Tourism Industry and Gambling
I. IDENTIFICATION
1. The Issue
The tourism industry has become an increasingly important aspect of the New Jersey state economy, contributing over $30 billion annually in visitor expenditures, as well as $2.6 billion for the state government and $1.2 billion for the federal government (New Jersey Chamber of Commerce 1997). New Jersey ranks 7th in the United States in tourism receipts, which is anchored by Atlantic City, the state’s top destination revenues, which has gained prominence through legalized gambling. Thus, legalized gambling has become one of the most important industries in New Jersey, despite controversy regarding morality and negative social aspects. Atlantic City is responsible for the majority of tourist expenditures, which primarily come from lodging, food and shopping that all directly benefit from the visitors generated by the casinos.
Now, as gaming becomes a more accepted form of entertainment and its legalization expands to other states, New Jersey will have to find ways to enhance its tourism industry to avoid the pitfalls that can come to countless programs that will be affected if the casino industry falters. Additionally, the current policy regarding gaming promotes tourists staying within the confines of the casinos, preventing leakage to other parts of the economy, and should therefore be modified to promote growth in other aspects of the Atlantic City tourism industry. Finally, the prospect of a smoking ban currently faces New Jersey jurisdiction that would include Atlantic City casinos, which could have an extremely damaging effect on their overall business. As these threats are looming, the proper policy decisions can help the city deal with change by using casino gaming’s benefits to promote the variety of attractions that are found in the state, thereby minimizing the vulnerability of relying on one industry.
2. Description
In the early 1900’s, Atlantic City was a very important tourist destination for New Jersey. Hailed as the “World’s Playground,” its boardwalk made it one of the top destinations in the country. However, by the 1930’s, travel trends such as commercial aviation, competing resorts, development of interstate highways, along with a crumbling infrastructure and decaying hotels led Atlantic City into a depression. As more people began traveling to new destinations such as Florida, Nevada and the Caribbean, fewer people found Atlantic City to be an attractive destination. Soon, an organized group of local businesses lobbied for legalized gambling, which was granted in 1976. The Casino Control Act of 1976 was used as a means to revitalize the Atlantic City area, and use the excess revenues to benefit programs for the disabled and the elderly. The legislation has created billions of dollars in revenue and has provided thousands of jobs in the Atlantic City region (Sacks 2004).
Currently, Atlantic City contributes 44% of the entire state’s overall tourism revenue, which includes 61% of the New Jersey’s accommodation revenue and 46% of food expenditures (Sacks 2004). In Atlantic County, tourism makes up 72.9% of the local economy. Clearly, the gaming industry has had a profound influence on the tourism industry in New Jersey, but in order to continue to have an impact, it must react to the changing industry. Now, as more states are allowing forms of legalized gaming across the United States, a major threat is posed to the Atlantic City. Midwestern tourists are less likely to travel to New Jersey to gamble as more Indian reservations are opening casinos, and a smoking ban has the potential to decrease local tourist revenues. Atlantic City’s tourism growth rate has been declining since the early 1990’s and as of 2003 (Gu 2001), New Jersey was facing a $5 billion dollar budget deficit. However, because tourism is such a large industry with a great potential for growth, it is positioned in such a way that the right decisions and policy actions could help make the state profitable.
With one of the lowest budgets for tourism in the United States, focused primarily on neighboring states Philadelphia, New York and Connecticut, New Jersey has the ability to expand its tourism industry by increasing its budget to market its destinations and activities that will attract more tourists, perhaps even European travelers, which have not been a market for New Jersey in the past but are interested in activities such as sightseeing, shopping, dining, historical sites and amusement parks (New Jersey Chamber of Commerce 1997).
3. Related Cases
4. Author and Date
Alex Hirsch
George Washington University
Masters of Tourism AdministrationII Legal Clusters
5. Discourse
While New Jersey boasts the 7th highest total expenditures for tourism in the United States, its budget ranks 33rd. The industry relies heavily on Atlantic City to supply a steady flow of visitors to spend money on hotels, food and gaming, primarily from neighboring states such as New York, Connecticut, Pennsylvania, Maryland and Virginia (New Jersey Chamber of Commerce 1997). Atlantic City is credited for fueling New Jersey’s tourism growth, attracting millions of visitors a year, creating thousands of jobs, and funding programs that benefit New Jersey citizens and improve public facilities.
As New Jersey’s budget for tourism has decreased, every competitor state has significantly increased their tourism budget, the most notable being Connecticut, which has been a direct gaming competitor since the opening of Indian casinos such Foxwoods and Mohegan Sun.
