Rewarding a job well-done – BIG TIME!

Casino Construction Halted
Casino Construction Halted: In a dispute with Ohio Gov. John Kasich, Rock Gaming has halted casino projects in the state. The Horseshoe Casino site in Cincinnati is locked and deserted.

Every state has a different approach to licensing, regulating and taxing casinos.  Much of  regulation depends on the context of the times in which casinos were legalized.  The initial casino legislation in Nevada was passed in the midst of the Great Depression. Nevada was not worried about anything but creating jobs, stimulating investment and economic activity.  Later Nevada’s regulations were altered to accommodate other concerns; regulations requiring better accounting were promulgated in response to skimming scandals and controls over corporate ownership when Howard Hughes’ company bought six casinos in the state.  Taxation in Nevada is approached carefully, Nevada’s casino tax rate is the lowest in the nation.  The state needs the casinos; casinos stimulate the economy in numerous ways including construction, employment and the associated businesses that supply casinos.  Nevada is very sensitive to the industry concerns about excessive taxation; casinos in Nevada are much more than a source of tax revenue and few people in the state forget that.

In other states there are differing views on what needs to be regulated and how much tax is appropriate.  Until this year, New Jersey’s regulations were very strict and detailed – the major concern of the regulators was protecting the cash-flow (and therefore the state’s tax revenues) from corruption by organized crime. However, like Nevada, New Jersey has been careful not too over tax casinos and harm their business.

Some states put casinos on water to protect potential problem gamblers by restricting access to gambling.  in general states that legalized casinos until recently were more interested in limiting and controlling the industry than they were in the tax revenues.  That has changed with the economy, Illinois and Pennsylvania for example looked at casinos as a way for the state to raise revenues and gave much less thought to keeping the mob out or to protecting gamblers from themselves.   Actually, Illinois started out trying to protect the gamblers, but the money became more important beginning about 8 years ago, since then the state has dramatically increased its tax rate.

States contemplating legalizing casino gambling since the recession started want and need money.  Those states want large license fees and much higher tax rates than states which legalized gambling in a different economic climate; states like Louisiana, Mississippi, Missouri, New Jersey and Nevada have much lower rates than Pennsylvania.  In the current economy there are fewer casino operators willing to pay the higher fees; to prospective operators now it is clear they cannot make money if they pay too much for the license and in taxes, as Kansas has painfully discovered.  Just ask the two race tracks in Illinois that have declared bankruptcy after having paid $200 million for the privilege of having slot machines.

Still, the push for more continues money and this week that means Ohio.  Last year the voters in Ohio authorized four casinos in the state.  The governor was a pro-gaming governor and wanted to use gaming to raise money, create jobs and investment – both the tax rate and the license fees were reasonable.  However, the newly elected governor is not so much in favor of gambling – he is more concerned that the state get a “fair share” of the profits.  He is suggesting a new and much higher tax structure.  He hired a consulting firm and asked them if he was on the right track.  The consultants agreed and told him to go for it, “take more from those greedy gamblers.”  The potential operators in the state are not very sympathetic to any tax increase, trying to convince the governor it is not a good idea.  He won’t listen, so this week all construction work on casino in Cincinnati and Columbus stopped, setting back any potential casinos and revenues to the state by at least a year; and of course those 40,000 jobs promised in the campaign to authorize the casinos are also on-hold.

The consultants don’t have much in the way of casino credentials and now it has been revealed by the Associated Press that they have a small conflict of interest.  They will get 3.25 percent of the increase plus $200, 000 a month.  This is one of the strangest tales I have run across in years and years of following the gaming industry.  Just imagine, the governor of your state hires you to advise him on sales tax; you recommend a 30 percent increase.

The number in Ohio is much higher because they want to tax wagers, not win; the legislation imposes a tax on gross win. All states tax gross gaming win, that is casino revenue after bets are paid – this proposal is simply on wagers; it could not work, no casino would be profitable paying a tax that exceeds the casino win percentage and that is before paying any expenses, like payroll or debt and interest payments.  But that doesn’t matter to either the governor or the consultant because neither understands the implications.

But back to you and your governor – you tell him people can afford to pay that 30 percent, they are just whinny.  He agrees and as a reward for your insight into human nature gives you 3.35 percent of the increase for life.  I am thinking I could live comfortably on the hundreds of millions of dollars it would generate, how about you?


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