Assessing the Odds
A while ago, I looked at the renewed proposals to expand gambling in Minnesota and concluded that it didn’t make sense, in a time of declines in the national gaming industry, to spend money on new gambling infrastructure in the hopes that it would start generating revenue soon enough to be of help. At the time, I noted that state lottery revenue was up in a bare majority of states, but numbers for Minnesota weren’t available. They are now.
In 2008, the Minnesota state lottery contributed $116.3 million to state programs. As you can see below, in the (very cute and nonthreatening) figure from the 2007 lottery annual report (pdf), this is about a 3.5% increase from 2007′s contribution.
That’s not too shabby. It suggests that lottery revenue is at least keeping up with inflation. Of course, the trend in the down economic years of 2001–2003 is somewhat troubling, but we don’t yet show signs of a similar slump this time around.
At least, we don’t see a slump in lottery revenue. Tribal gaming is another matter.
An evening of gambling may offer a welcome diversion from hard times, but casinos are finding they aren’t immune from the recession, according to John McCarthy, executive director of the Minnesota Indian Gaming Association. He estimated that casino visits and revenues are down 3 to 5 percent since the slowdown took hold last fall.
In some places, the decline is more dramatic.
However, one source of hard data — revenue the Fond du Lac Ojibwe shares by special arrangement with the city of Duluth from the Fond-du-Luth casino — is telling: The figures show a $211,000 drop in revenue in the third quarter of 2008, compared with the same quarter in 2007. The 12 percent decrease was the largest drop in at least several years, according to the city’s figures.
Karen Diver, chairwoman of the Fond du Lac Reservation government, estimates that the late 2008 decline was more in the 5 percent range at the tribe’s much larger Black Bear Casino Resort, which benefited from the completion last year of a $119 million expansion.
And it seems to be getting worse as the economic news stays bad.
“I guess there are some recession-proof businesses out there, but we’re not in that group,” said Tad Johnson, special counsel to the Mille Lacs Band of Ojibwe, which operates Grand Casino Hinckley and Grand Casino Mille Lacs. “For a while we were getting a similar number of customers but they were spending less. Then, a couple weeks ago we started to notice that there were fewer people, too.”
Given that casino-style gambling, either through a metro-area casino or through adding video gaming machines at the airport, appears to be the path to new revenue most favored by the legislators who are talking about it, does it still make sense to move ahead with these proposals? Possibly. One of the reasons given for the large decline in revenue in Atlantic City is the presence of newer, shinier and presumably more convenient gaming in nearby Pennsylvania and New York.
The same could potentially happen here if new gaming is added in the metro, if we’re willing to just move money around the state. A casino in our largest population center could draw enough revenue from the more distant tribal casinos, even in an economy where fewer people are gambling.
However, there are reasons for caution. According to a 2005 legislative report on the history of gambling in Minnesota (pdf), only once before has Minnesota entered a gambling industry that was in decline.
The opening of Minnesota’s first pari-mutuel racetrack in June of 1985 was one of the Twin Cities’ most eagerly awaited events of the mid-1980s. Named Canterbury Downs, the Shakopee track was a $70 million showpiece that could accommodate 30,000 fans. The president of the Thoroughbred Racing Association of North America called it “one of the jewels of racing in the country,” and said it “should be a benchmark for other states to study.” Its owners projected average daily attendance of 10,500, well above the national average for thoroughbred racing.
The first season of racing in 1985 seemed to justify this optimism. In 83 racing days the track drew an average attendance of 13,163, putting it in the top 15 racetracks in the country.
Not bad so far, but…
One disturbing element was also noted: the average daily betting handle of $1.014 million was almost $200,000 below projections. The average Canterbury fan bet $77 per day, well below the national average of about $120. But the track still showed an operating profit for the first year of about $37,000.
Although many indicators from the first season seemed to point to prosperity for Canterbury Downs, subsequent events suggested that the track had opened several years too late for its early success to be sustained.
Over the next two decades, the track changed hands several times, eventually becoming less a destination for pari-mutuel betting than a prop and a showcase for Minnesota’s horse industry. During this time, many attempts were made to change the Minnesota’s gambling laws to help make the racetrack profitable by adding other forms of gambling.
The report does note that horse racing has specific barriers to participation that other forms of gambling don’t have. It requires knowledge of the sport and its handicapping. However, Canterbury Downs is still notable for being the least successful gambling endeavor in the state. It was only with the addition of a card club in 2001, as games like Texas Hold ‘Em grew in national popularity, that the track became a stable concern.
So the question becomes, as Minnesota faces declines in casino gambling revenue, are we willing to risk another Canterbury Downs? Once again, how big a gamble is the state willing to make?
This entry was posted on Friday, February 27th, 2009 at 5:52 pm and is filed under Local History, Politics, Stephanie Zvan. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.