letting the good times roll on riverboat casinos

Laissez le bontemps roulette!

Lettingthe Good

TimesRoll

on Riverboat Casinos

by Adam M. Zaretsky

Until 1990, casino gam-bling was legal only inNevada and Atlantic

City, NJ. Since then, it hasbeen authorized in 23 states,including four in the EighthFederal Reserve District. Ina quest to raise revenueswithout imposing additionaltaxes on the populace, thesestates have approved casinogambling, touting that newjobs will be created andadditional monies will bemade available for education.

Iowa, which was thefirst Midwestern state toapprove riverboat gambling,found it to be quite suc-cessful. Illinois, Missouri,Indiana and Mississippihave now followed Iowa'slead and passed riverboatgambling initiatives. Thedegree of success of theseoperations varies by stateand depends on the con-centration of nearby com-petition. Because gamblingis too new in Indiana andMissouri, riverboats inIllinois and Mississippiare the centerpieces forour District. Arkansas,Kentucky and Tennesseehave not yet tackled theissue, either in an electionor in the legislature.

IllinoisIllinois' first boat opened in Sep-

tember 1991. During its first week ofoperation, which was only five dayslong, 7,130 people attended, andadjusted gross receipts—after payoutsfor winnings—were about $296,000.Of this total, about $73,500 was paidin state and local taxes: Illinois requirestwo dollars of the admission fee go tothe state and locality (one dollar toeach) and imposes a wagering tax—15 percent to the state, 5 percent to thelocality—on the adjusted gross receipts.

At the end of 1991, with two river-boats operating, adjusted gross revenuesin Illinois were almost $15 million,with more than $3.5 million in taxesgoing to government agencies. By1993, Illinois had 10 riverboats, withrevenues of almost $606 million.During the first quarter of 1994,12 riverboats produced revenuesof slightly more than $217 million,about $10 million less than receiptsfor all of 1992, and logged more thanfour million visitors. If attendanceand revenues continue on this pathfor the remainder of the year, thestate can expect to collect wageringtaxes of almost $175 million andadmissions taxes of about $34 million.

Illinois law does not allow docksidegambling, unless circumstances pre-vent the boats from cruising, nordoes it include a loss-limit—themaximum amount an individualcan lose during a gambling excursion.This certainly gives its casinos anadvantage over those that are subjectto a loss-limit in neighboring states,like Missouri.

MissouriVoters approved Missouri's

riverboat gambling referendum inNovember 1992, and plans wereimmediately hatched to place river-boats in the St. Louis and Kansas Citymetropolitan areas. Opponents ofgambling, however, filed suit, ques-tioning whether games of chance—slot machines, craps, roulette, etc.—were constitutional in the state. Thestate Supreme Court said no, therebyrequiring a constitutional amend-ment to allow such games on theboats. In April 1994, the amendmentfailed by the narrowest margin in statehistory. A recount was requested bythe pro-gambling campaign, but theoutcome was a wider margin of defeatfor the amendment. In response,the state legislature legally redefinedgames of skill to include craps, videopoker and video blackjack. This lawis expected to face a court challenge,but, until then, riverboats have openedto offer games of skill.

Missouri imposes admission andwagering taxes similar to Illinois'.The state receives 18 percent and thelocality receives 2 percent of adjustedgross revenues; two dollars of theadmission fee are turned over tothe state gaming commission, whichkeeps one and gives one to the locality.Also like Illinois, Missouri does notallow dockside gambling.1 It does,however, impose a loss-limit of $500per excursion on individuals. Thisprovision superficially appears tohandicap Missouri casinos againsttheir counterparts in neighboringstates where loss-limits do not exist.The provision's effectiveness is blunted,though, because it applies only to asingle excursion: Individuals needonly pay an additional admission feefor further excursions to continueplaying. What this will mean for rev-enues remains to be seen, particularlybecause many of the plans, especiallyin St. Louis, call for extensive land-based building—for example, hotels—in conjunction with the riverboats,which will raise other revenues forthe state.

