Killing the Goose that Lays the Golden Eggs


In the last twenty-five years, many states have discovered that when properly managed legalized gambling can be a golden egg laying goose.  The states have had many options from which to choose: lotteries, casinos, slot machines, poker, sports betting, bingo, horse racing and most recently, online gaming; any of those options can be tapped to bring revenue into the state’s coffers.  But the gambling goose can be fragile; when too many options are introduced and each is forced to compete against the others the goose is in danger.  Pennsylvania, Illinois and Ohio are busily trying to kill their golden egg goose.

Outside competition can also be a threat to the goose. Pennsylvania has had casinos since 2007.  The casinos were very successful and the revenues increased every month year over year.  Until May 2012 when the first casinos opened in Ohio; since then Pennsylvania gaming revenues have declined nearly every month.  However, that is not the worst problem facing casinos in the Pennsylvania in the future.

In November the state passed legislation allowing as many as 4500 bars across the state to conduct limited gaming – pull tabs and such.  Also, the gaming commission is in process of awarding an additional license for Philadelphia; and finally there is a discussion on expanding gaming further with the internet and/or additional more frequent and high volume lottery games like keno.  The governor and the legislature are desperately in need of $1.5 billion to plug a hole in next year’s budget; by squeezing the goose they hope for yet more miraculous golden eggs.

Presque Isle Downs’ revenue from its 1,720 machines was $10.1 million in November, a decline of only 2.96 percent, when the casino had 2,030 machines…an improvement from recent months, when slot-machine revenue declined by 7 percent in October, by 12.9 percent in September and by 20 percent in August. John Guerriero, 12-6-13

Table games revenue slumped at Presque Isle Downs & Casino in November, dipping to less than $1 million for the second consecutive month. The revenue of $970,581 on 46 table games was down from the $1.3 million on 53 table games in November 2012, or a drop of 25.3 percent… Faced with competition from casinos in Ohio and other locations, the Erie casino routinely experiences month-over-month revenue declines from the play on its table games. Two recent examples: Revenue declined by 17.9 percent in October and by 12.9 percent in September. John Guerriero, 12-19-13

Thousands of bars in Pennsylvania will be able to offer small games of chance after Gov. Tom Corbett signs a bill given final approval by lawmakers on Monday in the state’s largest expansion of gambling since table games at casinos, bringing millions in tax revenue to the state treasury…Corbett’s office has estimated the gross profits from the gambling will be $260 million a year… The Corbett administration said the new gambling is expected to reduce the lottery’s sale of instant games by $25 million and hurt the lottery’s ability to get more bar owners to carry lottery products. Under the bill, about 4,500 bars and taverns could seek licenses to conduct pull-tab games, daily drawings and tavern raffles. Marc Levy, Associated Press, 11-19-13

Pennsylvania’s budget forecast appears far from merry and bright. At a briefing Wednesday, Budget Secretary Charles Zogby said the state could be facing at least a $1.2 billion budget gap for the next fiscal year. He said rapidly rising pension costs for state and public school employees, coupled with increased costs for health care to the poor, would put the state in the red for the fiscal year that begins July 1… There have also been discussions in the legislature about whether to legalize and tax online casino gambling, and whether to introduce as a lottery game keno, which could generate several hundred million dollars. Angela Couloumbis, Philadelphia Inquirer, 12-19-13

In Pennsylvania, as in every jurisdiction, there is a finite market for gaming products whether in bars, casinos, race tracks, online or hosted in a variety of locations by the lottery.  Every time more supply is added, the existing suppliers are going to pay a price.  It has been estimated that gaming in bars will to take $25 million from the lottery alone; the bar gaming will take as much or more from fraternal organizations who conduct those same games and more still from the casinos.  The additional casino in Philadelphia is certain to have a negative impact on the other casinos in the market and Ohio is still adding supply to the regional market.  The Pennsylvania goose is going to become weaker still in 2014.

Ohio and Illinois are both are going down the same path.  In Ohio the original enabling legislation only permitted four casinos in the state. Looking for more revenues and trying to please the race tracks, the governor pushed to allow race tracks to have slot machines; the racinos will eventually double the number of slots in the state.  Three racinos have opened and four more are scheduled to open in 2014.  By the time all of the racinos are opened, none of the casino or racino investors will be getting the returns they expected or in some cases needed to service their debt.  It is true that the state will be collecting more total tax revenues, but each taxpaying casino and racino is going be weakened by the additional slot machines and competition.  Ohio’s egg laying goose was born enfeebled – everyone over estimated the market and underestimated the competition.  In 2014 it is going to become more feeble.

In 2014, Illinois will be continuing its ongoing debate over gaming expansion and may authorize as many as six more casinos next year.  But without any additional casinos, the gaming revenue from existing casinos is being cannibalized by the last expansion.  In 2009, the legislature, on recommendation of the governor seeking revenues for his pet construction projects, passed a law allowing VLTs (slot machines) in bars throughout the state – the law went into effect in October 2012.  The initial legislation envisioned as much as $350 million a year in taxes from 30,000 VLTs; there are currently 11,000 VLTs in the state with more being added every month.  Each slot machine in a local bar weakens the nearest casino; the casinos in Illinois are already operating under a very heavy tax burden and the slot machines are making things worse – the Illinois casino goose is not well, not well at all.

A legislature or a governor searching for money can be a dangerous thing indeed.  And apparently most have never read the old nursery rhyme about killing the goose who lays the golden eggs.  As we all remember, it is a story of greed and a lack of foresight. The story is hundreds of years old, but the moral is as applicable today as ever.  However, it would seem that each person, or at least each public official, must learn the lesson for themselves.   Maybe reading old nursery rhymes should be mandatory for public officials.

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