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.

Contribution History

Contribution History

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?

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11 Responses to “Assessing the Odds”

  1. February 27th, 2009 at 7:25 pm

    Greg Laden says:

    How much did the high gas prices of last summer affect gaming (especially at the more distant casinos) as compared to other economic factors remains to be seen. This summer. If the gas prices don’t go up like they did last summer, that is.

  2. February 27th, 2009 at 10:00 pm

    Silver Fox says:

    Anecdotal: sometimes people who are receiving a smaller than usual profit-sharing check (above and beyond regular wage, not salary), will spend it at a casino rather than banking it or investing – because it seems relatively insignificant, either compared to last year’s profit-type-sharing checks (there are a variety of these kinds of things), or compared to the regular paycheck.

    Don’t know how this would affect Minnesota, just what has been seen in small towns in Nevada.

  3. February 27th, 2009 at 10:01 pm

    Silver Fox says:

    Wow! A comment-editing feature!

  4. February 27th, 2009 at 10:40 pm

    Stephanie Zvan says:

    Greg, seeing as the number of casino visitors only started declining very recently, I’d say gas prices didn’t play a large role. However, add that to other economic pressures this summer, and it could be very bad for the casinos.

    Silver Fox, I would love to see data on how local gambling in Nevada is doing. I know Las Vegas is suffering, but that’s destination gambling. If you see anything in the news, mind sending me a link?

  5. February 27th, 2009 at 10:50 pm

    Silver Fox says:

    I’ll look, although I’m about to head to AK for the Iditarod. Tomorrow. My understanding is that ‘they’ are saying it is the first time that gaming hasn’t been recession proof. Don’t know if that includes the 1930’s. And that would be in reference at least to Las Vegas and Reno; the latter is a semi-destination, one people drive to and fly to. Not sure about the small towns as far as real data. (Besides Reno and Vegas, all there is are small towns.)

    Actually, I can’t *promise* any research on this before I leave, or while in Reno the next two days, or when in AK, but will see what I can do. Will be back 12th or so.

  6. February 28th, 2009 at 9:33 am

    Greg Laden says:

    Silver Fox: You are probably gone by now, but are you running INT the race? Or what? Have a great time in any event!!!!

  7. February 28th, 2009 at 10:17 am

    Silver Fox says:

    Hey, not gone yet, driving today, cell phone access today, tomorrow, fly Monday. No, not running, just watching and other stuff. Thanks! Some minor info about this has/will appear on my blog.

  8. March 1st, 2009 at 8:05 am

    Jim Emery says:

    All this, of course, aside from the ethical question of a democratic government sustaining itself by running games designed to bilk money from its citizens. Evidently that wouldn’t work anyway.

  9. March 1st, 2009 at 10:33 am

    Silver Fox says:

    Stephanie, if you can Google this, it has info about a new casino doing well in the relatively small town of Placerville (near Sacramento), and gaming down 4.3% nationwide and 9.7% in Nevada in 2008, with some of the biggest casinos hit the worst: Reno Gazette-Journal, March 1, Red Hawk Casino Defies the Odds. I think it’s

  10. March 1st, 2009 at 3:03 pm

    Norm says:

    Hey, Stephanie.

    First of all, I talked with Mike for a while after the blood drive yesterday, and he asked me if I might be willing to contribute to this on occasion. I’ll certainly be up for it when I can find time in between schoolwork and house-hunting, and eventually moving. Regarding this post, my wife and I were in Vegas for a few days in early January (a good time to go but make sure you take the CES into account), and the local news there had stories on how revenue on the Strip was down nearly 20% from the same time a year ago. Couple that with the crash from one of the country’s most inflated housing markets during the bubble, and the city is in serious trouble. My wife has some extended family there, one of whom was recently laid off, so it we are quite concerned. Personally, I’ve always been skeptical of the state building more gaming venues, mainly because of the regressive nature of the activity, but also because I find a bit of poetic justice in the concept of tribal casinos: we took their land, now they are taking our money; give it another century and things might even out. By the way, great show this morning. I’ve always loved Massimo’s deft mixture of smugness and humility.

  11. March 2nd, 2009 at 7:53 am

    Mike Haubrich says:

    Regarding the Indian Casinos and your comment on poetic justice. I was up in central Minnesota about ten years ago, talking to a conservative who wanted to expand gaming casinos to include non-native ownership. He said “It just isn’t right that they should be able to have a monopoly on this. They need to share the wealth.”

    I asked him if he owned land in Minnesota. He said he did. I asked him if he was going to share it with the Ojibwe. He said he would not, because he earned it. No sense of irony in his voice, that one.

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