With one quarter of 2017 in the books, it is a good time to look at the state of gaming expansion in the country. As of the middle of April, eight states – Pennsylvania, Alabama, New Hampshire, Illinois, Connecticut, Florida, Texas and South Carolina have bills or initiatives to expand gaming. The bills vary a great deal and the prospects of a bill passing into law are very different in each state. Often the most relevant fact in forecasting a bill’s chances of succeeding is the history of gaming legislation in the state. Texas, South Carolina, Arkansas, Alabama and New Hampshire are states with a long history of failed gaming legislation and conflicted views of gambling in general.
In New Hampshire, the house has rejected a casino bill 19 times. But, Senator Lou D’Allesandro, the sponsor of this year’s bill, has hope because bills allowing for keno and online purchase of lottery tickets did pass recently. He believes the people of the state fully support his proposal to permit two casinos and he thinks it’s possible that the state legislature might also be in favor. After all, if you can buy a lottery ticket or play keno, why shouldn’t you be able to go to a casino?
Texas is much like New Hampshire in one sense; bills to permit gambling in the Lone Star State are as common as prairie dogs. But Texas is very different in another way. Except for the lottery, Texas does not have gambling, it just isn’t legal where the stars at night are big and bright. The most common form of illegal gambling is slot machines – in Texas called eight-liners. There are thousands and thousands of them scattered around the state, but the only time they make the news is when a county sheriff arrests an operator and confiscates the machines. There can be as many as 200 or 300 slots picked up in one of those raids, more than in some casinos in South Dakota and Colorado. There are also the special cruise ships – not the big, fancy international kind that ply the high seas – but ships specially designed as casinos to operate off the coast of Texas. Over the weekend, the newest one off Galveston ran into a buoy; fortunately the damage was mild and there were no injuries. The bill under consideration in Texas this year deals with fantasy sports, nothing very controversial, but it is still likely to run into the moral objection: “Gambling is not allowed deep in the heart of Texas, no siree.”
South Carolina is another conflicted state, gambling is illegal, but existent in the form of slot machines in backrooms. Without even a nod toward those illegal slot machines, regularly some lawmaker will propose allowing full-fledged casinos within his/her constituency to solve some particular budget problem. This year the problem is crumbling roads, but the rest of lawmakers, like their counterparts in Texas, will likely effect disdain for the sin of gambling.
Arkansas also belongs to the small group of states that pretend gambling is unfit for polite society, but of course permits it to exist. Horse racing is very popular in Arkansas and people like to make wagers on the outcomes. However, legalizing any other form of gaming in the state is very difficult. So far this year the attorney general has rejected four petitions that sought to place the issue on the ballot in November. Alabama is also not likely to pass any gaming legislation this year, even though it has a new governor. The lieutenant governor became governor when the “love gov” was forced to resign. Neither the former nor the present governor supported any expansion of gaming. Although a bill authorizing fantasy sports has just passed the House of Representatives.
Connecticut, Florida, Pennsylvania and Illinois are debating legislation to expand the casino industry currently operating in the state. These issues are not moral, simply monetary. In both Connecticut and Florida the issue is more complex because it includes Indian gaming. Due to competitive pressures from Massachusetts, the Pequot and Mohegan Tribes, each of which operates a casino in Connecticut, have joined forces to open another casino near the border with Massachusetts. Their legislative efforts fueled a discussion to open the process to other bidders for a license; in particular, MGM wants to be allowed to bid. As MGM is the proximate cause of the tribal effort for a third casino in Connecticut, the waters have become quite muddy. The tribes pay the state 25 percent of the their slot revenue and no one wants to lose that money, but they also do not want to miss out on the potential for a significant license fee from MGM.
Florida has yet to renew its compact with the Seminole Tribe and lawmakers are using the opportunity to push additional gaming that is important to their constituents. As is the case in Connecticut, the existing Seminole casinos are extremely important to the state financially. At the point the compact had expired, the Seminoles had paid the state a billion dollars for the exclusive privilege of operating table games. For the lawmakers to protect the Indian casino revenues while satisfying the non-Indian casinos is not an easy proposition. And, they have only three weeks before the end of its session to reach a compromise. At the very least, one might expect some agreement on a compact with the Seminole Tribe will be reached before the lawmakers leave town.
That leaves us with Pennsylvania and Illinois; both states have budget deficits and are motivated to find new revenue sources. Pennsylvania is exploring online gaming, slot machines in a variety of locations and fantasy sports. The additional money from new gambling sources is already written into the budget, so one can anticipate something will pass. The question of course is what? That question is extremely important to the twelve casinos operating in Pennsylvania. Online gaming might benefit the casinos, but slot machines certainly will not. However, the health of an already over-taxed industry is not at the heart of the matter. Money is all the lawmakers and the governor are measuring at the moment. Rather short sighted in my opinion; some forms of expansion are more likely to reduce the revenue the state currently receives from gambling than increase it. But then, no one in Pennsylvania asked my opinion.
And then there is Illinois, a state with a two year-old budget stalemate and an insatiable appetite for cash. In the past, every time the governor of Illinois decided he needed more cash for his agenda he looked to gambling. The most recent was the addition of VLTs intended to provide $50 billion for major construction projects. The law passed in 2012 and the growth of the number of establishments, VLT units and revenue has been astonishing. In March of this year, 5,932 establishments with a total of 25, 911 VLTS generated $119.2 million in revenue – just $11 million shy of what the state’s ten casinos generated in the same month. The proposals on the table now are for fantasy sports and more casinos – possibly as many as five. Chicago is one of the sites being suggested; it certainly would be a plum for the company that got the licenses, if a private company does. The city of Chicago wants to keep that license for itself and that would create an interesting dilemma. A casino license in Illinois is expensive. First there is a flat fee of $100,000 and then $30,000 for each gaming station. If the city of Chicago received a license would it be exempt from those fees? That money would be an important part of the picture, but the bigger issue is the casino tax. The state’s tax rate is high, short of Pennsylvania’s 55 percent, but still larger than other states. The effective rate in Illinois is probably closer to 45 percent, but that is still a hefty burden for a casino operator to bear. It becomes much heavier if more casinos are permitted, further dividing the gambling pie, which has already been halved by the addition of the VLTs. But, who cares as long as the state makes more money, right?
By the end of the current legislative sessions, I think that Pennsylvania, Connecticut, Florida and possibly Illinois will pass legislation to expand gaming in some form. As the industry reaches full maturity and even saturation, the positive impact on national and regional markets will get smaller and smaller, while the negative impacts get larger. The expansion will continue until there are no more opportunities and then the process of market adjustment will begin in earnest.