Tuesday, August 01, 2006

Leno, Losses and Rain Forests

The Press-Citizen's lead story this morning (August 1), page one, above the fold, big headline, is that Tom Arnold and Jay Leno are coming to entertain us at the new (opening the end of this month) casino in Riverside. Rachael Gallegos, "Big Names Rolling In To Casino; Arnold, Leno To Take The New Stage," Iowa City Press-Citizen, August 1, 2006 (also available here). See also Gregg Hennigan, "Casino To Open Aug. 31; Riverside Resort to Open with Arnold, Leno Booked Sept. 16," The Gazette, August 1, 2006.

Questions and observations:

1. Ahead of schedule, under budget. Congratulations are in order for the contractor on this $135 million project [Hennigan]. ("To build a more than 350,000- square-foot facility in about 13 months, Fort Madison-based Frank Baxter Construction has had 65 subcontractors working on the facility, president Tony Baxter said." [Gallegos])

The contrast is stunning with the rain forest's decade-long effort that has failed to raise a dime of money or turn a shovelful of earth.

2. This is not "economic development." Although, "When the Riverside Casino & Golf Resort opens, it will be the 10th gaming facility within a two-hour drive of Iowa City [Casino Events Center General Manager Joe] Massa said officials predict 75 percent of the casino's customer base will come from within a one hour radius . . .." [Gallegos]

a. The "75 percent . . . within a one hour radius" is consistent with the 70-85% I recall from information about other attractions. What this means is that the $1 billion-plus left in Iowa's casinos is largely coming from Iowans and going to out-of-state corporations (in the case of Riverside, a family in South Carolina).

b. Whatever else one may say about the pros and cons of gambling casinos, it's very difficult for any state's citizens to gamble their way into economic prosperity -- even if the profits (Iowans' losses) were kept in the state.

c. Sadly, that's not the only downside to a gambling economy. No need to itemize all the externalities here, but they include increased bankruptcies, crime, domestic violence, suicides, and increased costs for law enforcement and other governmental expenses. A question for the University of Iowa is how many college students will be drawn to a casino "just down the road," with serious financial losses, and the risks of driving home after drinking. This is probably not exactly what their parents had in mind.

d. With 10 casinos within a two-hour drive of Riverside, and the Tama casino undertaking a $100-million-plus expansion, Riverside may end up with more competition for Iowa gamblers' dollars than its business plan projects.

3. The "75% within one hour" is equally applicable to the rain forest. But there's an important distinction. Those addicted to gambling, or problem gamblers -- the backbone of the gambling industry's revenue stream -- are far more likely to be paying return visits to a casino than visitors to a rain forest are likely to be paying return visits to a rain forest. So the challenge to the rain forest in meeting it's predicted 1-1.5 million visits a year projections from among the people who live within a one-hour's drive of Riverside, Iowa, is going to be even more severe than might initially appear.

4. Jay Leno. Why would Jay Leno agree to this gig? Given his wealth, is there any reasonable amount that would be enough for him to do it "for the money"? Consider the travel alone. Flying from L.A. to Iowa -- even in one's own private jet -- and then the ground transportation to Riverside, is not like a quick hop to Vegas. Following Tom Arnold in the opening of a gambling casino in a little Iowa town of less than 1000 population is not exactly something to add to his resume. Maybe the casino is paying him enough to make it worth his while to do it "for the money" -- as the big, dramatic casino opening with an act the likes of which (and the costs of which) will never be seen in Riverside again.


Rexusnexus said...

I've been meaning to reply to your posts regarding Iowa casino's and economic development. I did some pro bono work on a lawsuit against a casino, and there are some issues involved in Iowa's casino expansion that many opponents of the expansion don't seem to be aware of. Although my experience is, admittedly, anecdotal, I'd wager that it applies pretty much across the board

The statute that allows casinos to exist in Iowa, 99A et seq., exists as a highly regulated exception to a comprehensive ban on gambling. Looking at the statute, it is clear that the exception was carved out as a fundraising mechanism for nonprofit, charitable organizations in the State. The statute mandates that all casino profits that do not go to gamblers are to be distributed to Iowa charities, that all jobs are to be given to residents of Iowa, and that the owners and operators of the casinos are to be of high moral character. Thus, any discussion about externalities should, at first glance, take this charitable fundraising element into account.

However, the dirty little secret is that big, corporate gambling organizations, such as Harrahs, have constructed clever "management" and "sale" contracts whereby the goal of the statute is completely thwarted. Basically, the nonprofit, "charitable" organization that owns the casino agrees to sale and management contracts whereby the out-of-state corporations run the casino and own all of the non-gambling-related assests of the casino. In exchange, the Iowa nonprofit pays a monthly fee to the corporation. The amount of the fee? You guessed it, the net monthly profits of the operation. The only thing the nonprofit owns are the licenses to the gaming machines and the machines themselves, and aside from the initial consideration received for signing these agreements, the nonprofit doesn't receive a dime. Even more absurdly, the contract I looked at provided that the licenses and machines must be transferred to the corporation at no cost if the law was ever changed to allow it.

It is clear that when legislators enacted these laws it was not merely because they thought that casinos would be a direct source of economic development, but also because they wanted all of the money brought into casinos to be distributed in-state, either to employees or Iowa charities. It is unclear whether such an arrangement would justify the externalities you point out in your post. What is clear is that the arrangement we ended up with doesn't.

Nick said...

For my response to rexusnexus' comment see my August 2 blog entry, "Iowa's Casinos Breaking Law?"