New Jersey’s tourism budget is created from a general fund, which is also used by competitor states Delaware, Maryland, New York, Pennsylvania and Virginia. This general fund serves a variety of programs in the state, with tourism promotion receiving a small amount of financing from the overall fund. In Connecticut, an Auto Rental Surcharge assists in tourism promotion funding, and Massachusetts uses a hotel tax. For New Jersey, the greatest potential for growth in funding would be to divert more dollars towards the state’s Convention and Visitor Bureaus (CVBs). While New Jersey’s CVB funding is below $10 million, gaming competitor state Nevada has a CVB budget of $102.9 million (Casino Control Commission 1998) , more than ten times the amount that New Jersey uses for marketing.
6. Forum and Scope
The Casino Control Act of 1976 was the initial legislation that legalized gambling in casinos in New Jersey as a means to rehabilitate the Atlantic City region, which had once been a popular tourist destination, but experienced decades of depression. In order to get a casino license, the applicants must meet the following qualifications: good character, honesty and integrity; business ability; and financial stability and responsibility. This is to ensure that all businesses in the casino industry are run fairly and legitimately. Licenses are then issued for three successive one-year terms, and the minimum fee is $200,000, and a renewal fee is $100,000 for one-year term and $200,000 for longer terms (Casino Control Commission 1998). Furthermore, casinos were only allowed to exist in hotels with 500 rooms or more and these hotels were required to have restaurants located on property.
The gambling policy has to be adhered to with strict standards of business, personal and public integrity, and so the Casino Control Commission was formed to serve both regulatory and quasi-judicial functions (Casino Control Commission 1998). The Casino Control Commission has the ability to issue, deny and revoke, suspend or limit required gaming licenses, and to decide on all complaints for violations of the Casino Control Act.
7. Stakeholders
There are many stakeholders associated with the gaming industry in Atlantic City, which include Local and State governments, casino owners and operators, tourists, Atlantic City residents, and individuals who directly benefit from programs provided by gaming taxes and contributions.
8. Suggested Policy Intervention
New Jersey should start to invest in its Convention and Visitor Bureaus in order to enhance its promotion. The state’s budget is lower than all of its competitor states, but there is tremendous potential for growth in the Atlantic City Convention and Visitors Authority (ACCVA). Other states, such as Nevada, use measures such as hotel taxes to fund their CVBs. An increased emphasis on CVB funding would help to promote not only Atlantic City gaming, but all attractions, including natural, historical and cultural, in the Atlantic City region.
9. Geographic Locations
a. geographic domain: United States of America
b. geographic site: New Jersey
c. geographic impact: Greater Atlantic County region
III. Policy Impacts
10. Social
The existence of casino gaming has had many positive social benefits to citizens of New Jersey, including programs that aid senior citizens and the disabled in New Jersey, as well as programs that improve public land and promote infrastructure development. Because of significant contributions from the casino industry, the Pharmaceutical Assistance to the Aged and Disabled Program allows all income eligible participants to purchase their medical prescriptions for a $5 payment, regardless of the actual cost of the prescription. This program is available in the entire state of New Jersey, and benefits over 200,000 citizens (Casino Control Commission 1998).
In 1984, the Casino Reinvestment Development Authority was formed as a means to use the revenues from Atlantic City gaming to benefit urban redevelopment projects in Atlantic City as well as other urban New Jersey areas. Each casino has the option to contribute 1.25% of its gross revenue for CRDA approved development projects, or to pay 2.5% of its gross revenue to the casino revenue fund. Since its inception, the CRDA has committed $717 million towards Atlantic City projects, and an additional $69 million towards state projects (Casino Control Commission). Such redevelopment initiatives have included street widening, beautification, park improvements, hotel expansions, housing construction and restoration, non-profit organization facility improvements, and historic restoration projects.
Additionally, one of the major social concerns surrounding casino gambling has been the introduction of increased crime rates and compulsive gambling. However, the crime rates in Atlantic City have actually decreased since the legalization of gambling, due to the strict measures that have been taken to eliminate the intervention of organized crime with the gaming institutions. White collar crime such as embezzlement, fraud and forgery have also declined since gambling has been introduced, eliminating any notion that casino gambling increases crime in its host city (Albanese 1999).
11. Environmental
So far there have not been any studies that have examined the environmental impacts of Atlantic City’s tourism economy on the shore region, but it would be valuable to examine this issue. Because many of these casinos are located so close to the Atlantic Ocean, there can be significant impacts on the ecosystem as well as pollution that may be a cause for concern for environmental agencies.
12. Economic
Atlantic City gaming has had a significant impact on the Atlantic City region as well as the entire state of New Jersey. Tourism in Atlantic City employed 70,000 people in 2003, and created over $13 billion in revenues (Sacks 2004). Furthermore, almost $3 billion in state and local government revenue, and $1.7 billion in tax revenue were earned in 2003.
