Ohio: In the Midwest, It's a Whole New Game
After four failed attempts over 20 years Ohio voters have finally approved a statewide referendum allowing casino gambling in one of the nation’s most populous states. But as casino operators prepare plans to bring gambling to the state’s four largest cities - Cleveland, Columbus, Cincinnati and Toledo - potential court challenges, legislative tinkering and competitive pressures are looming.
Experts say the situation in Ohio is following a familiar pattern when gambling is approved in a state.
Battles over revenue splits, tax rates and legalities are typically fought out in courtrooms and statehouses, says Dennis Forst, a gaming analyst and managing director of the research department at KeyBanc Capital Markets in Los Angeles.
“It always happens. You’re going to see legal roadblocks thrown up from Columbus to Cleveland. There’s no way to predict what will happen. But the voters have spoken. And that’s a pretty powerful statement.”
For now, casino developers are moving forward following the November 4 election, when voters approved a statewide gaming referendum by a vote of 53 percent to 47 percent.
The casinos in Columbus and Toledo will be operated by Pennsylvania-based Penn National Gaming, which also operates the Hollywood Casino in Lawrenceburg, Ind., which draws much of its business from the Cincinnati area. Casinos in Cleveland and Cincinnati will be developed by Dan Gilbert’s Rock Ventures, a holding company that also includes Internet mortgage lender Quicken Loans and the Cleveland Cavaliers NBA franchise.
Gilbert and Penn National President and CEO Tim Wilmott met November 11 with Ohio Gov. Ted Strickland in the state capital of Columbus to discuss their casino plans.
“We’re here to let the state know that we’re willing to work with them on making sure that we put together a regulatory structure that can instill public trust and confidence in the gaming industry in the state of Ohio,” Wilmott told reporters after the meeting. “We’re anxious to get started.”
In 2008 Penn National spent nearly $40 million to help defeat a statewide ballot referendum that would have allowed one casino in Ohio. This year, insiders estimate that spending by Penn, Rock Ventures and others favoring gambling reached well over $50 million.
“They spent a fortune,” says Forst.
Forst says casino advocates ran a “different kind of campaign in a different kind of environment” to finally pass gaming in Ohio. In an aggressive push that included lots of television advertising coupled with grassroots tactics such as knocking on doors in heavily populated areas, backers promised that gambling would create 34,000 new jobs and keep $1.5 billion in tax revenue for a state grappling with deep budget problems.
“It was a confluence of a lot of different factors,” Forst says. “Clearly the economy, the need for jobs, tax relief all played a role. Also, voters are getting smarter about seeing that a lot of tax dollars are going across the border to Pennsylvania, Michigan, West Virginia, Indiana and elsewhere.”
Standing on the site of his proposed Cincinnati casino, Gilbert recently told reporters he wants to make the casino “ an extremely unique project.”
“We want to make it special and tie into the community,” he said during a press conference.
Gilbert said his plans for Cincinnati include construction of a $500 million, 300,000-square-foot casino on a 20-acre site on the fringe of downtown along Interstate 71.
Gaming operators must still be chosen for Gilbert’s two casinos.
Under the referendum developers have to spend at least $250 million at each casino site, pay a $50 million license fee and when the casinos finally open a 33 percent tax rate.
But already there is a move among some state lawmakers to grab more of the gaming revenue.
A handful of Republican lawmakers are pushing for an amendment to the Ohio Constitution that would nearly double the casino tax rate to 60 percent. Others want to boost the license fee.
City officials in Columbus - the only metropolitan area that voted against the referendum - are exploring legal options to keep the casino from opening in the city. The movement has legs among state legislators representing the Columbus area.
Meanwhile, the state’s seven racetracks, which at one time appeared to be close to morphing into racinos, are also waging a fight for some of the gambling action.
Just days following the November 4 vote, Beulah Park, a thoroughbred track south of Columbus, installed 30 Sweepstakes machines. Similar to the video lottery terminals found in many racinos, the Sweepstakes machines allow players to play up to 30 games of chance. The maximum payout is $400. Other tracks are not following Beulah, yet, and a legal challenge to the games is expected because VLTs are not legal in Ohio.
Ohio’s racetracks were poised earlier this year to develop racinos. In July Strickland signed an executive order permitting them. His move was later codified by the state Legislature. But a conservative political coalition challenged Strickland’s authority to allow gambling without a vote of the people. The Ohio Supreme Court agreed, ruling that racinos can only be approved by the voters. That could force the racino issue onto the ballot.
It is not clear if racing interests will move to put the issue on the 2010 ballot or wage a court fight. Strickland has not yet decided if he will challenge the Supreme Court ruling on grounds that racinos can be operated legally under Ohio’s lottery law, his rationale for signing the July executive order. He has been focused on appointing a gaming commission that will oversee the casinos and preparing for legislation necessary to stipulate how gambling will be operated in Ohio.
Racetrack operator have said for years they need racinos to compete with gambling in other states and to keep racing viable and profitable in Ohio. MTR Gaming Group, which operates Mountaineer Casino in West Virginia and Scioto Downs in Columbus, lobbied hard for Strickland’s executive order, hoping for approval of a racino at its central Ohio track. MTR Chairman Jeffrey Jacobs also became the leading opponent of the casino referendum. When casino backers collected enough signatures - about 400,000 - to put the issue on the ballot, Jacobs formed TruthPac, which fought the casino initiative. Records with the Ohio Secretary of State show TruthPac spent nearly $6 million funding an anti-casino campaign. Almost all of the money came from Jacobs.
Wilmott told reporters after his meeting with Strickland that the anti-casino campaign was full of “myths and lies” concerning job creation and the social impacts of gambling.
“We’re going to be a good business partner,” he said. “We’re going to create very good jobs. We’re going to create a lot of energy in the downtown area(s) here.”
Meanwhile, neighboring states have begun to react to the competitive threat.
David Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas, says states will try to protect their casino revenue from being cannibalized by Ohio.
“States with casinos have to do something to protect their market share. You’re going to see some of that because of what is going to take place in Ohio.”
To the east in Pennsylvania, revenue from the state’s slots-only casinos increased almost 32 percent in October over the same period in 2008. But with Ohio casinos coming, state lawmakers are drawing up legislation to permit table games at Pennsylvania’s nine casinos.
To the west, in Indiana, that state’s two racinos, both of which are within easy driving distance of Ohio, are lobbying legislators to also allow table games. Under current law the racinos are only permitted to operate slots. The fear is that Indiana could lose $100 million a year in tax revenue to Ohio’s casinos.
To the north, casinos in downtown Detroit are concerned about the casino in Toledo, which is less than an hour away.
And to the south the Kentucky Legislature is expected early next year take up a bill allowing racinos at the state’s seven racetracks.
Four of the tracks border or are close to states where casino gambling is legal. Pro-casino legislators, the state’s racing industry and others have for the last several years tried to win support for legalized casino gambling in Kentucky, only to be stymied in the Legislature.
Gov. Steve Beshear, a first-term Democrat, was elected in 2007 running on a platform to win support for casinos.
“Ohio citizens are going to reap the benefits of thousands of new jobs and millions of dollars in tax revenue,” Beshear said in a statement the day after the Ohio referendum passed. “Clearly,” he said, “the time to act on expanded gaming is now.”