Wednesday, October 11, 2006

Gambling: Checking the Math

Yesterday was the Press-Citizen's turn at making sense out of the Riverside gambling casino's financial report for September. Today (October 11) it's The Gazette's turn.

See, Nicholas Johnson, "Gambling: Do The Math," October 10, 2006;
the Iowa Racing and Gaming Commission, "Track Gaming Revenue Report" and "Riverboat Revenue Report," September 2006; Rachel Gallegos, "Casino Meeting Its Financial Goals; Made $7.6 Million Revenue in 31 Days," Iowa City Press-Citizen, October 10, 2006; and Gregg Hennigan, "Gambling: House Doesn't Always Win; Gambling Revenue Off at Casinos Near Riverside," The Gazette, October 11, 2006.

The headline ("house doesn't always win") was unfortunate, given its suggestion (especially to those who only read the headline) that there are ways that gamblers can win at gambling -- a suggestion belied by the story's report that everyone who entered the Riverside gambling casino last month, on average, left $61 behind after every visit. (Compare, Nicholas Johnson, "Press-Citizen Promotes Student Gambling," September 26, 2006, a commentary about
Hieu Pham, "Students Find New Ways to Earn Cash," Iowa City Press-Citizen, September 26, 2006, p. 1A.)

But, headline aside, Hennigan has a useful take on the numbers. He
reports that, since the Riverside gambling casino opened (September was its first full month) four of its six neighboring gambling venues have lost attendance and revenue.

What are we to make of this?

1. It doesn't "create jobs" or "improve Iowa's economy" to move jobs and revenue from one county to another. Politicians and business persons alike proudly assert that every new business in Iowa is creating jobs, and improving the economy. They claim too much. Riverside's figures make the point. So did the Coral Ridge Mall. (I don't have the figures for the latter off the top of my head, but it's fairly close to say that it grossed about $100 million in retail sales its first year -- while the surrounding counties lost something like $90 million in retail sales.) I'm not suggesting this is an argument for, or against, starting up new businesses; but it is a caveat regarding the claims of the economic benefits they bring. It turns out it's true, once again, in this instance. The Riverside gambling casino didn't bring an additional $7 million profit into the state; it simply shifted much of it from its competitors to itself.

2. Gambling isn't value added manufacturing or services. Gambling is something in the nature of a self-imposed tax -- indeed, a significant proportion of what's left behind by each visitor is literally a tax going to the State and other governmental units. True economic development for Iowa requires (a) making something from our natural resources (e.g., wind generated electricity; food; ethanol and biodiesel), (b) value added manufacturing (e.g., making something from raw materials or parts that can be sold for much more than the cost of what goes into it, as numerous small and large manufacturers are doing throughout the state), or (c) value added services (e.g., individuals with the ability to create value by fixing broken equipment, or transforming a dream into an architectural plan). Jobs are created, and money changes hands, when casinos are built or expanded (such as the Mesquaki $111 million expansion project). But once they're built their primary function is to suck money out of the state's economy, not put more back into it.

3. It's not clear how much gambling is enough; conflicts of interest drive public policy. Clearly, from The Gazette story, even if one thinks gambling is just a wonderful economic development tool and we should do all we possibly can to increase the number of gamblers and the amount they leave in casinos, it's not clear how many casinos are "enough." It would seem we've already passed the point where additional casinos can be added without adversely impacting the revenue of the pre-existing casinos. But consider the conflict of interest this creates. How much of the opposition to the Touch Play machines in convenience stores was driven by genuine concern about problem and youth gambling, and how much by casinos that didn't want to lose that revenue? When the Iowa Racing and Gaming Commission evaluates applications for additional casinos, how much will its decisions be shaped by the present casinos' desire to prevent any additional competition, and how much by -- if it is in fact our purpose to promote Iowans' gambling as vigorously as we can -- the desire to make casinos ever more conveniently located for old, and potential new, gamblers?

4. Gambling casinos are primarily taking advantage of Iowans. Of course, casinos located on Iowa's borders will attract gamblers from the bordering states -- unless they have a closer casino located in-state. But for the most part, it is Iowans who are leaving their money behind in these establishments. How much of that money is flowing to out of state owners, managers, and mortgage holders? Do we know? What we do know is that we can't gamble ourselves into economic prosperity.

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Anonymous said...

I don't think that the Riverside casino owners should be so pleased with the numbers. There are three reasons why the attendance numbers should have been higher:

1) There were five full weekends in September, including a long holiday weekend.
2) There were three home football games to bring in the gamblers and hotel patrons. The casino won't see three home football games in one month for years to come.
3) It was the first month the casino was open. Certainly the novelty will wear off, especially when the gamblers realize the other casinos have "looser" slots and better promotions.

The casino emphasized earlier this month that over 50,000 gamblers passed through it's doors on the opening weekend. Yet the casino reported to the IRGC that less than 123,000 people came the whole month. The casino should be highly alarmed if attendance has dropped off that much.

What type of attendance will they see for the months of December through March? Looks like 1.6 million visitors per year was a bit of an ambitious estimate. Revenue will follow the attendance decline closely and the investors should refer back to their casino prospectus and read again the strong message to diversify.

Gambling is a tax on the stupid and the visitors to Riverside just proved last month that they're even dumber than the other gamblers in the state.

Nick said...

Brad: Thanks for this. I've incorporated it into the blog entry. -- Nick

Anonymous said...

The casino emphasized earlier this month that over 50,000 gamblers passed through it's doors on the opening weekend. Yet the casino reported that less than 123,000 people came the whole month. The casino should be highly alarmed if attendance has dropped off that much.