The shock withdrawal of MGM Resorts’ New York casino licensing bid highlights the challenges faced by jurisdictions globally in setting appropriate levels of tax and investment expectations.
MGM, which with only four bidders remaining was considered a hot favorite to win approval from the New York State Gaming Commission to expand its Empire City casino in Yonkers, stated in its withdrawal announcement that the “newly defined competitive landscape – with four proposals clustered in a small geographic area – challenges the returns we initially anticipated from this project.” It also cited a shorter 15-year license term than the 30 years many had originally anticipated.
The mention of “returns” is critical because, aside from the proximity of the four bidding projects, already an issue prior to MGM’s withdrawal, New York’s stated requirement of a minimum US$500 million license fee and taxes of at least 25% on slots and 10% on other gaming is among the highest barriers to entry of anywhere in the United States. Recall this is also the state that charges a massive 51% tax rate on sports betting.
The lure of charging steep taxes is understandably difficult to resist as a means of generating outsized revenue from an industry that makes for an easy scapegoat. But without balancing state revenue benefits with operators’ need for reasonable returns on their often significant investments, there is a very real risk of killing the golden goose. It also provides the unintended consequence of inviting in black market operators who can offer a more attractive product through pricing or unique offerings.
In Australia, a raft of new and costly regulations governing casino operations – mainly geared towards ensuring AML and responsible gambling compliance – has resulted in minimum bets across main gaming floors rising to levels that many would consider to be beyond the means of the casual players who once frequented those tables on a Friday or Saturday night.
Similar tax increases, along with a controversial ban on live in-play betting which impacts Australia’s sportsbook operators, has anecdotally, at least, driven more and more players to illegal offshore sites.
Perhaps the starkest example of unrealistic expectations leading to an opportunity squandered is Japan.
When the Diet passed the Integrated Resort Promotion Law in 2018, which included a provision to issue up to three licenses nationwide, every large casino operator around the world – and a raft of smaller ones too – lined up to take their shot at what was considered a once in a lifetime opportunity. And yet, by the time all was said and done, only one operator – coincidentally MGM – was left standing.
One of the first to pull out of Japan was Las Vegas Sands, whose founder explained, “While my positive feelings for Japan are undiminished, and I believe the country would benefit from the business and leisure tourism generated by an integrated resort, the framework around the development of an IR has made our goals there unreachable.”
Many told IAG that Japan ultimately became unworkable – in many locations at least – because authorities demanded more and more without offering anything back in return. In the end, what had looked to be a game-changer for Japan’s high-end tourism now feels more like a lost opportunity.
As the old saying goes, be careful what you wish for.
