After a summer/early fall of speculation, accusation and presentation, we now have the fateful gambling market studies of October. For backers of three Cedar Rapids casino projects, the horrors of Halloween came early.
Next up, “No Way!” November.
Studies by Minneapolis-based Marquette Advisors and White Sand Gaming, with offices in Atlantic City, London and Macau, no less, insist all three proposed casinos — Cedar Crossing on the River, Cedar Crossing Central and Wild Rose’s boxy boutique — would draw large chunks of their revenue by “cannibalizing” business from other nearby casinos. This is not surprising.
But the studies, commissioned by the Iowa Racing and Gaming Commission as it prepares to vote on license applications in November, did contain twists and oddities.
First, there was whiplash.
In 2014, Marquette estimated the original Cedar Crossing Casino on the Cedar River would pull in 73 percent of its revenue through cannibalization, with just 27 percent coming from new revenue in an expanded market.
In its study released Thursday, Marquette now estimates 55 percent of Cedar Crossing on the river’s revenue would be “new,” to the tune of $47 million. The other 45 percent, or $38 million, would be cannibalized. So in just three years, Marquette’s estimate of how much brand-new revenue Cedar Crossing would attract has basically doubled.
Still, a 45 percent cannibalization rate, including an estimated $22 million scoop from Riverside Casino & Golf Resort, is very large.
And Marquette estimates two smaller downtown casino proposals, Cedar Crossing Central and Wild Rose, would grab an even higher percentage of their more limited gambling take from other casinos. Riverside, again, takes the biggest hit, a loss of $18 million to $20 million.
So much for the effort to sneak a boutique past the cannibal patrol.
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As for White Sand, the consultants from Jersey were ruthless. So you think a Cedar Rapids casino would pull in big revenues? Fuggedaboutit. White Sand slashed projected revenues for all three projects. For example, backers of the large Cedar Crossing on the River project its annual revenues at $85 million. White Sand says more like $59.3 million.
And $53 million of that revenue, according to White Sands, comes through cannibalization. That’s a cannibalization rate of roughly 90 percent.
Smaller Cedar Rapids casino proposals also would grab money from existing venues at an astounding rate, according to White Sand. Again, Riverside would be hit hardest.
“We envision no scenario where that loss of business can be made up over time, given their location and market demographics,” White Sand wrote. “Our belief is that gaming licenses were issued in good faith to operations who employ citizens and pay taxes to the state, and to license competing entities in a saturated and well- served market is not well-serving the industry or the state.”
Riverside’s Dan Kehl couldn’t have said it better himself.
These are touted as “independent” studies, but they’re also dependent on data provided by Riverside and other casinos. Marquette, in its study’s opening pages, discusses its process, including “meetings with market participants during which we were provided with significant information.”
“This information and supporting documentation was assumed to be accurate and no attempt at independent verification was made,” Marquette wrote.
Marquette also conceded its 2014 cannibalization estimates for the new Wild Rose Casino in Greene County were off the mark. It predicted $22 million would be pulled from existing venues, but now says it was more like $14 million to $16 million. That’s a margin of error of 27 to 36 percent.
So we’ve got a pair of studies with significantly different assessments of market effects, based largely on data provided by casinos seeking to derail a potential rival, and steeped in the notion that an industry with flat revenues and admissions can’t benefit from a jolt of new competition. Also, one study has been wrong before on cannibalization.
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But make no mistake, the commission will make its call based on these numbers. These same commissioners did exactly that in 2014. The numbers generated by Marquette will be especially weighty, considering the commission has hired the firm to study the market three times.
If history is any guide, no casino plan that pulls revenues at these projected rates from existing properties will get a state license. No squadron of gubernatorial private jet fly-bys is going to change that.
I don’t care if Cedar Rapids ever gets a casino. The city will be just fine without one. But this process is flawed. It’s tilted far too heavily to serve the short-term interests of existing casinos. Cannibalization isn’t everything, but it’s the only thing. Other important factors, such as the long-term vibrancy of Iowa’s gambling industry and its critical state tax revenues, are virtually ignored. Voters, community support, the quality of the projects? Meh.
Only the Legislature can alter this, a Legislature filled with lawmakers whose communities benefit from the status quo. Change ahead? No way.
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