Ohio bet on gambling didn’t meet expectations

Cleveland — Gamblers stream from a parking deck across a glass bridge over Prospect Avenue to the floor of the Horseshoe Casino. After they’ve struck it big, or emptied their wallets, they stream back across the bridge, climb into their cars and drive home.

Few seem to set foot on the street outside.

“People who go to the casino come downtown and gamble and then go home to the suburbs,” said Gabe Wojnarowski, a barista at a nearby coffee shop. Their business, he said, stays inside the casino.

Perhaps no state has embraced casino gambling in recent years as much as Ohio. In 2009, voters approved a change in the constitution allowing the Cleveland casino and three others. Ohio separately allowed video slot machines at seven horse tracks throughout the state to fill budget gaps.

In just a few years, Ohio went from no casino-style gaming parlors to 11.

As Georgia lawmakers and voters examine the possibility of allowing Las Vegas-style gambling, Ohio offers an example of a state that bet on gambling to raise revenue, spur development and create jobs.

The results: Revenue and jobs fell short of promises. That’s in part because of shifting spending patterns since the recession, and a saturation of gambling in Ohio and the Midwest, gambling backers and opponents agree.

Still, casino-style gambling has netted more than $700 million for state and local coffers, while the race track “racinos” have raised about $450 million for education.

The new Horseshoe casino returned life to a hulking former department store in the center of Cleveland’s brick and stone downtown. It’s become a new attraction for tourism leaders to pitch. But a $600 million expansion in a modern new building hasn’t materialized, and a second phase is still being studied.

Though the casinos have helped keep gambling revenue from drifting to other states, the crowds are generally locals, not out-of-state high rollers.

Ohio collects about a third of adjusted gross gambling revenue, or the amount left over after casinos and the horse track parlors, called “racinos,” pay winners.

Ohio state Sen. Bill Coley, who chairs the legislature’s Joint Committee on Gaming and Wagering and has been critical of the industry, said tax revenue also suffered because the casinos installed fewer slot machines and table games than originally projected, and the state allowed it. Ohio also granted a key tax break that many states don’t give.

Both factors hurt state collections while making operations more profitable for the casinos, he said.

“They are going to get away with whatever you are going to let them get away with,” Coley said.

Projections ‘like darts’

Casino companies tried and failed for years to get Las Vegas-style gambling approved by the Ohio Legislature. In 2009, gambling giant Penn National and billionaire Cleveland Cavaliers owner Dan Gilbert led a coalition that bypassed lawmakers and put the matter directly to voters via a constitutional amendment.

It passed with 52 percent of the vote.

A nearly $50 million pro-casino political campaign promised 34,000 construction and permanent jobs, reports said at the time. About 11,000 construction jobs were created, and fewer than 5,000 permanent jobs resulted, Ohio Casino Control Commission Executive Director Matt Schuler said in September.

An additional 4,100 were employed at the state’s seven racetrack gambling parlors, known as racinos, the Columbus Dispatch reported last year. But jobs at racinos were not included in the promises to get voters to change the Ohio constitution.

According to the Dispatch, the state collected $518.6 million in tax revenue from the four casinos in the first two years, when estimates predicted $651 million in Year One. About $720.4 million has been disbursed to state and local governments since July 2012, according to state regulators.

Separately, more than $450 million in racino revenue went to Ohio Lottery education programs in the past four fiscal years, according to lottery data.

The projections were based largely on pre-recession data that didn’t hold up.

“A lot of writers try to hold casino owners to those projections,” said Alan Silver, an Ohio University hospitality professor and gambling industry expert. “But you can throw them out window. They’re a lot like darts.”

In addition to shoring up state and local budgets, gambling has boosted Ohio tourism, said Emily Lauer, spokeswoman for Cleveland’s convention and visitors bureau. The Horseshoe is a big part of $3 billion being invested in downtown’s renaissance, she said.

The city has three major league sports teams downtown, the Rock & Roll Hall of Fame and a renowned theater district. Downtown streets and the city’s Public Square are getting an overhaul ahead of the 2016 Republican National Convention and new hotels are planned.

“It’s been a terrific complement to our attractions downtown,” she said.

‘Keep the money in the state’

Greg Paradis, an executive with the Horseshoe, said parent company Rock Gaming and operating partner Caesar’s Entertainment have invested more than $350 million in the former Higbee’s department store it occupies. The store, used for the famous scene where Ralphie meets Santa Claus in the 1983 movie “A Christmas Story,” was a fixture similar to downtown Atlanta’s old Rich’s.

The casino employs about 1,600, nearly all full-time. The company has helped to create more than 99,000 hotel room nights in three years. It has partnerships with nearby hotels and local eateries.

Racinos weren’t anticipated as competition for gamblers’ dollars, but the market has not been a disappointment, Paradis said.

“The Cleveland market is very interesting,” he said. “It’s a maturing market, still in its infancy and going through a maturing phase.”

The company’s expansion is still under evaluation, he said.

When the Horseshoe opened in 2012, customers flooded nearby eateries and bars. But in recent years, the Horseshoe opened restaurants inside.

The casino spins off a lot of business when it has special events, but Indians and Cavaliers games bring far more customers to local eateries than the casino, said one waitress at a nearby bar.

On a recent Monday and Tuesday night, several restaurants on the casino’s block had mostly empty tables. A few didn’t operate much later than the afternoon rush hour.

Wojnarowski, the coffee shop worker, said a casino doesn’t fit with the character of Cleveland.

“If people want to gamble, they don’t go downtown, they go to Las Vegas,” he said.

Shawn Clark, of Dayton, Ohio, was in Cleveland for business and gambled about $20 at the Horseshoe on a recent Tuesday. Clark said gambling is good for Ohio. He and his wife occasionally spend a night out at a Dayton-area racino.

Before Ohio legalized gambling, casinos in Indiana and other states were siphoning money away. Tour buses took gamblers to casinos out of state.

“It’s good to keep the money in the state,” Clark said, though he thinks Ohio allowed too much gambling.

“Nobody is flocking to them. You’ve spread it around so much,” he said.

Problem gambling also is something he said he sees every time he goes.

“I see people I know paying to play with money that would pay their power bill,” Clark said.

Lessons for Georgia

This coming legislative session, Georgia lawmakers will consider a bill to allow up to six casinos, including a resort in Atlanta valued at no less than $1 billion.

MGM Resorts International has scouted sites for just such a mega resort, with an arena, hotel, shopping and fine dining. Other casino companies, including billionaire Sheldon Adelson’s Las Vegas Sands Corp., are gearing up for a lobbying push.

Gambling backers say six casinos could pump $280 million a year into the Georgia Lottery-funded HOPE Scholarship program. They also promote projections for more than 10,900 direct jobs, and tens of thousands of more in indirect and construction jobs.

The Georgia bill calls for casino revenue to be taxed at 12 percent. Ohio taxes casinos’ gross revenue at 33 percent, and racinos at 33.5 percent.

Coley, the Republican Ohio state senator, called the proposed revenue split in Georgia “very low.”

Georgia Gov. Nathan Deal recently complained about the low proposed tax rate in coming out against casinos. His opposition could make the casino push a near impossibility while he’s in office.

Coley said Georgia needs to study other states to know what it’s getting into. One example, he said, was granting a tax break he estimates has cost Ohio $165 million in tax revenue.

Ohio agreed to let casinos avoid paying taxes on what’s called “free play,” or promotions to encourage gamblers to visit by giving them small amounts of casino credit. Other states tax it.

Coley said free play includes rewards club memberships and has added up to more than $500 million statewide in potential untaxed revenue.