However, many casinos are seeing the popularity of the industry falter, as revenues diminish. Donald Trump, owner of 3 major casinos in Atlantic City including the Taj Mahal, Trump Plaza and Trump Marina, declared bankruptcy in 2004 after his casinos had failed to turn a profit for seven consecutive years, losing $87 million in 2003.
Additionally, the amount of money contributed towards senior citizen programs from the Casino Revenue Fund have decreased from 2004 to the projected 2005 income, from $573,460,000 to $504,897,000; and in 2006 the projected income is $487,200,000 (Codey 2005).
13. Suggested Interventions
With the threats facing the Atlantic City, governmental and industry stakeholders can look for new markets, such as international tourists, and find ways to market towards them that can show an increase in total visitors and revenues. Europe is currently seeing a high growth in interest in gambling, but European casinos do not contribute significant funds towards marketing and promotion (Gu 2001). To attract these players, Atlantic City casinos market in Europe with an emphasis on the non-gaming features such as shopping, sightseeing and historical sights that would further entice them to visit New Jersey.
IV Trade Clusters
14. Type of Measure
he annual impacts of the tourism industry are kept by New Jersey’s Tourism Satellite Account, which breaks down tourism revenues by region, and organizes the expenditures by industry, which include accommodations, shopping, food, entertainment and transportation. Atlantic City’s accommodations data includes casino revenues, which help explain why it contributes to 61% of New Jersey State’s accommodations revenues.
15. Relation of Trade Measures to Tourism Impact
a. Directly Related to Product: Gaming provides a significant portion of New Jersey’s overall tourism revenues, making it an important part of New Jersey’s economy. With billions of dollars in tax revenues that benefit an array of programs for all areas in the state, gambling is one of the primary reasons why New Jersey is a leader in tourism revenues.
b. Indirectly Related to Product: While the transportation sector in Atlantic City is not very strong, the food and shopping sectors contribute a significant portion of New Jersey’s overall expenditures for them.
16. Trade Product Identification
Tourism Industry
17. Economic Data
From 1991 to 1995, Atlantic City gaming was growing at a rate or 5.8%, which slowed to 2.3% from 1995 to 2000 (Gu 2001). This trend highlights the primary threat that is facing Atlantic City, which is that tourists are showing less interest in gaming and are finding other activities to engage in. While there is still growth in the industry, the fact that it has been steadily decreasing highlights the idea that Atlantic City is susceptible to other forms of tourism detracting interest in gambling. Along with the declared bankruptcies of several casinos, this is a warning sign that policies need to change in order to continue to have a successful tourism industry in New Jersey.
18. Impact of Trade Restriction
A possible smoking ban can have a serious impact on Atlantic City’s tourism industry. If casinos were to completely ban smoking, a significant decrease in revenues can be expected. In Delaware, a smoking ban at racetracks (where slot machines were located) cause a decrease of 11% of revenues. Casino industry officials estimate that a similar smoking ban in Atlantic City could cost up to 15% of revenues and lost 5,000 jobs (Curran 2005). Even if Atlantic City sees a fraction of that percentage is evident, millions of dollars will be lost for the state of New Jersey. A diminished interest in casinos will permeate to other sectors such as lodging, transportation and food, causing a snowball effect of revenue loss.
19. Industry Sector
Primary: Gaming
Secondary: lodging, transportation, food, entertainmentV Tourism Policy Clusters
20. Environmental Problem Type
n/a
21. Resource Impact Effect
n/a
22. Urgency and Lifetime
While the tourism industry is not going to disappear for New Jersey at any point in the foreseeable future, the fact that the state’s budget is in a large deficit promotes rapid decision making with immediate results.
23. Substitutes
Substitutes for Atlantic City gaming include Las Vegas, Indian reservation casinos such as Foxwoods, Mohegan Sun and Oneida in the northeast, as well as locations with slot machines such as Delaware.
VI Other Features24. Culture
There are many cultural elements in the gaming demographic. One important factor to note is that as gaming drives the tourism industry in Atlantic City, only the accommodations and food sectors, which are directly related to gaming, benefit significantly from its existence. However, the Atlantic City region boasts a variety of tourism activities such as beaches, golf courses, the Renault Winery, the Edwin B. Forsythe National Wildlife Refuge, and the Sea-Life Museum, which are often neglected by the gaming tourists. If New Jersey decides to promote this variety of activities in its tourism plan, then a new type of tourist will be attracted to the region. “Heavy spenders” (tourists that have the highest amount of gaming expenditures), make up only 1/3 of the tourist distribution in gaming studies, but they contribute over 90% of overall revenues (Moufakkir 2004). Furthermore, in a study conducted in two separate commercial casinos, “over three-quarters of the heavy spenders participated in recreational activities other than gaming at any point in their trip” (Moufakkir 2004), which indicates that the important type of tourist is not only interested in gaming but other recreational activities as well. Therefore, it is imperative for Atlantic City to focus on its variety of activities rather than just gaming in order to attract the visitors that will contribute the most to their economy.
