Stateline Story

States Scramble for Gambling Jackpot

Fed up seeing their residents dole out millions of dollars at out-of-state casinos and tracks, more than a dozen states this year worked on dramatically expanding gambling within their own borders. 
 
States are playing their version of "keeping up with the Jones" as they scramble for a bigger piece of the gambling pie.
 
Kansas this year made the most dramatic move to compete with commercial gambling operations in neighboring Iowa, Missouri and Colorado by becoming the first state that will own and operate large-scale casino resorts.
 
While some states that allow slots at racetracks, such as Delaware, Rhode Island and West Virginia, own the equipment and pay the operators, Kansas' venture is the first to extend to Las Vegas-style casinos, said Brian Lehman, a spokesman for the American Gaming Association , which represents commercial casinos. The new Kansas law also puts slots at two existing racetracks, known as "racinos."
 
Private contractors, not the state, will manage the daily operations, but "Kansas will own the operation, including the buildings," said Keith Whyte, executive director of the National Council on Problem Gambling . "This is a radically different model for the United States," he said, although he added that government ownership of casinos is not that unusual in other countries, including Canada.
 
Whyte said Kansas' move could foreshadow a new and troubling trend if states got too cozy with the same casino operations that they are supposed to regulate.

But Kansas Gov. Kathleen Sebelius (D) told Stateline.org that the unique arrangement "ensures not only the highest possible financial return, but also the toughest regulation." She stressed that casino managers and other workers will not be state employees, but will work for the gambling contractor. "We won't have 'Bartending 101'" for casino workers, she said.
 
The amount of money a commercial casino can gin up for states varies widely depending on tax rates imposed on the operations.
 
Nevada casinos churned out $12 billion in total revenue in 2006 and 8 percent of that, or $1 billion, flowed to state and localities in taxes. State and local governments' take in Mississippi came out to about 12 percent, or $300 million, of a total $2.6 billion in gross gambling revenue last year.
 
Once casinos are up and running in Kansas, the state will rake in 22 percent of each of the four new casinos' annual revenue. That's on top of the upfront, one-time "privilege fees" totaling $80.5 million that the state will pocket from private companies that win the right to manage the day-to-day operations.
 
The Kansas attorney general in August sought approval from the state's highest court to make sure the law doesn't run afoul of the state constitution.
 
Kansas' action is unprecedented, but other states also are aggressively tapping into one of the easiest ways to bring cash to their coffers: Let gamblers lose on slots, poker and roulette - and carve out a big take for state treasuries. Commercial casinos, excluding American Indian casinos, brought in $5 billion to state and city governments in 2006. That was on top of states' cut of $17 billion in lottery profits and more than $1 billion from American Indian casinos.
 
States cash in
on gaming revenue

Seventeen states generated more than 5 percent of their revenue from racetrack casinos, commercial casinos and lotteries in 2004-2005. This excludes fees from American Indian casinos.
State
Percent of budget
Nev.
36.6%
S.D.
17.7%
W.Va.
12.1%
La.
10.9%
Mich.
9.9%
R.I.
9.6%
Miss.
9.4%
Ind.
8.6%
Ore.
8.2%
Mo.
7.8%
Del.
7.2%
Iowa
5.8%
N.H.
5.8%
Fla.
5.6%
N.J.
5.4%
N.Y.
5.4%
Ill.
5.2%
Source: Richard A. McGowan,
Boston College
"It's a painless source of revenue for states," said Richard McGowan, a professor at Boston College's Carroll School of Management who has written several books on gambling. "I don't know where it will stop."
 
He said one theory for Americans' growing acceptance of an activity that many still consider a vice is that often states dedicate their share for education, programs for seniors or property-tax relief.
 
West Virginia plans to add table games this fall to three casino racetracks to compete with neighboring Pennsylvania, which opened slots parlors last year and has six casinos in the works, including two in Philadelphia and another in Pittsburgh. The Keystone State is mulling adding table games to counter West Virginia's move.
 
And Massachusetts Gov. Deval Patrick (D) is expected by month's end to weigh in on whether the state should allow an American Indian tribe to build a $1 billion casino in Middleborough, a move proponents hope will keep Bay State high rollers from hitting American Indian casinos in Connecticut or the tracks in Rhode Island.
 
Thirty years ago, gamblers had to go to either Las Vegas or Atlantic City to bet legally. Today, every state except Hawaii and Utah has some form of gambling. Bettors last year could try their luck at 460 commercial casinos in 11 states or more than 370 American Indian casinos in 28 states. Lotteries flourish in all but eight states. And if poker is your game, five states offer a total of more than 700 card rooms.
 
Gambling is not without controversy, and the question of whether to bring in or expand gambling is still divisive. This year's Kansas law, for example, required counties' approval first. Voters in Sedgwick County rejected both a casino and slots at the Wichita Greyhound Park.
 
Proponents say lotteries, slots and other games of chance are fun entertainment and create jobs and wealth for localities and states. Opponents counter that any form of gambling begets crime, gambling addictions and other social ills, which can end up costing the states more in the long run.
 
In last year's election, voters in Ohio and Nebraska rejected ballot measures to expand keno and slot machines while Rhode Island voters refused the Narragansett American Indian Tribe's bid to open a $1 billion casino in West Warwick. Maine voters this fall will get the chance to decide if they want a tribe to run a harness-racing track with slot machines and high-stakes beano games in Washington County.
 
This unease over state-sanctioned betting is front and center in Kentucky where Gov. Ernie Fletcher (R) has made gambling the No. 1 issue in his re-election bid against Democratic rival Steve Beshear, a former Kentucky lieutenant governor. Beshear supports allowing a limited number of casinos but wants the voters to decide. Fletcher has launched an ambitious "No Casinos Tour" that features television ads, including one that irked Aurora, Ill., with Fletcher's depiction of their hometown plagued with bankruptcies, divorce and crime because of the casino.
 
While the debate over casino rages in Kentucky, nearby Indiana became the 12th state this year to allow horse tracks to operate slot machines, generating revenue of $550 million in property-tax cuts.
 
Several states facing faltering revenues also are looking to gambling dollars to patch holes in their budgets.
 
  • Maryland once again is considering legalizing slot machines at racetracks to bolster the horse-racing industry but also to patch a projected $1.5 billion deficit next year. 

 

  • Michigan, which still finds itself battling a recession, is considering putting slots at racetracks.
 
  • Illinois lawmakers are considering adding three casinos, including one in Chicago, to finance construction projects.
 
  • Florida Gov. Charlie Crist (R) is in talks with the Seminole Tribe to allow Las Vegas-style slot machines and high-stake table games at its casinos, with the state getting as much as $200 million.
 
  • The California Legislature this summer endorsed new terms with four American Indian tribes that will allow the tribes to install more slot machines. Gov. Arnold Schwarzenegger (R) estimates one of the pacts will yield $1.8 billion through 2030.
 
Wanting to pull in even more cash from their gambling ventures, some states - California, Illinois and Indiana - also considered selling their lotteries to private operators for billions of dollars of upfront cash. The proposals, thus far, have stalled.

Places: United States

Tags: Gambling