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1619-6-1 Implications of casino gambling as an economic development strategy THE AMERICAS GROUP CHARLES DUSSEAU President druj...4 ' otaa,s L4, a- pkr/.4-05. ge--CAAres-.,,) (el r1 Miami,Florida 33133, Telephone:305 856-1998, Facsimile:305 856-1910 Washington,D.C.•Buenos Aires•Sno Paulo•Santiago•Lima r • IMPLICATIONS OF CASINO GAMBLING AS AN ECONOMIC DEVELOPMENT STRATEGY PREPARED BY: THE FLORIDA DEPARTMENT OF COMMERCE CHARLES DUSSEAU, SECRETARY SEPTEMBER 19, 1994 A Perspective from The Florida Department of Commerce I. INTRODUCTION The "Proposition for Limited Casinos" has successfully earned a position on the November 1994 ballot. If the voters of Florida approve it, it would authorize the establishment of a specified number of casinos in Duval, Escambia, Hillsborough, Lee, Orange, Palm Beach, Pinellas, Dade, and Broward counties; casinos at existing parimutuel facilities; and five riverboat casino facilities. Proponents claim the plan would provide Florida tourism, the state's largest industry, with a much-needed boost, which is particularly critical now as tourism in Florida has slipped below 1993 levels for several consecutive months. The Florida Department of Commerce is the state agency charged with promoting tourism, economic development and international trade in Florida. The Department's mission in the context of each of those arenas is: "... to serve as an effective force in improving the quality of life of all Floridians by building an economy characterized by higher personal income, better employment opportunities and improved business access to domestic and international markets." In pursuit of this mission, the Department operates programs designed to encourage job-creating industrial investment in Florida, to strengthen the tourism industry, to promote expanded international trade, to support the survival and growth of small and minority businesses and to assist Florida's rural communities in succeeding in their own economic development efforts. It is from the perspective of this mission and these programs that the current proposal for Limited Casino Gambling has been evaluated. The position of the Department is based on the anticipation of how gambling would most likely impact Florida's economic development efforts,specifically the state's tourism industry as well as other strategic economic development efforts. IL EXECUTIVE SUMMARY For the second time in less than 10 years, the voters of Florida will be going to the polls to decide the fate of casino gambling in the state. It is with this critical decision in mind that the Florida Department of Commerce has evaluated and formulated the following official position regarding the legalization of casino gambling in Florida. The Department's position is a result of careful examination of Florida's defined goals of economic development; analysis of the current status and potential needs of Florida's current tourism industry; and investigation of the current body of research assessing both the demonstrated and anticipated effects of legalized casino gambling. The Florida Department of Commerce has determined that casino gambling would not be of economic benefit to the State of Florida. In addition, there is sufficient evidence to suggest that gambling would be a counter-productive economic development strategy that is unlikely to help, and instead may HARM the state's tourism industry and other economic development efforts. The nature of Florida tourism and its markets is such that casino gambling would not attract significant numbers of new visitors. In fact, a reasonable concern exists that perceptions of the less desirable aspects of casino gambling might diminish Florida's favorable overall image for tourism and economic development. Instead of drawing additional economic activity to the state, casino gambling would bring about shifts in where and how discretionary income is spent within the state. Proponents say casinos would boost tourism through incremental rises in the number of visitors, the length of their stays in Florida and reduction of Floridians' traveling out of state for casino gambling opportunities. Despite analysis of in-state and national casino research, the Department has been able to find no data to support these claims and substantial research and documentation that refutes them. •MORE VISITORS Florida hosted more than 41 million visitors last year. The City of Las Vegas spends $33 million — more than twice as much as the state of Florida — to attract 23 million visitors, a little more than half of the 41 million who visit Florida. In addition, Florida currently enjoys 93 percent repeat visitation rate by our visitors. •LONGER STAYS The average length of stay of a Florida visitor (12.5 nights in 1993) is four times that of a visitor to Las Vegas (3.1 nights). Despite myriad changes in economic conditions and tourism opportunities, length-of-stay figures for Florida visitors have remained remarkably stable for at least this past decade. (Executive Summary, cont.) •INCREASING FLORIDA'S TOURISM APPEAL Research conducted by a national research firm used by the gambling industry discovered that currently 85 percent of gamblers surveyed want a Florida vacation — despite the fact we have no land-based casinos. In addition, there is the issue of market saturation and negative implications in regard to sustainability. There are currently 24 states that have operational or authorized casino gambling and by the year 2000, 95 percent of all Americans are expected to live within a 3-4 hour drive from a casino. The result of the proliferation of casino gambling around the country, is that the need for Florida to have casinos to attract tourists is significantly diminished. •MORE TOURISM REVENUES Florida tourism is a $32 billiop business. By contrast, the casino gambling industry nationwide is $31 billion business. Mississippi collected $65 million in gambling taxes last year. Florida matches