New Orleans Finds Gaming Is an Urban-Revival Gamble

WHEN the River City gambling complex opened in New Orleans, developers expected cabfuls of cash-toting tourists to pour into its twin riverboat casinos. Instead, a trickle of mostly local gawkers showed up to sample the free jambalaya, pump a few slot machines, and leave.

After just 60 days, River City's owners shut down last week, laying off 1,500 employees. While other gambling boats around the country have failed, it has usually been in the face of stiff competition. River City's troubles, by contrast, come at a time when gaming in New Orleans is still in its infancy.

Is this an omen or aberration?

With cash-strapped cities such as Detroit and Pittsburgh toying with the idea of downtown casinos, New Orleans has become the nation's premier test case for gambling as a catalyst of urban revival. Next year, in the heart of New Orleans, Harrah's Jazz Company will open one of the world's largest land-based casinos. Civic leaders here are counting on it to attract more tourists and boost tax revenues.

Though some experts say the $223 million disaster at River City does not spell doom for Harrah's, it's a signal that gambling may not be the silver bullet for a sagging economy.

"We went in with doubts," says New Orleans city planner Kristina Ford. "This is an empirical experiment. Never before has the casino industry come into an established urban area."

So far, the results have been disappointing. A riverboat owned by the Hilton Hotel has struggled, another boat left the city in March, and a temporary Harrah's casino, opened in May at the New Orleans Municipal Auditorium, has reportedly generated only half the revenue it expected. While the slow business can be partly attributed to last month's disastrous flooding here, River City's demise is taken by some as a bad omen.

"Wall Street looked at New Orleans as a natural for gaming," Joe Buckley, an analyst for Bear Stearns in New York, said recently, "but so far it has yet to be proven."

Local gambling opponent C.B. Forgotson put it more bluntly: "Going to New Orleans to gamble makes about as much sense to most people as going to San Francisco to eat Cajun food."

But other analysts warn against reading too much into the failure of one riverboat. William Thompson, a professor of public administration at the University of Nevada at Las Vegas, says that nationally, gambling is booming, and in other parts of Louisiana, including suburbs of New Orleans, riverboats are doing well. "It's all a matter of marketing," he says.

For a city to be a gambling destination, Professor Thompson says, its venues have to cooperate to attract out-of-town money, as they do in Las Vegas, rather than fighting over local dollars.

River City flopped, he argues, for two reasons: first, because suburbanites will not go downtown to gamble when they can go to safer casinos nearby, and second, because riverboat gambling is not a powerful enough lure for outsiders. "Plenty of tourists are coming to New Orleans," Thompson says, "but going to gamble on a boat is not what they consider a New Orleans experience."

Frank Fahrenkoph, president of the newly formed American Gaming Association in Washington, says the success or failure of small riverboat operations is often the result of packaging and promotion.

"People want quality," he says. "They choose a casino because it's the most luxuriant."

A bankruptcy here or there, Mr. Fahrenkoph says, will not slow the tide of gaming in America. It is legal in 48 states in some form, he notes, employing at least 500,000 people nationally and pumping $1.4 billion into state and local treasuries each year. And in the last two years, gambling has become the darling of the tourism industry, with gaming centers attracting expanding number of tourists to places such as Las Vegas and Atlantic City. In polls, he says, most Americans support some form of legalized gaming.

Yet Thompson and others say that despite the growing acceptance of casinos, here and elsewhere, New Orleans has to be careful not to simply redistribute old tourists. "New Orleans needs new tourist dollars," he says, "it doesn't need old tourists skipping Mardi Gras to go to the casino."

If overdone, he says, casinos can behave like Wal-Marts, driving other entertainment outlets, like bowling alleys and movie theaters, out of business.

Bob Dowd, a spokesman for Memphis-based Harrah's, argues that the city has gone to great pains to make sure the casino is not parasitic. City-imposed restrictions, he notes, prevented Harrah's from building a hotel, and installing more than a 250-seat buffet.

River City's fate does not trouble Mr. Dowd. "We're two different animals," he says. Riverboat gambling on the fringes of town will never match a land-based casino with 200,000 square feet, 1,600 slot machines, and 200 tables. "Why would a tourist come from Chicago and go to a riverboat here when he can go to one at home?" he asks.

Indeed, most experts agree that Harrah's, a 55-year-old company, has more staying power than the relatively inexperienced developers who put River City together. Harrah's runs 15 casinos nationwide.

While she says it's far too early to tell if the experiment is working, Ms. Ford, the city planner, says the casino industry has brought jobs to the city, renovated some buildings, and eased the pressure on city officials, who have been scrambling to bring new industries here since the city's brief oil boom went bust in the 1980s.

But gambling, she says, is not without risks. "Some city planners seem to think that this is an industry with no downside," she says.

"They don't realize that when a casino opens," she adds, "it stands to make so much money that the city itself can become just a bump in the road."

If poor people gamble as often as more affluent people, Ford says, gambling acts as a "horribly regressive tax on the poor, especially if lawmakers use the extra revenue to cut taxes." Then there are the costs of treating compulsive gamblers.

City leaders here, she says, believe that allowing one large casino in is a foresighted decision. "In the next 10 years, all the major cities will have gambling," she says. "The trick will be how to keep it from overrunning the town."