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Editorial: Gambling is no certain bet for New York's economy

The expansion of gambling in New York makes

The expansion of gambling in New York makes sense. But in just one year we are seeing how very hard it is to control gambling expansion and direct it to achieve larger economic goals. Credit: iStock

Gambling, lauded as a cure for economic ills, can be an imprecise tool for creating the revenue and development politicians promise.

In the 1970s the casinos of Atlantic City were touted to bring back prosperity and growth. The development, beyond casinos, never came. The city's core hollowed out more each year. And the gambling also did not maintain its profitability in the face of increased regional competition. Since 2007, half of Atlantic City's casinos have filed for bankruptcy. Friday, The Showboat announced it would close on Aug. 31. The Atlantic Club shuttered six months ago and Revel, opened just two years ago, announced this month it will close Aug. 18 if it cannot find a buyer.

In New York, two gambling expansions were approved in a statewide referendum last year to address specific local needs. Now it's becoming clear how the promise of gambling can derail.

Nassau and Suffolk were each awarded 1,000 video lottery terminals, to be operated by each county's OTB. The slots were intended to soften the blow of excluding Long Island from getting full casinos under this phase of the new laws. It also created needed revenue for the OTBs: Suffolk OTB is in bankruptcy and Nassau OTB revenues have been declining for years.

The take from the machines is divided insanely: 45 percent to the state for education, 5 percent to horse interests and 10 percent to the state's lottery. The county OTBs get to keep 10 percent for marketing and 30 percent for operations -- what's left of that 30 percent after expenses goes to the county. Based on profits elsewhere, it's not unreasonable to expect a take of $160 million in each county to be divvied up, and that's where the numbers get nutty. It doesn't take $16 million per year in each county to promote 1,000 slot machines, and it shouldn't take $48 million annually to run each slot parlor. So how much will there be for the counties after the OTBs pay their "bills"? OTBs are patronage pits that generate jobs and contracts for loyalists, and plans for these parlors suggest that may only get worse.

Suffolk OTB plans to borrow $95 million to pay the $21 million it owes, spend $10 million on land and $60 million to build a facility, and have a few million dollars for operations until the VLTs start paying. But is it necessary to buy the land? Isn't $60 million a bit steep for a slot barn? Do you want to make a bet that building a big, fancy facility is a way to create jobs and service contracts for political allies and contributors?

Nassau OTB hasn't given out as many financial specifics (it hasn't had to, it is not in bankruptcy) but also plans to buy land and build, rather than lease. And both organizations say they are making grander palaces in the hope that Albany will award them even more machines.

Keep in mind that every unnecessary penny spent on these facilities, workers or services will be money taken from taxpayers.

Upstate, there are also worries. Gov. Andrew M. Cuomo pushed to create up to four casinos in the Catskills, the Albany area and the Southern Tier. The idea is to use gambling to focus development, particularly in the once-beloved Catskills. With license applications and plans due Monday, a variety of visions have been put forward, from an incongruous Dutch Colonial style facility near Albany to honor our founding settlers, and perhaps their successful wager that land would be a better investment than beads, to revamps of Catskills greats like The Nevele and Grossinger's.

Not surprisingly, the bigger plays are for gambling revenue nearer New York City, in Orange County. Industry heavyweights are willing to spend a mint to build casinos within an hour of the city, which would generate a fortune in profit and revenue, but keep an awful lot of people from going all the way to the Catskills.

The expansion of gambling in New York makes sense. Residents enjoy wagering, and they are spending too much of their money just across our borders. But in just one year we are seeing how very hard it is to control gambling expansion and direct it to achieve larger economic goals. Great care must be taken if this bet is going to pay off.