Gaming demand flat, market full

By John G. Gallo


Linn County residents may soon vote on a referendum for a proposed casino in Cedar Rapids. Despite the social costs of gambling, the new jobs, business profits and public revenues unrelated to income tax are attractive economic lures that often persuade voters to approve new casinos.

Gambling taxes are an increasingly important source of public revenue and the monetary public benefit of gaming cannot be understated. In the most recent fiscal year, gaming activities returned almost $8 billion nationally to 22 states, providing valuable funding for important public services such as education.

In Iowa, $330 million in state revenue was generated by 18 casinos in fiscal 2012. The newest Iowa casino, the Great Falls Casino Resort in Larchwood that opened in 2011, created 600 jobs and produced total revenue of $38 million in the first year of operation, evidence of the initial economic impact of a new casino.

A casino would create jobs and generate revenues for Linn County and the city of Cedar Rapids, so casino proponents can make a valid economic case at the local level.

However, the proposed casino also must gain approval of the Iowa Racing and Gaming Commission, which should assess the potential for a new casino to increase revenues at the state level. Given the current Iowa gaming product mix, gambling revenue gains can be driven by either population growth or an increase in gaming consumer demand. Because Iowa’s population growth is near zero, revenue gains are, therefore, dependent on new demand from gaming consumers. Unfortunately, there are valid reasons to question the potential for the Iowa gaming industry to extract additional revenue from a market many believe is saturated.

First, although Iowa casino revenues and gaming taxes did increase in the past fiscal year, growth would have been flat without the novelty of the Larchwood casino. Moreover, 2012 gaming revenues were only marginally higher than the pre-recession year of 2008. Thus, recent gaming revenue trends document little growth in Iowa gaming demand.

Second, the ability to expand the market and increase revenue by poaching consumers in adjoining states such as Wisconsin and Illinois is limited because gaming markets in those states are also saturated.

In sum, the Iowa gaming market appears to be operating near full capacity, even without new intrastate competition from casinos under consideration.

Absent the approval of new gaming products, a new casino is unlikely to materially grow state gaming receipts. Rather, the proposed Cedar Rapids casino would initiate a potentially costly race for market share with existing casinos. There would be no net gain to Iowa, only a transfer of jobs and revenues to Linn County from regional casinos in Davenport, Dubuque, Riverside, Tama and Waterloo.

John G. Gallo is on the faculty of the University of Iowa Department of Finance. Comments:

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