Gambling on a casino. Part 2: Promises, or shooting craps?

T.A. Barnhart

Gambling on a casino. Part 2: Promises, or shooting craps?

google maps (my annotations): 944 NE 223rd Avenue, Wood Village, OR

Backers of M82/83 are making a lot of promises, and those promises are very enticing. Can they be kept? In Part 2 of my non-expert citizen review of the ballot measures to change the state constitution to allow private, non-tribal casinos, I look at what’s being promised by supporters and whether I think the promises are viable or not.

House money

Backers claim that “The Grange” will yield a payment to Oregon of $100,000,000 every year (25% of the casino’s “adjusted gross revenues”, or AGR: receipts from gaming only (after payouts to winner). If they do manage this contribution, that would be approximately 10% of what the Oregon Lottery made in all of 2011. That’s serious money — if it happens. Casinos don’t make their earnings public, so it’s hard to know if this is realistic or a number devised to sell the ballot measures. But the promise of $100,000,000 being contributed to the Lottery and the Fund every year tells us the casino owners expect to make $400 million in gaming each year (after paying off winners). Is that number realistic? It would be nearly half what the Lottery pulled in 2011 (and would, of course, include a lot of dollars people spend at the casino rather than on the Lottery).

For comparison purposes, in 2010, in the Kansas City, MO, area, a city comparable to Portland in many ways, had revenues of $753.4 million. Across the state in St Louis, the take was over $1 billion. Downtown Las Vegas, even with competition for the $5.7 billion dollar strip, still made nearly $500 million. All there areas draw from larger markets, are easily reached by far more people, and have much more in the way of tourist attractions, from major league sports to large entertainment venues. (Statistics from The Innovation Group, which also shows receipts for these casinos significantly reduced through May 2012.) So while $400 million does seem possible, it also seems problematic. If gaming is to be profitable long-term at Wood Village, it will require aggressive marketing that will take away from tribal business.

Or could end up losing to the casino at Cascades Locks, if that location ends up being a more attractive draw.

So: $100,000,000 a year based on $400 million in gaming revenue is possible but far from a sure bet. But the contribution to the Lottery from gaming is not all the backers are touting as economic benefit: there are also jobs and taxes.

The Yes campaign claims the casino will be paying $20 million in taxes. Do the math on taxable gaming income of $300 million (I doubt very much they’ll pay taxes on the $100M they donate to the state), and that’s a tax rate of 6.67%. But they’ll also be selling food, drinks, t-shirts, rooms, admission to the water park, farmers market rentals — all of which yields tax payments. (As do the incomes of their employees, but I will give them the benefit of the doubt and say they didn’t include that in this reckoning of corporate taxes.) So $20M in taxes is based both on $3-400M in (taxable) AGR and everything else they sell. You can bet they expect to sell lots of everything else, which tells me they expect to be paying a tax rate of one or two percent. Or maybe less.

Unless they’ve screwed up their math or published the wrong information. Given that it never crossed their minds to ask the National Grange about using their century-old name (and probably won’t be able to use it if these measures pass), a mistake of this sort is quite possible. Which does not incline me to give much credence to their promises.

Good jobs or loaded dice?

Of all the promises made to encourage Oregonians to support this project, none have more appeal than that of jobs. Oregon’s unemployment rate refuses to budge, and promoters are counting on desperate voters around the state to see the possibilities in having their own hometown casinos.

Let’s look at the numbers.

Construction jobs speak for themselves. 3,000 jobs, no matter for what duration, would be welcome. Voters have to balance those promised jobs with other costs this project would entail. The promoters also promise to buy in-state to the extent possible. As a private enterprise, it will be very difficult to monitor that promise unless they commit to the kind of transparency only government displays. Major construction of any kind is welcome, but it’s not like refusing to greenlight the casino means there will be no other construction possibilities. I doubt Clairvest will spend another $2-3 million for a third shot at this, so that means the old Kennel Club facility can finally be looked at for other development options, options that to date haven't been considered because of the lock developers have on this location.

Casino backers are promising 2,000 permanent jobs with salaries averaging over $35,000. Add to that benefits — and I’m going light here with a factor of only 30% — and you have an average FTE of $45,500. 2,000 jobs at $45.5k each is an annual wage bill of $91,000,000. Don’t forget, the casino is planning to make $400 million per year, and $100 million is committed to the Lottery and the new Fund. That’s half the casino’s earnings gone before they even plug in a single machine (and those 3,500 machines are going to suck a lot of juice).

