling away their wages, mainly at slot machines.

Crimes committed by gambling addicts will increase nine percent every year while sales-tax revenues decline. Casinos will hire vast armies of lobbyists and contribute generously to the campaigns of pro-casino politicians, enabling them to lower taxes charged on their slot machines and to rewrite legislation to fulfill their needs. Casinos, Kindt contends, may even get local government to seize private property through eminent domain, just as they have in Atlantic City and Las Vegas, in order to expand their operations.

“You are going to find that they [casino owners] will have the power,” says Kindt. “They change things to their benefit. Initially there will be all these restrictions, but they will drop away. In most states [with casinos], it takes a couple of years.”

Kindt issued such dire warnings to a Miami audience this past December, during a forum on casino resorts. The gathering was hosted by the Beacon Council, a nonprofit organization dedicated to the economic development of Miami-Dade County.

Casinos_2A faculty member of the University of Illinois’s School of Business since 1978, Kindt has written numerous papers on antitrust, tax, commercial, environmental, and international law. However, his main expertise is the economics of gambling -- from Internet poker games to lavish casinos.

He became a critic of casinos in 1992, after the gambling industry invited him and other economists to analyze their proposal for a casino in downtown Chicago. The plan, which was supposed to create thousands of new jobs and a lucrative tax source, seemed wonderful at first, Kindt remembers. But upon closer examination by the economists, the casino industry’s assertions were revealed to be wrong. “Within ten days,” says Kindt, “all my economic colleagues determined that this was a con game.”

“Certainly Kindt is a wealth of knowledge on this issue,” says Brad Swanson, vice president of corporate and strategic policies for the Florida Chamber of Commerce, an organization that has opposed casino gambling for the past 20 years. Swanson fears Miami could become another Atlantic City, where some 40 percent of independently owned restaurants closed down during the first decade of gambling in that city.

Frank Nero, president and CEO of the Beacon Council, is familiar with Atlantic City’s 1978 foray into gambling. He was New Jersey’s regional representative to the U.S. Department of Labor when casinos were being proposed.

As a candidate for the U.S. House of Representatives, Nero backed the proposal, but eventually saw that the gambling industry’s promises of prosperity fell short. The experience has given him an appreciation for some of Kindt’s findings: “A lot of what he says is valid. I think some of the same kind of promises that I saw at Atlantic City are being replicated here.” (The Beacon Council is officially neutral on casinos.)

Casinos_3Nero and Swanson are worried about a pair of bills sponsored by state Sen. Ellyn Bogdanoff (R-Fort Lauderdale) and state Rep. Erik Fresen (R-Miami) that would allow three “destination resorts” in Florida counties where such complexes are approved by voters. The bills would also lower the taxes charged to existing and new operators of slot machines from 35 percent to 10 percent, legalize 24-hour gambling, and remove existing prohibitions on serving complimentary alcohol to casino patrons. Bogdanoff’s bill also enables more pari-mutuels to obtain slot machines and other Las Vegas-style games such as blackjack or roulette.

If resort casinos are allowed to open their doors in Florida, Kindt predicts they will make local economies worse. “And not just worse, enormously worse,” he warns. “This is all about taking money out of Florida -- and not even back to Nevada, like most casinos, but to Malaysia.”

Christian Goode counters that the Genting Group is not like American casino companies. Goode, who is president of Resorts World Miami, claims that Genting, which operates “destination resort” casinos in Singapore, Malaysia, the Philippines, England, and New York City, aims to attract wealthy tourists, not poor locals. “Resorts World Miami’s revenue model is built on attracting new-to-market tourists from around the world to Miami,” Goode says. “All told, we expect approximately 70 percent of our guests to be from outside the local market.”

Indeed, if Resorts World Miami is anything like the Resorts World Sentosa in Singapore, the casino will be only part of the operation. That complex includes five resort hotels, a luxury condo, a Universal Studios theme park, the Maritime Experimental Museum and Aquarium, a marine-life park, more than 60 bars and clubs, 45 stores, and beachfront villas.

Current plans for Resorts World Miami include four luxury hotels with 5200 rooms, two condo towers with 1000 units, an expansive rooftop lagoon, a sandy beach, more than 50 restaurants and clubs, 700,000 square feet of convention meeting space, and a multimedia center.

So far Genting has invested more than $400 million buying up 30 acres of property along the Biscayne Corridor, according to the New York Times . That figure includes the $236 million Genting spent last year for 14 acres of waterfront land, including the Miami Herald’s building.