25. Trans-Boundary
As mentioned earlier, European tourists show one of the strongest opportunities for Atlantic City to concentrate its marketing to enhance various aspects of the tourism industry. Already showing increased interest in gaming, European tourists can bring significant revenues to other areas such as historical sights, parks, retail sectors and restaurants if they see Atlantic City (and New Jersey) as a desirable tourist destination.
26. Rights
No human rights issuesVII Conclusion
27. Policy Implications
Casino gambling is unquestionably a very important part of New Jersey’s tourism plan. It contributes 44% of the state’s overall tourism revenue, which is helped by the accommodation and food revenues that are associated with gaming. As it is, the success of New Jersey’s tourism plan is largely dependant on the success of the Atlantic City region. However, as gaming becomes a more acceptable form of entertainment across the country, Atlantic City’s importance as a gaming destination will be hurt, along with the programs that directly benefit from gaming. As indicated by its slow growth, the gaming industry is already facing the challenges posed by more competitors entering the industry. Furthermore, a smoking ban can harm the market for gaming tourists, and therefore the state will need to emphasize other forms of attractions throughout the state to keep the industry strong.
As New Jersey faces threats of trends such as reduced air fare, development of new destination attractions, state governments playing more of a role in tourism, and more sophisticated tourists, the state must react with policy changes that better position Atlantic City to be competitive with other destinations. The state’s largest weaknesses are the small budget allotted for promotion and the markets that are not being reached such as international tourists.
28. Recommendations
New Jersey’s initiatives should emphasize greater marketing efforts to enhance other areas of New Jersey’s tourism industry, but these efforts do not need to come at the expense of the gaming industry. Because New Jersey’s only CVB, the Atlantic City Convention and Visitors Authority receives very little funding to promote the array of activities in the region, the state should find new ways to finance the ACCVA, possibly using a hotel tax or other form of tourist tax that can generate funds for the sole purpose of promoting other activities. Studies have shown that those tourists that spend the most money on gaming often participate in other activities, and so promoting these activities is a means to attract them to Atlantic City.
Another way that increasing marketing expenditures can benefit New Jersey is by focusing on European tourists, New Jersey can reach a market that is largely untapped by the state, and has been showing signs of growth overseas. With so many international tourists traveling to New York each year, successful marketing endeavors can bring these tourists, who generally spend more than domestic tourists, to areas of New Jersey that do not see international travelers.
In summary, there are many pitfalls that come from relying too heavily on one industry. Atlantic City has already experienced a depression when traveling trends diminished interest in the city as a tourist destination in the early 1900’s. Because gaming was the sole initiative taken to revive the city, it has become a pillar of the local economy, and has grown influential to the entire state of New Jersey. By utilizing the revenues received from gaming’s success to emphasize other areas of tourism, every aspect of Atlantic City’s tourism can be stabilized, creating a sustainable tourism industry benefiting all of the stakeholders involved.
References
Albanese, Jay. “Casino Gambling and White Collar Crime: An Examination of Empirical Evidence.” American Gaming Association. August,1999.
Cody, Richard. Fiscal Year 2006 Budget of Richard Codey, Acting Governor of New Jersey. March 1, 2005. http://www.state.nj.us/treasury/omb
Curran, John. “N.J., Colorado Mull Smoking Bans at Casinos.” USA Today. March 21, 2005.
Gu, Zheng; “Diversify Into European Markets to Enhance Revenue: A Strategy Proposed for the Las Vegas Strip and Atlantic City.” UNLV Gaming Research & Review Journal. Volume 6, Issue 2. 2001. pp. 43-52.
McGreevey, James. “Governor’s Council on Tourism, April 10, 2003.” Public Speech.
Moufakkir, Omar; Singh, A.J.; Moufakkir-van der Woud, Afke; Holecek, Donald F. (2004). “Impact of Light, Medium and Heavy Spenders on Casino Destinations: Segmenting Gaming Visitors Based on Amount of Non-gaming Expenditures,” UNLV Gaming Research & Review Journal. Volume 8, Issue 1. pp. 59-71.
New Jersey Casino Control Commission. Casino Gambling In New Jersey: A Report to the National Gambling Impact Study Commission. January 1998.
New Jersey Chamber Of Commerce. New Jersey Tourism Master Plan. August 1997. http://www.state.nj.us/commerce/pdf/MasterPlan.pdf
Sacks, Adam. The New Jersey Tourism Satellite Account: A Comprehensive Understanding of the Economic Contribution of Travel and Tourism in the State of New Jersey. June 2004. Copyright Global Insight, Inc.
Schwartz, Dave. “Jurisdiction Summary: Atlantic City.” Subject Guides For Gaming Research. © 2001-2003 University of Nevada Las Vegas.