Of course, the hotel, the pool, the bar, the bowling alley, the 5-story parking garage and the rest will bring in a lot of money. I think if there’s one guarantee that these facilities will get built, it’s that: Based on promises made in the campaign, the developers will need to add as many money-generating amenities to the casino as possible to make up for their extravagant outlays from gross revenues in the casino proper.

$91 million in wages and benefits being spent in the region is a big economic boost, no question. No wonder so many local progressives are giving the proposal a serious look (and why I cannot dismiss it out-of-hand). But seriously: a facility where the vast majority of jobs are service and retail paying wages of nearly $17 per hour? Plus benefits, including medical? An average FTE of $45,500? Of course, the average salary of the retail and service workers can be brought way down with a few six-figure executives, and a CEO making seven figures, but that would be pretty sneaky of them to pull on voters.

Remember this: casinos make their money by depending on suckers.

A pretty picture

If you look at the website for this project or have a copy of their magazine-style mailer, you will see what they intend to be a gorgeous structure. LEED-certified. Sustainable. Fun for the whole family. They didn’t pick the name “The Grange” thoughtlessly (except, of course, for the legal niceties). Here’s what this “uniquely Oregon” project promises:

If the casino is built, it’s highly likely the other retail features will be built, too. After all, with so much of the casino’s earnings being committed to the state, taxes, and workforce, the investors need to make their money back somehow. But in terms of this being a destination tourist spot because of the non-gaming facilities? There’s nothing special about these facilities. Americans looking for somewhere special to take their family have many options with better facilities, including those that also feature gambling. This may dazzle Oregonians who haven’t visited Vegas or Branston, Missouri, but savvy tourists are not going to be thrilled by a bowling alley and water fountain.

Not to mention a rather dinky hotel.

The parking lot is, to my mind, the tell. 2,000 parking spaces is a bit more than what a 120-room hotel needs, even one with a bowling alley and swimming pool. The casino owners are betting big on day gamblers, lots of them. They’ll seek to bring in busloads of gamblers just as the tribal casinos do, but they’re expecting folks from all over the region to drive to Wood Village for the day to play the slots and sit at the card tables.

And that many cars will require major road expansions, and major road expansions are not something you can buy with a $250 million investment guarantee. The streets leading to the site simply cannot handle the amount of traffic the casino would generate (hell, the street to McMenamin’s Edgefield facility can’t handle their traffic).

(view full-sized map here)

On the south side of the property that used to be the Multnomah Kennel Club are a Fred Meyers and a Lowe’s; there’s also an empty big box that was once a GI Joe’s and likely to be another retail outlet in time. Customers to these stores (and the Buffalo Wild Wings and pizzeria that share the retail space) already use NE Glisan heavily, as well as other streets that presumably would feed up to 2,000 cars or more to the casino. Traffic concerns for the casino are not imaginary; they are very real and will cost hundreds of millions to deal with. Not to mention dump massive amounts of pollutants in the community.

That particular aspect is one of the sure bets in all of this.

Comments

  • (Show?)

    TA, in your confusion about the tax rates, you've got an oops. You've confused revenues with profits.

    The gaming tax would be on gross revenues after paying winners. But corporate income tax is based on profits, after all expenses.

  • (Show?)

    it still doesn't pencil out to a very high tax rate

    • (Show?)

      Yeah, but you said to "do the math", and you haven't.

      It would be entirely reasonable for a labor-intensive operation like a casino, hotel, and entertainment center to be running a 10% profit on revenues.

      Adjusting accordingly from your presumed 1-2% tax rate, you're looking at 10% - which is on par.

  • (Show?)

    Incidentally, this is a surprising - and very salient - find:

    The parking lot is, to my mind, the tell. 2,000 parking spaces is a bit more than what a 120-room hotel needs, even one with a bowling alley and swimming pool. The casino owners are betting big on day gamblers, lots of them. They’ll seek to bring in busloads of gamblers just as the tribal casinos do, but they’re expecting folks from all over the region to drive to Wood Village for the day to play the slots and sit at the card tables.

    A very strong point that counters the "it's tourism" argument.

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