Genting also paid $206 million to gain control of the 900,000-square-foot Omni Mall, a 2300-space parking garage, and the adjoining 525-room Hilton hotel.

Aside from the land purchases, Genting has given $10,000 each to political action committees aligned with Miami-Dade Mayor Carlos Gimenez and Miami-Dade Commission Chairman Joe Martinez, the Miami Herald reported. Genting also funneled $628,320 to the state Republican and Democratic parties and hired at least two dozen lobbying firms, the New York Times reported.

Goode assures that a “world-class destination-resort experience with a gaming amenity” will attract between two and three million people to Miami each year. “We chose to invest in Miami because of what’s already here,” Goode says. “Our ‘export business model’ thrives because the resort is integrated within a city that already has strong tourist appeal and a diverse business base. That will bring new tourists here -- and bring them back.” Goode, who previously worked at Genting’s New York City operation, promises that “destination resorts” based on Genting’s model will create up to 100,000 new jobs.

Kindt argues that most of the jobs available to local residents will pay less than $30,000 per year. He also scoffs at the notion that Genting’s casino will attract large numbers of gamblers from abroad, particularly Asia: “Who in the world is going to fly from Malaysia to Miami when they have all those gambling operations in Hong Kong and Macau?”

More likely, Kindt says, is that Resorts World Miami will seek to keep as many tourism dollars as it can for itself. Since the resort’s amenities and attractions will be subsidized by gambling revenue, restaurants and hotels outside of Resorts World Miami will find it difficult to compete. “They [destination resorts] will offer free meals and free hotel rooms,” Kindt says. “The existing hotels can’t compete with free.”

Kindt also says that casino games such as poker, blackjack, and roulette are merely “window dressing” designed to draw in players. Slot machines, which include video poker and other electronic gambling machines, are at the heart of all casinos. “Every slot machine brings in a minimum of $100,000 a year,” he asserts. “Slot machines don’t create jobs -- you just dust them off. And that’s 90 percent of the money.” According to Kindt, most of that slot-machine money comes from middle-class and poor individuals living near casinos.

Each slot machine costs the surrounding community one job per year, Kindt says. In a 2003 article for the Ohio Law Review, he reported that within a newly established casino’s “feeder market,” business and personal bankruptcies increase between 18 and 42 percent, while “impulse” business transactions in the area decline by 65 percent.

“When billions of dollars are going into slot machines, where are those billions of dollars coming from?” Kindt asks. “They are no longer buying cars, refrigerators, or even food and clothing.”

South Florida is already feeling the effects of casinos and slot machines, which were approved by Broward voters in 2005 and Miami-Dade voters in 2008. Calls to the Florida Council on Compulsive Gambling have increased 57 percent over the past five years, according to an October 2011 report from the nonprofit organization.

Thirty-five percent of callers admitted to committing crimes in order to finance their gambling. Individuals who were unemployed and/or receiving public assistance made up 25 percent of the callers, a hike of 12 percent from five years ago. Potentially suicidal callers increased from 11 to 16 percent in one year. The largest chunk of callers, 46 percent, named slot machines as their primary gambling vice.

“Slot machines are known as the crack cocaine of new gamblers,” Kindt says. “When you bring in [thousands of slots] in a big place like Miami, you are going to hook tens of thousands of people, many of whom have never gambled before.”

Kindt doesn’t think slot machines are fair, either. “There needs to be a hearing under oath, investigating how the slot machines work, what the odds are, how they are regulated, if people are treated fairly or not, and if the machines can be tampered with,” Kindt says. “You need to have hearings where they actually haul in these machines and show how they work. Nobody has ever had these hearings.”

So how many slot machines will Resorts World Miami have? Goode declines to say: “We are still very early in the design stage, so it would be premature to project a count.”

This past October, Sergio Bakas, senior vice president of Arquitectonica, the Miami architecture firm tasked with designing Resorts World Miami, told the Miami Herald that the Genting resort would be among the largest casinos in the world, with 800,000 square feet of gaming and at least 8500 slot machines. Floor plans published recently by the local blog Crespo-Gram Report depicted 344,645 square feet of gaming on the first three floors of the old Omni mall alone, which could be open for business late this year if a gaming license is obtained.

Arquitectonica later said Bakas had misspoken, and that casino will have between 5000 and 6000 slot machines. Goode adds that the total gaming area for Resorts World Miami will be less than 300,000 square feet.

