Making a Case for Casino/Riverboat Gaming

Making a Case for Casino/Riverboat Gaming

by Marcus E. Prater

As casino gaming has expanded across the country in the last decade, the Las Vegas Strip and Atlantic City, New Jersey have been replaced as true representations of the industry by towns such as Vicksburg, Mississippi, Joliet, Illinois, and Council Bluffs, Iowa. It is in towns such as these that communities considering the issue of legalized gambling can experience the most accurate model of what effect casino gaming can have on a state and its counties, cities and residents. What those who are interested in separating fact from fiction will find is that casino gaming is a popular form of entertainment that provides remarkable economic benefits without increasing the tax burden or imposing unacceptable social costs.

Of course, there are two sides to the issue of expanded casino gaming. It is the responsibility of both sides to convey accurate information and keep emotional distortion out of the debate.

As with other areas of the economy that experience strong growth, gaming's surge across the country has created a variety of benefits that can be broken down into seven categories: capital investment, secondary capital investment, direct jobs, indirect jobs, construction jobs, increased tourism and tax revenue.

Capital investment related to gaming includes all of the riverboat casinos under construction at various shipyards, the hotels and restaurants that are part of the land-side development, entertainment facilities, landbased casinos and the expansions related to a successful gaming operation. From the Las Vegas Strip and Tunica County, Mississippi, to Bettenclorf, Iowa, and Evansville, Indiana, and points in between, billions of dollars for labor and materials are being spent on the development of gaming facilities.

Secondary capital investment makes an impact when new businesses or expansions are needed to accommodate the increase in consumer traffic created by gaming developments. New hotels, restaurants, clothing stores, office supply stores and other retail outlets are just a few of the examples of secondary capital investment that are often needed in new gaming jurisdictions.

Direct jobs are created when the gaming facility begins to hire employees as the development nears its opening. Most riverboat developments in the past five years have employed at least 500 workers, with the average around 1,000 and the top end around 2,000. The annual salaries range from minimum wage to more than $200,000, with the average somewhere between $18,000 and $25,000. Dozens of positions are offered and include the major areas of Gaming, Hotel, Finance, Marketing, Sales, Security, Food & Beverage, Human Resources, Administration, Engineering, Purchasing, Receiving and Surveillance.

Much like secondary capital investment, indirect jobs are created when existing businesses in the area need to add staff to meet demand or when new businesses hire a full workforce. Construction jobs are needed to develop the physical facilities related to a new gaming development, and often the workforce for a major riverboat casino complex exceeds 500 high-paid construction workers. The availability of construction jobs is also positively affected by secondary capital investment.

Gaming is a proven tourist draw, and what has taken place in Las Vegas over the past 15 years has been repeated on a smaller scale in new gaming jurisdictions throughout the country. Gaming not only draws new visitors to an area, but it also prompts visitors drawn to other attractions to stay longer, thus increasing the number of times tourist dollars are turned over in the local economy.

Additionally, substantial tax revenues are created by new gaming developments. Each state taxes gaming revenue differently, but irrespective of the tax rate, gaming can result in a windfall for state and local governments. Factor in property taxes, hotel taxes, sales taxes and personal income taxes paid by a new workforce and balancing the budget can quickly become a welcome reality. Thanks to riverboat casinos, the State of Mississippi, for example, is operating with a budget surplus for the first time in its history.

Across the board in cities where riverboats are docked or permanently moored, tourism, jobs, retail sales and capital investment all have experienced dramatic increases. The success stories range from Sioux City, Iowa, securing revenue for basic infrastructure improvements to Tunica County going from one of the poorest counties in the country with an unemployment rate of 26.2 percent to its present position as a thriving and economically strong area employing thousands of new workers while drawing tourists from all over the country to enjoy the entertainment features created by hundreds of millions of dollars in new capital investment. Tunica County collected $16 million from casinos in 1994, more than four times the entire county budget in 1991, and its unemployment rate has dropped as low as 4.9 percent.