that in tax revenues from its visitors, without gambling, in less than two weeks. The conclusion of most researchers is that casino gambling in Florida would not attract new economic activity, but instead would cause only shifts of economic activity within the state. One result is that the same discretionary dollars that currently support the existing tourism industry like attractions, lodging, souvenirs, and the like, are diverted to casinos. III. THE NATURE OF FLORIDA'S TOURISM INDUSTRY Florida's tourism industry has built an empire by promoting its natural attributes and family attractions. For more than 40 years, Florida has been one of the world's premier vacation destinations. Florida's initial appeal was rooted in the warm climate and abundance of beaches and waterways. The state's natural assets continue to provide the state with a unique advantage. Florida has 1,000 miles of recreational beaches, more than any other state in the nation. And, Florida is rated as having 12 of the nation's top 20 beaches. In addition to natural beauty, during the past two decades, the state has also evolved into being the undisputed attractions capital of the world—bringing in an estimated over 16.5 million visitors each year. It is important to note that Florida's abundance of natural assets and family attractions have served to define the state's brand identity and is largely responsible for the state's unparalleled tourism success. The evidence is that no other tourism destination can match Florida's growth in raw number of visitors over the past 10 years. We have jumped from hosting 19.1 million in 1978 to over 41 million visitors last year. Florida's tourism industry is at an all-time high. Last year the state hosted more than 41 million visitors — 1.2 percent more than 1992. Taxable sales revenues in the Tourism and Recreation categories exceeded $32 billion, a 3.6 percent increase — making tourism Florida's leading industry. In addition, tourism employment rose 4.6 percent. Despite positive net growth last year, Florida's tourism industry IS facing unprecedented challenges today and will continue to in the future. Recent tourism research has identified three primary issues that are influencing travel to Florida in varying degrees. Those factors are: economic concerns, increased competition, and negative perceptions regarding visitor safety. The confluence of these primary factors and along with other miscellaneous issues in various markets is resulting in a slowing of tourism growth. For the first seven months of 1994, total visitors in Florida exceeded the 25 million mark, representing a 3.5 percent decrease from the same period in 1993. This decline is the result of an erosion trend in some specific market segments, in particular, auto visitation. While the drop is not drastic, it has created considerable concern within the tourism industry. However, it is important to keep a clear perspective on the scope of Florida tourism and the decline. A decline of a few percentage points, in the context of 41 million visitors, does not indicate Florida tourism is in dire straits. In fact, it would be unrealistic to expect to expect to continue to grow at such a pace indefinitely. Florida must strive to develop efficient, innovative and effective long-term strategies to maintain its number one position. IV. ANALYSIS OF RESEARCH The Florida Department of Commerce has conducted no primary research on the anticipated impact of casino gambling in Florida might have on the state. However, the Department of Commerce, Bureau of Economic Analysis, has analyzed a large portion of secondary data and other proprietary data on the subject. The bulk of the research resulting in pro-casino data appears to have been funded by industry interests. The industry-sponsored research focuses far more on benefits than negative impacts. In addition, these studies largely neglected to consider the impact of residents and visitors shifting current expenditure patterns into casinos rather than augmenting current expenditure patterns. This observation is reiterated by Professor Goodman of the University of Massachusetts in his extensive analysis of a two-year study on the economic implications of gambling. Economists at the Florida Department of Commerce have reviewed studies prepared for two Florida casinos proposition-support groups and other related national data and have reached similar conclusions. Most available literature on the economic impact of the addition of casino gaming to local economies in the recent past can only evaluate the short-run impacts. Not surprisingly, the literature positions casinos in favorable terms. However, the limited, balanced research located on long-term effects indicates that the casino gambling industry sector creates "cannibalization" within the market and thereby results in net negative costs. In addition, the issue of market saturation and sustainability are not addressed in the pro- casino research. These same issues are explored as significant negative consequences in the more balanced body of research. The research commissioned by Florida gambling proponents evaluates either the current environment for gambling in established areas, like Las Vegas, or the introduction of casino gaming to areas with minimal economic bases, like Tunica, Mississippi. These are unlike the Florida model which would involve adding casino gaming to a well-developed economy in the nation's fourth-largest state with a premier and mature pre-existing tourism industry and visitor base. Therefore, it is likely that the exramples of marginal economic impact demonstrated from the addition of casinos in other markets would be significantly smaller in Florida. The most balanced and objective research available seems to be the product of Professor Goodman. Following are some key findings from his study, "Legalized Gambling As A Strategy For Economic Development:" •"There is a critical lack of objective knowledge. The research used by public officials