Even with 5000 slot machines, Resorts World Miami will dwarf the local competition. Two pari-mutuels operating in Miami, Magic City Casino and the recently reopened Casino Miami Jai-Alai, have a combined 1850 slot machines. Gulfstream Park in Hallandale has 850 slots. Calder Casino and Race Course in Miami Gardens has 1200. In west Miami-Dade, the Miccosukee casino also has 1200, while in Hollywood, the Seminole Hard Rock Hotel & Casino has 1500.

Resorts World Miami is not the only entity wanting to build a destination resort in Miami-Dade. Las Vegas Sands, a company headed by Newt Gingrich presidential campaign financier Sheldon Adelson, is interested in developing a destination resort on nine blocks of Park West land assembled by Miami Worldcenter investors. Steve Wynn, former CEO of Mirage Resorts, hopes for a casino in Miami Beach. In Miami Gardens, Dolphins owner Stephen Ross also wants to build a casino on land surrounding Dolphins Stadium.

“The scope of what Genting is proposing, and what would be allowed under the legislation, is an order of magnitude that is far greater than anything that exists here or anywhere else in America,” writes John Sowinski, an Orlando political consultant who heads, in an e-mail to the BT. “Comparing slots at a dog track, or even limited tribal gambling, to what is being proposed is like comparing a 7-Eleven the Mall of the Americas. Literally.”

In spite of the tax breaks and gambling opportunities the new bills offer to existing casinos and racetracks, the pari-mutuels and tribes have joined with churches, theme parks, restaurants, and hotels in an effort to defeat the legislation. That’s because the new resorts will cannibalize existing casinos, Kindt explains: “When a new casino comes up with flash, the other casinos tend to have liquidity problems.”

So why is Singapore still a prosperous city-state with two mega-casinos located within its borders? Because only foreigners can patronize casinos for free. Citizens and permanent residents must pay a $70 entrance fee or a $1400 annual pass to enter a casino. The hefty admission price, which is collected by the government, “discourages impulse gambling,” a Singapore official told Time magazine two years ago. To fill the casinos, promoters ferry in high-stakes gamblers, known as “whales,” from neighboring countries.

In Florida’s case, Kindt believes the tax rates charged on slot machines should be increased to at least 50 percent to help pay for the social costs he asserts will come with compulsive gambling. Moreover, he argues that the state should receive 100 percent of the slots’ revenues, as in Canada, where casino operators only collect a management fee.

The license fees contemplated for casinos are also too low, Kindt says. Under the pending legislation, a casino company wishing to build a destination resort would pay a $1 million, nonrefundable application fee, a $125 million one-time license fee (which is refundable entirely or in part if the application is rejected), and a $5 million annual fee thereafter.

License fees for pari-mutuels will be lowered from $3 million per year to $2 million.

Kindt, however, maintains that the license for a casino with more than 500 slot machines is worth at least $500 million in the open market. “If a casino has 500 slot machines, they will make a pure profit of at least a half-billion dollars in one year,” Kindt claims. “In the case of a casino in Miami, they will make a billion dollars in half a year.”

The best thing Florida could do, Kindt asserts, would be to not only scrap the destination resort bills, but also remove slots and legalized gambling entirely. When Russia closed down thousands of casinos in 2009, that nation’s economy improved, says Kindt. “Crime, bankruptcy, and gambling addiction were on the rise,” he notes. “That’s why Russia shut down the casinos. And most important, they [casinos] were killing their economy.”

If the United States were to ban casinos, Kindt believes $300 billion a year would be infused into the nation’s troubled economy.

But eliminating gambling after it has taken root is nearly impossible, Kindt concedes. “Once the gambling interests are in,” he says, “it’s like an economic cancer on the body politic. You can’t get them out. They will want to move in whatever they can, as fast as they can get in. Then, once they have their foot in the door, they will continue to push for more and more and more. You have to slam the door shut and, if you’re smart about it, cut their foot off while you’re at it.”

With or without gambling, the Genting Group is still interested in turning its new Miami property into a resort, says Goode, the company’s Miami executive. But with a gaming component, development could be achieved at a much faster pace.

“The timeline for development is significantly accelerated should a destination resort bill pass,” Goode says. “A 20-year project delivered in stages, in line with market demand, could be fully realized in three to five years if we are licensed as a destination-resort operator. That means the necessary construction and permanent jobs for Floridians can be created almost immediately.”


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