According to International Gaming & Wagering Business magazine's 1994 Gross Annual Wager report, gaming revenue - the amount of money consumers actually spent on gambling - rose 15.5 percent from $34.7 billion in 1993 to $39.9 billion in 1994. Of that, state and local governments received from 1 to 20 percent depending on the form of gaming. No matter how it's divided, that's a lot of new money governments did not have five years ago - and a lot of money going toward education, public works, economic development, programs for the elderly, tourism promotion, environmental issues and other areas that would have suffered without an unwanted tax increase.

In Mississippi, for example, dockside riverboat gaming produced $167 million in tax revenues in 1994. For a state that for years struggled to balance the budget, $167 million in new money makes a dramatic impact that is felt throughout the state. Moreover, Mississippi's casinos directly employ 25,000 people; they contributed to the generation of $900 million in direct and indirect income in 1994, $1 billion in total taxable income, and the creation of another 33,000 related jobs.

"You take any state, especially one with a population of 2.6 million, and add this many jobs in an area that did not exist three years ago, and you've got a very, very significant impact," William A. McGinnis, deputy executive director of the Mississippi Department of Economic and Community Development, told Casino Journal.

The National Impact of Gambling.

In the 54 years since the first legal wager was made in sparsely populated Las Vegas in 1931, the gaming industry has evolved into one of the most dynamic and economically powerful forces in present-day American business. With some form of gaming now legal in 48 of the 50 states and the now-dominant view that gaming is an enjoyable and morally acceptable form of entertainment, the gaming business is currently a $500 billion venture responsible for hundreds of thousands of jobs and billions of dollars in tax revenues and capital investment. It provides a strong economic impact that has repeatedly proven to be a financial boost for governments and the citizens these governments serve.

Buoyed by the success of gaming in Nevada and the tax-free status Nevada residents enjoy, gaming first expanded to Atlantic City in 1978. Before casino gaming was introduced in Atlantic City, the area had all but been abandoned by tourists, leading to a decay in both its social and physical stature. While casinos in Atlantic City have been criticized for failing short of completely revitalizing the area, the simple fact remains that without casinos Atlantic City would not have 41,000 gaming industry jobs, would not have an annual direct tax impact of $600 million, would not have $5 billion in new capital investment related to gaming and would not have 10 times more annual tourist visits than in the years preceding gaming's introduction.

As day-to-day costs began to outstrip tax revenues during the early-to-mid-1 980s and as unemployment rates soared and retail sales dropped, state and local governments began seeking other forms of revenue and economic development. This created the birth of the riverboat gaming industry - and the 'face of the entertainment business in the United States would forever be changed. Beginning with Iowa in 1989 and continuing with Mississippi, Illinois, Louisiana, Missouri and Indiana, states heeded the voters' wishes and began legalizing riverboat gaming, which in turn brought a new form of entertainmentto millions of people far away from the major gaming centers of Nevada and Atlantic City. Land-based casinos in Colorado and South Dakota and Native American gaming ventures in many other states also contributed to the growing availability of what had been perceived as taboo decades earlier.

If you combined all of the commercial gaming activities in the country and created one entity, it would account for $39.9 billion in revenue in 1994, a figure that would rank 12th among all companies on the Forbes Sales 500 list based on gross revenue being equivalent to sales in non-gambling accounting. This figure, for example, ranks ahead of Kmart's $34.3 billion but below Chrysler's $52.2 billion. In terms of aggregate sales, the Forbes Sales 500 increased by a healthy 8 percent in 1994, but gaming did even better, increasing 15 percent over the previous year.

So what do all these numbers prove? In simple terms, they show what a force gaming has become in relation to the national economy as a whole. With more than 90 gaming companies traded publicly, the national impact of gaming is felt on Wall Street and in small towns throughout the country. The numbers also indicate this country's growing demand for entertainment, an appetite that is directly related to a 6 percent rise in personal income from 1993 to 1994. Proportionally, more and more discretionary income is spent on various forms of entertainment, which includes sporting events, concerts, theme parks, movies and, of course, gaming.

The Local Impact of Gaming.

Gaming is certainly not a cure-all for every state facing a budget shortfall, but under the right circumstances, gaming can produce remarkable economic benefits that create long-term stability and improve the overall quality of life. For examples on how to implement casino gaming to produce an undisputed level of success, look no further than Vicksburg, Mississippi, Joliet, Illinois, and Council Bluffs, Iowa.

