Casino News from http://www.stltoday.com/
In late 2000, a casino company came to Jefferson County with a bold prediction.
As it pitched a new casino in Kimmswick, Isle of Capri Casinos Inc. boasted that the project would pump $199 million into the local economy.
But here's what the company later kept quiet: An economist from Nebraska came to a very different - but equally eye-popping - conclusion. The casino would have been a tiny gain for the county and a loss for Kimmswick, he recently told the Post-Dispatch.
Welcome to the hazy art of casino economics, a field that's gaining importance for the St. Louis region, with more than $1 billion of gambling industry investment on tap over the next few years.
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During such expansion, casino backers routinely pump up the value of gambling parlors as a boon for the local economy.
The truth often isn't so rosy, nor is it so clear cut. Most experts say casinos can help distressed neighborhoods, bring jobs to small towns and generate millions of dollars in tax revenue. But these gains often come at the expense of other groups, such as restaurants and movie theaters.
A casino can have a significant regional economic benefit only if it draws out-of-town gamblers in droves, said Charles Leven, a professor emeritus of economics at Washington University. "That's worked for Atlantic City, and Las Vegas practically lives off of it," but it's unlikely to pan out the same way for the two new casinos that Pinnacle Entertainment Inc. is building on the western banks of the Mississippi River, he said.
"Yes, there's going to be an impact from these new casinos," Leven said. "And, yes, it's going to be positive. But it's going to be modest, and it's going to be vastly smaller than what the casino operators claim."
The one major positive impact comes early on, Leven said, when a company invests hundreds of millions of dollars to build its new gambling parlor.
Fast growth here
St. Louis is going through an unprecedented expansion of its 13-year-old casino industry.
Last year, the region climbed to the nation's seventh-largest gambling area, passing better-known towns such as Reno, Nev. And this year, the area's five casinos are expected to top $1 billion in revenue from lost bets.
The fast growth has captured the attention of companies such as Pinnacle, based in Las Vegas. The company is spending $800 million on the two new local casinos.
Others are investing in the region, too. The Casino Queen is expanding in East St. Louis, and Ameristar Casinos Inc. is building a new hotel at its St. Charles complex.
Across the bistate area, politicians have quickly lined up to call this growth an economic windfall.
In the Lemay area of south St. Louis County, the head of the chamber of commerce, Barbara Hehmeyer, calls Pinnacle's casino there "the economic engine that we need." Rep. Patricia Yaeger, D-South County, said: "It's going to make our community great."
And in downtown St. Louis, the other Pinnacle casino will be a "a catalyst for economic development," said Rodney Crim, executive director of the St. Louis Development Corp.
This boosterism contains threads of truth, said Ernie Goss, an economist at Creighton University.
Both new casinos, subject to sky-high tax rates, will pad city and state coffers, Goss predicted. Their massive construction budgets will put carpenters and others to work. But after an early bump to the local economy, Goss said, these two casinos aren't likely to pump any additional money into the St. Louis region. Even worse, they could put local restaurants out of business and prompt a rise in personal bankruptcies, he said.
"The real key is this: Are you going to be a destination for people from outside St. Louis?" said Goss, the author of an upcoming book on gambling. "If you have to rely on mostly locals, all you're doing is eating your own seeds."
Shifting money around
Measuring the impact of any business on a local economy is more art than science. Generally, a business that brings new money to a community has a positive impact and is highly beneficial to its residents. A firm that simply churns local money is not.
Auto plants are a classic example of a business with high impact. They provide local workers with jobs and buy from smaller local firms. And they do so with money they bring in from the outside through car sales.
On the other hand, a mall does less for a local economy. While it, too, employs workers, it pays them with money that's already in the community in the hands of local shoppers. Rather than pull in new money, it simply shifts existing cash around.
Casinos, at least those outside Nevada and New Jersey, tend to be more like malls, economists say.
Still, they create clear winners - and sometimes losers, too.
For example, in East St. Louis, the city's fortunes have been lifted by the Casino Queen, which has brought 1,100 jobs to town and pays more than $10 million a year in taxes.
Officials in Lemay hope for similar gains. Pinnacle could bring in 2,000 jobs and pay at least $3 million a year in leasing fees. The casino "will help implement a revitalization," said Mark Brady, assistant vice president of the St. Louis County Economic Council.
Even so, Richard McGowan, an economist at Boston College, said that although these casinos may be good for East St. Louis or Lemay, they do little for the region as a whole.
"It's simply a transfer of wealth," McGowan said. "You put a casino in a depressed area of a state and then have people from a wealthier part of the state go there and spend money. Maybe that's good, but is it really new money?"
Often, it's money that would otherwise be spent at movie theaters, restaurants or department stores.
"The thing that baffles me is that businesses near a casino always think they're going to get some spillover," Goss said. "Well, there isn't any spillover. People come to town, and they make a beeline for the casino."
In downtown Alton, Tony's Restaurant & Cafe sits just blocks away from the Argosy Casino-Alton but has little to show for it. "It doesn't hurt us, but it doesn't really help us, either," said Stacey Harmon, office manager for Tony's. "The boat has its own restaurants."
Negligible effects
Missouri casinos pay more than $350 million annually in taxes, but that revenue is also simply a shift from gamblers to government, economists say.
In the late 1990s, Leven and Don Phares, an economist at the University of Missouri at St. Louis, were hired by the St. Louis business organization Civic Progress to study the state's casinos. Missouri casinos had a $759 million impact on the state's economy in terms of output, or less than 0.4 percent of the gross state product in 1997. The industry also created 18,000 jobs, they found.
"It's greater than zero, but it isn't a huge effect," Leven said. Most of the gain, he said, came from guests driving across the state line from towns whose economic fate is closely linked to that of their Missouri neighbors.
Does a casino have to draw from greater distances to benefit a community? Some economists say no. In some instances, a casino can play defense by allowing local gamblers to spend in their communities rather than Mississippi or Las Vegas, two St. Louis University economists wrote in a 2003 report.
A few years ago, Goss was hired by Isle of Capri to take a second look at the impact of the Kimmswick casino. In 2001, Isle of Capri backed away from building the casino amid opposition. Jefferson County sued the company for lost revenue.
Goss said he was hired to take a more realistic view of the casino's impact, to help defend against the lawsuit. He found that the casino would have meant a $12 million impact over five years on the county. Though he wasn't charged to weigh the impact on Kimmswick, it would have been negative, Goss said.
Why? The town would have incurred significant new costs. For example, accommodating the new casino would have meant a major investment in new firefighting equipment.
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