IndianaIndiana enacted its gambling law

in July 1993, allowing individualcounties and municipalities to askvoters if they want riverboats in theirarea. Currently, the Indiana GamingCommission has only five licensesto grant to Ohio River communities;six counties, across the river fromCincinnati and Louisville, havealready passed referendums. Thefirst boat is expected to open by theend of this year.

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The Regional EconomistJuly 1994

As in the other states, Indianawill impose admission and wageringtaxes on the casinos. The state retains15 percent of adjusted gross revenues,and the local and county governmentseach get 2 1/2 percent. Of the $2.50admission tax, one dollar each goesto each the local and county govern-ments, and 50 cents goes to the state.Unlike Missouri, Indiana does nothave a loss-limit provision. As inIllinois and Missouri, dockside gam-bling is allowed at the boat captain'sdiscretion for safety. This allowancefor dockside gambling, though, is stillmore restrictive than that in otherstates, for example, Mississippi.

In addition, Mississippi does notimpose a loss-limit on individuals.This has led to Mississippi raisingmore gambling revenues than anyother state except Nevada and NewJersey. For example, in 1993, with17 boats operating by the end of theyear, Mississippi boats' adjusted grossrevenues were about $790 million. InIllinois, 10 boats in 1993 had adjustedgross revenues of about $606 million.

Mississippi also has a more com-plex taxing scheme—it imposes aprogressive rather than a flat wageringtax. Essentially, the state collects anincreasing percentage of monthlyadjusted gross revenues: 4 percent

Adam M. Zaretsky is aneconomist at the Federal ReserveBank of St. Louis. Thomas A.Pollmann provided researchassistance.

ENDNOTES1 There is one exception in St.

Louis for a boat that does notmove under its own power.

Casino Gambling in the United States

MississippiMississippi's first boat opened in

August 1992 in Biloxi. By the endof 1992, five boats had opened, fouron the Gulf Coast and one on theMississippi River in Tunica County.In 1993, another 12 boats openedfor business, four of them in Tunica.This year, nine more boats openedby June, three in Tunica. Mississippiis now second to Las Vegas in totalsquare footage of gaming space. ByJuly 1995, the state predicts therewill be more than 40 riverboats oper-ating in the state. Tunica Countyalone has at least five more casinosslated to open this year and has trans-formed itself from one of the poorestcounties in the nation to one of thefastest growing.

Unlike other states, Mississippiallows dockside gambling. Thus,operating costs for the riverboats aredramatically reduced because theydo not incur the costs of cruising onthe river. Many boats, in fact, do noteven have engines or wheelhouses.

on the first $50,000, 6 percent on thenext $84,000, and 8 percent on any-thing above $134,000. Local taxesfollow the same scheme with muchlower rates, and individual countiesand cities make different provisions.

Much of this fanfare may coolbecause of the riverboat casinos inLouisiana, especially those in theNew Orleans area. On top of this, aland-based casino, which is a greaterrevenue generator than a riverboat,will soon open in New Orleans. Directcompetition with these facilities, how-ever, will affect the Gulf Coast boatsbefore it reaches those up north. NewOrleans' greater ability to attractvisitors because of convention andsporting facilities, as well as the city'swell-known appeal as a tourist desti-nation, will hurt Mississippi, butthe extent of the effect remains tobe seen. Until then, Mississippi hasa head start and the experience itscompetition does not.

Notes:Nevada has about 2,200

gambling establishmentsin all counties. The threemajor sites are "pinned"on the map.

Alaska and Hawaii cur-rently do not havecasino gambling.

Tribal reservation infor-mation is currentthrough May 2, 1994.

Land-based and riverboatcasino informationis current throughJune 24, 1994.

Sources:Land-based and riverboat

casinos: State depart-ments of gaming or stategaming commissions

Tribal reservation casinos:National Indian GamingCommission

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