By Thomas Ott, The Plain Dealer November 01, 2012
Counties, cities and school districts trying to draw a bead on their shares of new Ohio casino taxes might be better off waiting until the target stops moving.
Tax estimates have plunged since 2009, the year Ohio voters amended the state Constitution to allow casinos in Cleveland, Toledo, Columbus and Cincinnati. And revenue taken in at the first two casinos — the Horseshoe Cleveland and Hollywood in Toledo — has yet to stabilize. Monthly totals have decreased a combined 20 percent since June, the casinos’ first full month in business.
Yet counties are clamoring for information about their allocations, said Brad Cole, managing director of research for the County Commissioners Association of Ohio. The group met recently in Columbus, and speakers urged members to be patient until all four casinos are operating and have had time to develop a track record.
“It’s highly speculative at this point,” Cole said in an interview. He added: “It changes almost daily.”
Local officials ought to wait “and not count their chickens before they’re hatched,” Matthew Schuler, executive director of the Ohio Casino Control Commission, said at the Oct. 8 opening of the third casino, Hollywood in Columbus. The fourth casino, the Horseshoe Cincinnati, will premiere next spring.
Ohio levies a 33 percent tax on casinos’ adjusted gross gambling revenue, the amount left after paying winners. The state’s 88 counties share 51 percent, based on population, and school districts divide 34 percent, according to enrollment.
Eight cities that had populations of at least 80,000 in the 2000 census — and ranked as the largest city in their respective counties — take half of those counties’ shares. Cleveland and the three other host cities also receive 5 percent of the local casino’s gross.
Before the 2009 election, the Ohio Department of Taxation estimated the annual revenue from four casinos at $1.9 billion a year. Based on a study of other markets, the department calculated an average loss per person and multiplied it by the number of adults, 21 and over, in the area. Researchers reduced the multiplier as they moved farther from the casinos.
The researchers, led by Mike Sobul, said revenue would drop $500 million if the state allowed its seven racetracks to install slotslike video lottery terminals, an option ultimately approved by Gov. John Kasich and legislators. VLT money goes to education but not directly to school districts.
A new estimate that Sobul, now a public-finance consultant, released in May puts the casino revenue at $1.4 billion. And that is without factoring in competition from most of the so-called racinos.
Sobul projected the impact of the only existing racino, Scioto Downs in Columbus, but decided not to consider the others until the projects are operating. He also didn’t take into account the effect of Internet or sweepstakes cafes, saying there is no way of knowing how much money flows through the unregulated storefront businesses.
Sobul cut his estimate largely because the Horseshoe Casino Cleveland was not built to the scale initially envisioned. Rock Ohio Caesars, the joint venture that owns the casino, says it remains committed to expansion, but officials have declined to say when work will proceed.
The Casino Control Commission and Policy Matters Ohio, a nonpartisan research organization, have estimated the four casinos’ combined revenue at $1.2 billion a year.
Rick Anthony, operations director for the casino commission, said he took the daily average revenue for the Cleveland and Toledo casinos during the first three months and calculated the total for an entire year. He kept the state’s 2009 estimate for Columbus and gave Cincinnati the same figure as Cleveland, based on Rock’s belief that the two will do roughly the same volume.
The commission needed estimates to draft the agency’s 2014-16 budget, said Schuler, who was adamant that the numbers not be viewed as official state projections.
Policy Matters also came up with a $1.2 billion estimate. The research group arrived at the projection by picking from among individual casino numbers estimated by Sobul, the commission and Rock.
Research Director Zach Schiller included his findings in a new report headlined, “No Windfall,” which seeks to pierce any perception that casino taxes will bail out budgets. He said he tried to take an optimistic view in the prediction while pointing out that the casino taxes won’t come close to making up for a $1 billion-a-year cut in state aid to local governments.
“I think it’s highly unlikely that the revenue numbers are going to come in a lot higher than we expect,” said Schiller, a former business reporter for The Plain Dealer and Businessweek magazine.
In an interview last week, Sobul said he may further reduce his $1.4 billion estimate. He said the decline in monthly revenue at the Cleveland and Toledo casinos has caused him to have second thoughts.
The falloff may mean that the novelty is fading, but it went on through the summer, a season that experts say is typically busy for casinos.
Ohio’s casinos may be suffering from the effects of the poor U.S. economy, said Saverio Scheri III, president and chief executive of the WhiteSand Gaming consulting firm. He said it’s also possible that gamblers are spreading their wagers around to a growing number of North American casinos.
Publicly held Penn National Gaming, owner of the Hollywood chain, conducted a conference call with analysts on Oct. 18, and the first question focused on a declining “win per unit,” a key measurement that breaks down payouts by slot machine or table game.
President and Chief Executive Timothy Wilmott described the decrease as the “normal evolution of a new business” and said it “doesn’t concern us at all.”
“We continue to think Ohio is going to be a very good state for us for a long time,” Wilmott said.
Unlike the Hollywood and other self-contained casinos, the Horseshoe in Cleveland is designed to mesh with downtown and piggyback on off-premises restaurants and entertainment venues. Scheri said the strategy may limit the amount of time gamblers actually spend in the casino.
“Casino 101 tells you the farther you take folks away from the casino, the harder it is to get them to come back,” he said.
Experts say the casinos will unveil countermoves in an attempt to spur business. For example, the Horseshoe and Lakefront Lines have just introduced direct bus service from 10 Northeast Ohio cities to the casino doorstep. A $10 roundtrip fare is more than offset by $15 in free slots play.
But amid all the uncertainty, some government finance officials are taking a wait-and-see approach.
In 2009, the state indicated that Cleveland’s share of the taxes could reach $29 million a year, but the city later offered a more conservative estimate of $20 million. Bond underwriters have gone even lower, to $17 million, Finance Director Sharon Dumas said.
Dumas didn’t try to guess Cleveland’s allocation for this year — the city has received $3.4 million since May — and said she will watch how the casinos fare through November before plugging a “very conservative” number into the 2013 budget.
Cuyahoga County Executive Ed FitzGerald and the County Council have decided not to spend any of their casino money until 2014, then will invest it for two years in economic development in downtown Cleveland. The following two years the focus will shift to countywide economic development and education.
Chief Fiscal Officer Wade Steen has estimated that the county could get as much as $10 million a year by 2014, but he isn’t banking on a set figure. His recommendation to those who want to earmark their shares now: aim low.
“It’s always easier to go back and up a number on the revenue side because things are better than have to lower a number because you missed,” he said.