Casino gambling is going to make for a good book one day. I’m sure lots of books have been written on the subject from all angles, but the one containing the epitaph is still unwritten. Way back in the olden thymes, Las Vegas was the one place to legally gamble. That meant that most people did their gambling illegally.

Now we are up to our eyeballs in legal casinos, often run by the state. The argument being that it raises money from a bad thing to be used for a good thing and it cuts down on crime. Whether any of that is true is debatable, but what is certainly true is the casino business is in trouble. This story from Atlantic City is a pretty good example.

The Revel Casino Hotel warned its staff Thursday that it will shut down this summer if a buyer can’t be found in bankruptcy court.

In warning letters given to employees and obtained by the Associated Press, Revel said it is seeking a buyer for the struggling $2.4 billion casino, but can’t guarantee one will be found. If not, employees could be terminated as soon as Aug. 18, Revel said in the letter.

“If Revel is unable to complete such a sale promptly, Revel expects to close its entire facility,” the letters read. The company also said it plans to stay open while it searches for a buyer.

Shortly after distributing the letters, Revel filed a Chapter 11 petition in federal bankruptcy court, its second in as many years. Revel said it hopes to find a buyer quickly.

“We will work to reach an agreement with a new owner who will help ensure Revel’s long-term financial stability and who shares our commitment to providing Revel’s guests and players an exceptional experience,” said Scott Kreeger, Revel’s president and chief operating officer.

He said the casino has obtained a $125 million loan from one of its existing financiers so it can operate during its stay in bankruptcy court.

If you have never been to Atlantic City, here’s a quick primer. Imagine a bombed out ghetto city like Detroit or Newark. Place it next to a decent beach with a boardwalk and then plop some tacky casinos and you have Atlantic City. This particular casino was built far from the massive ghettos that bound the boardwalk area. In theory, it should be thriving, but it is not. In fact, all of the casinos in AC struggle.

One reason is the surrounding area. The big mistake was not pushing out the locals when they built the casinos in the 1970’s. But, that was before liberals figured out how to use gays and Mexicans to clear out a neighborhood and gentrify it. Back then they still thought they could fix the ghetto. The other reason for the failure of AC is the casino boom. In fact, we may be reaching peak casino.

Racetrack casinos used to contribute as much as $240 million a year to Delaware’s tax coffers. But as the Northeast becomes saturated with gambling venues, the state’s casino revenue has tumbled, prompting a new industry request—for a tax break.

“It’s a different world for the Delaware casinos,” said Democratic Gov. Jack Markell, who supports reducing the tax burden on casinos by $20 million a year to help them compete.

More casinos have opened in the Northeast over the past decade than in any other part of the country, and the expansion is causing upheaval in the region. States that adopted gambling earlier than their neighbors, such as Delaware, New Jersey and West Virginia, are watching dollars drain away, and new projects have some wondering how many facilities the area can support.

Twenty-six casinos have opened since 2004, fueling a 39% increase in total annual gambling revenue in the mid-Atlantic and New England, according to a study by the University of Nevada, Las Vegas. Within 100 miles of Philadelphia, there now are 24 casinos, a big shift from the early 1990s, when Atlantic City, N.J., enjoyed an East Coast monopoly. At least a dozen more gambling spots are in the pipeline from Massachusetts to Maryland, raising fears in states such as Rhode Island that their casino tax windfall is at risk.

This is a familiar pattern. A truly new product pops up creating a new industry. Once it is clearly a winner, others rush in to get a bite of the apple. Supply shoots up, prices collapse and the product becomes a commodity. That’s followed by a culling of the supply herd. Cheap money fuels consolidation so eventually you end up with a handful of suppliers of the product, who can make low margin businesses work on volume.

The question is what comes next. In every other business a few operators emerge as the apex predators to gobble up the rest. That can’t happen with state run gambling parlors. Some will go this route where private operators run the casinos and pay a special tax to the state. That either means the state takes a smaller cut or they find a way to turn the operator into a utility, which seems unlikely.

There are two other models that could be the end game. One is the nationalized business model. In the old days it was popular in Europe for the state to take control of whole industries like steel and energy. By the 1970’s these industries were money losing disasters threatening to bankrupt the state. They were privatized and in many cases sent overseas. Decades from now states will probably be unloading these white elephants for pennies on a dollar.

The other model is pornography, which has followed an interesting path. The Internet gave new life to an industry largely run by degenerates and gangsters. It suddenly got cool and it got rich. But, the same tools that opened it up to professional business people opened it up to global competition. Revenues collapsed as amateurs started giving away their porn on the Internet. The “adult bookstore” followed Blockbuster Video into the great abyss.

Gambling can be done on-line. Not all of it, but poker, sports books and other, as yet uninvented, games can be done effectively on-line. Prohibitions against on-line gambling will work for a while, but getting around these limits is getting easier. I know poker players who belong to private on-like clubs, using gaming consoles. It will not be long before a clever guy figures out how to “monetize” this.

Gambling has been a part of human societies since at least settlement. The thing is, there’s little value added opportunities in it. You can build a four-star hotel on a beach and make big money. Other than offering drinks, safety and volume, a casino is not offering a lot to the gambler. They are not there for the shows or the atmosphere. They are there for the action. That means these state gambling parlors will see their margins drop to the absolute minimum, with many going bust in the next decade.

There’s always been something dodgy about government running the vice rackets. In America, the Federal government runs the alcohol business. They make more from it than the private players. Alcohol is taxed at over $20 per gallon. The states run the cigarettes business and are now getting into the drug rackets. They own the gambling rackets in most places. The only thing left is prostitution and porn. Making money from vice makes you a pimp, no matter what you do with the money. Seeing the state fail at it is pleasing at some level.

More important, it underscores a criticism from the old right that has long been dismissed. That is, you cannot have an economy based on doing each others laundry. You have to make thinks and you have to invent things. That creates real jobs directly through employment in factories. It does so indirectly for all of the support services. It also props up the tertiary economy, like gambling and entertainment, as people use their surplus on leisure. You can’t have a real economy very long when it is based on selling off your assets to pay for leisure.