to evaluate projects is often done by the gambling industry itself." •"In general, in the...studies analyzed, ...economic benefits'were exaggerated, while costs were understated." •"As the states legalize and promote more gambling ventures, the number of people who gamble is increasing and the amount of personal income being spent on gambling is also rising. This is increasing the costs of dealing with gambling-related problems." V. CASINO GAMBLING ENVIRONMENT A. CANNIBILIATION "Cannibalization" occurs when a business increases its customers at the expense of a competitive business which has a decrease in its customer base, rather than the industry seeing any overall expansion. All available theoretical and practical evidence indicates that small businesses in the tourism industry, particularly restaurants, suffer at the hands of casinos as clients seek these services at the casinos. Small businesses in the Florida tourism industry, particularly restaurants, fear loss of business, as clients seek these services at casinos where they are offered at lower prices as an inducement to attract customers to the gambling. Florida tourism now is characterized by a typical traveling party interacting with many businesses, e.g., hotels, restaurants, attractions, and retailers. The nature of casino-resorts is to duplicate those services so that the consumer is persuaded to handle all such purchases on site. Food prices tend to be very attractive at casinos because the opportunity to gamble is always present. Where casinos have been introduced into an economy, stand-alone restaurants have suffered. Atlantic City is a vivid example of a significant loss (60%) of local restaurants when casinos opened. • B. MARKET SATURATION/SUSTAINABILITY Twenty-four states now have operational or authorized casino gambling. It is estimated that by the year 2000, 95 percent of Americans will live within a 3-4 hour drive from a casino. There is evidence that this proliferation of gambling facilities is having some affect on Florida's tourism market. The result is, as potential tourists have casino gambling opportunities closer to home, long-distance travel for this purpose is likely to decrease as a tourism motivator. Therefore, rather than attracting new economic activity into the state, casino gambling would generate a number of shifts of economic activity within the state, at least in the short-term. The other implied economic result is that with the number of destinations developing casino gambling facilities,the competition among them will increase and the novelty as an experience will decline. From an economic standpoint this will eventually encourage governments to provide regulatory, tax and promotional inducements to sustain their investment and the job base now dependent on casinos. Another valid issue is that Florida also presents a contrast to the model of short-stay visitation to a new gaming destinations in the Southeast like Tunica, Mississippi. Tunica has the ability to draw from two very close and very well populated markets—Memphis and Little Rock. With the possible exception of North Florida (which competes with the Mississippi facilities), Florida does not have that type of population density just outside its borders. Anecdotal evidence from the North Florida market suggests that Mississippi casinos are having little if any effect on that region. Even as the state's tourism market has remained virtually flat, North Florida has enjoyed yet another good year — despite the recent flooding. C. CASINO'S IMPACT ON ECONOMIC DEVELOPMENT In terms of economic development, Florida is committed to diversifying its economy by adding higher paid, non-touristic employment opportunities, and by assisting small businesses. Two priorities in the FDC Agency Strategic Plan are: "Expand the number and quality of Florida job opportunities...." "Improve the capacity of small and minority businesses...." These economic development goals will be harder to attain with casino gambling. The casino industry adds many "low-end" jobs and often discourages other businesses from locating nearby. "Big business" casino operations have caused small businesses, particularly restaurants, to suffer. This is in direct contrast to two of the Department's goals — increasing quality jobs and small business successes. As property values near casinos become overinflated, it becomes more difficult for those newly employed in the casino industry to live nearby. In addition, the nature of job growth forecasted by gaming-related employment tends to be in the relatively lower paying jobs. This is diametrically opposed to the specified goal of the Department of Commerce and Enterprise Florida to effectively raise the standard of living for Floridians by encouraging the creation of jobs paying wages 15 percent above the statewide average. For 1993, that average was $23,160; 15 percent above that, $26,634. Even adjusting for tip income and Florida-Mississippi wage level differences, casino gambling would not appear to hold great potential for increasing overall earnings levels. A recent survey of Mississippi dockside casinos conducted by the Mississippi Employment Security Commission found that hourly wages averaged $7.40 (excluding tips) among the 9,530 employees of seven responding establishments. Assuming a 40- hour week and a 2080-hour year, that translates to annual wages of $15,392. Occupationally, 71 percent of the workers were in service occupations, with the bulk of these in food and beverage service (24 percent) and personal services related directly to game operation (25 percent). The conclusion is that the nature of the employment and the wage levels of the casino gambling industry make the introduction of this industry to Florida's economic base an undesirable option. In addition, there is evidence that the introduction of casino gambling may also detract from Florida's image as a desirable location for economic development. Communities have encountered difficulties