Prior to the legalization of gaming, Vicksburg, population 30,000, was "in a very tough situation," local clothing store owner John Wayne Jabour said. "We really shrunk in the last 10 years. From 1980 to 1990 we lost almost 15,000 people in our community and things were just headed downward. Stores were closing right and left, you couldn't sell a piece of property, you couldn't sell a home..."

And now?

"People have a spring in their walk, they're happy, they're optimistic," Jabour said.

Jabour is certainly not alone in his assessment of gaming's positive effects in the Vicksburg area.

"Well, Vicksburg had been essentially stagnant until gaming came to town," Pete Stone of the Vicksburg Warren Chamber of Commerce said. "You can only do so much with the Chamber. We've gone through the same recruiting process and so forth and so on, but the advent of gaming coming here has helped us a great deal economically, obviously, and it's virtually wiped out unemployment."

"Gaming has been a real boost to Vicksburg's tourism industry," Executive Director of the Vicksburg Convention and Visitors Bureau Lenore Barkley said. "We were a tourism destination before gaming, but this has been a real asset in that it gives our visitors one more reason to come to Vicksburg and has our visitors maybe staying longer."

According to figures from the Mississippi Department of Economic and Community Development, tourism-related spending in Vicksburg - money not spent at the city's four casinos - jumped $10 million to $78.5 million the first year casinos were open. The Vicksburg Convention and Visitors Bureau derives operating income from a 1 -cent sales tax collected only on nightly room rentals and tabs at larger-volume restaurants. This tax generated $415,000 in 1992, the first year casinos opened, $459,000 in 1993 and $636,000 in 1994. The influx of tourists has also contributed to a rise in nonresident retail sales, which climbed from $25.4 million in 1993 to $26.6 million in 1994.

"Tourism's always been very important to the stability of this community and now with gaming there's nobo y in this city that isn't touched by the extra revenue that's being brought into the city," Barkley said.

"We are living in good times now. It is absolutely amazing what gaming has done forthis area," Vicksburg Warren Chamber of Commerce Executive Vice President Jimmy Ware told the Vicksburg Evening Post.

In Joliet, population 88,000, the turnaround has been just as remarkable. Perhaps an October 1995 special report in The Baltimore Sun summed up the impact of gaming the best:

"Five years ago, this was a typical rust belt city of shuttered stores, crumbling sidewalks and empty streets. Today, thousands of tourists step along red brick walkways lined with honey locust trees. The city's change in fortune is largely the result of four riverboat casinos docked along the banks of the Des Plaines River. Since opening in 1992, the hulking ships have brought nearly 4,000 jobs and $67 million in tax revenue to Joliet. More significantly, perhaps, they have enhanced the economy without increasing crime or hurting local businesses, according to police data and interviews with public officials and residents."

It's brought a new vitality and life to our downtown,' said city planner Donald J. Fisher. "it also changed the overall image of the city - which is very hard to do."'

Along the Missouri River in Council Bluffs, population 75,000, two riverboat casino resorts recently opened, with each project valued at more than $95 million. Opening the door to this extraordinary capital investment and more than 2,300 new jobs was the Iowa Racing and Gaming Commission's response to a changing market. Reacting to a regulatory climate that many casino companies found too stifling, the Commission made the adjustments necessary to renew the industry's interest in Iowa.

Unlike Mississippi, where gaming licenses are not limited and the free-market approach creates a tremendously competitive environment, Iowa limits the number of gaming licenses awarded. This approach allows the Commission to control each market and maximize tax revenues. By allowing two riverboat casinos in Council Bluffs and slot machines at the local dog racing track, the Commission has thoughtfully positioned the market to capitalize on the strong population base in the Council Bluffs/Omaha, Nebraska, metropolitan area without creating saturation in the market. Illinois employs the same limited-license approach with similar positive results. The economic and market dynamics of each state are different, but Mississippi, Illinois and Iowa have all produced overwhelmingly positive results with their respective methods. Generally, emerging jurisdictions have implemented the limited-license approach, but gaming has clearly proven its effectiveness in a variety of different environments. If there is any doubt, simply visit Vicksburg, Joliet or Council Bluffs.

Part two tomorrow - Myths Vs Realities.