in expanding their economies in the presence of gaming opportunities. Nevada attracted Citibank to build a credit card processing center in Las Vegas by creating a community and Zip Code of "The Lakes, NV" to avoid an association with Las Vegas and a more relaxed orientation toward money. D. SOCIAL IMPLICATIONS The impact of casinos on government is often thought of in narrow terms dealing with business regulation, gaming commissions, revenue/tax collections and increased crime control. There are also the concerns of increased demands on the state's physical infrastructure over each 24-hour period than at present because of casinos operating late at night. This means more use of roads, more use of electricity, and more continuous use of water and power. On a larger and more abstract level, casino gambling also carries significant social well- being implications that stand to indirectly influence economic development efforts inasmuch as it could affect real and perceived quality of life standards in Florida. It is important to note that existing research paints a largely negative picture of the social effects of casino gambling. According to that research, heightened levels of crime are strongly associated with the introduction of casinos. The incidence of both organized crime and street crime tends to rise. This exposes residents and visitors alike to increased safety risks. Since the fall of 1993, Florida has received some negative publicity about crimes against its visitors. Our research shows that visitors and potential visitors believe the crime rate against visitors in Florida is significantly higher than in most other destinations. Although that perception is not supported by the facts, it has caused serious problems nonetheless. At the very best, casinos would not help eliminate that image. At worst,they have the potential to aggravate it. Another social well-being problem is the ability of easy access to casinos to bring out potential compulsive gamblers. Casino destinations have had to address this in their marketing practices. While some of these practices are designed to discourage the compulsive gambler, other conditions can have the opposite effect. The ease of obtaining cash advances and loans in casinos is one example. For example, in February 1994, H&R Block set up makeshift tax preparation offices in four Nevada casinos and offered gamblers same-day "refund-anticipation loans." Some social welfare issues which affected Tunica, Mississippi, after casinos opened there are important to consider. Real estate prices, housing rental prices, DUI arrests, and the default rate on bills have all increased dramatically since the onset of casino gambling. Conversely, Tunica's pawn shop business is thriving. VL EFFECT OF CASINO GAMBLING ON FLORIDA TOURISM Proponents say casinos would boost tourism through an increase in visitors and reduction of Floridians traveling out-of-state for casino gambling opportunities. However,the Yankelovich Travel Monitor said "being able to gamble" is a low motivator of tourism by Americans. Tunica, Mississippi, often referred to because of clear incremental tourism from casinos, has two major metro areas in nearby states to draw upon (Memphis and Little Rock). Florida does not have an equivalent. Proponents feel that casino gambling would increase the length of stay of our visitors, but the average length of stay has been quite stable over a ten-year period of major changes in the Florida tourism product. The average length of stay of a Florida visitor in 1993 was 12.5 nights (42). The average length of stay of a visitor to Las Vegas in 1993 was 3.1 nights (35). In spite of the many challenges Florida tourism has faced over the past ten years, the length of stay has remained fairly stable. Among visitors arriving by air to Florida, from 1984 through 1993, length of stay averaged 9.0 nights with a standard deviation of 0.9. Among visitors arriving by auto to Florida, for the same period, average length of stay was 14.1 with a standard deviation of 1.7. In addition, currently most Florida tourism activities are daytime options and casinos tend to be more popular at night. Subsequently, visits to casinos would most likely be accommodated into current itineraries of our travelers without resulting in any longer length of stay. Currently, the average length of stay of a Florida visitor is four times that of a visitor to Las Vegas. A University of Minnesota survey released in April 1993 showed gambling to have no net effect on tourism. There was a slight trend toward Minnesotans staying in their own state rather than traveling for gambling. There was also only a 14 percent incidence level for Minnesotans staying overnight in a motel when they visited a casino. The Department has worked with the state's business and government leadership to crystalize a vision for Florida's economic future and developing sound methods to achieve it. It involves quality jobs and higher earning levels for all Floridians. To reach these goals, Florida must attract and retain high-value-added industrial investment, strengthen its tourism and international sectors and encourage economic progress in its rural and inner-city areas. Casino gambling seems to have little relevance to these efforts. BIBLIOGRAPHY "A Bet on Virtual Gambling Could Pay Off in Technology," Michael Schrage, Los Angeles Times, June 9, 1994, Section D, p. 1 . "A Mixed Blessing for 'America's Utopia'," U.S. News & World Report, March 14, 1994, pp. 52, 56. "America's Gambling Craze," U.S. News & World Report, March 14, 1994, pp. 42-46. "As Legalized Betting Proliferates...," Travel Advance, May 9, 1994, reporting an article from the Chicago Tribune. "Balancing life in Atlantic City, seaside of wealth, blight," Debra Dooling, (Newark, New Jersey) Star-Ledger, July 24, 1994, Section Three, p. 5. "Betting on Casinos," Rae Corelli, Maclean's, (Toronto, Ontario, Canada), May 30, 1994, pp. 26-33. 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