Alabama's future? Casino fortunes in Mississippi shrink as gambling approaches 'saturation point'
Since bringing in $312 million in tax revenue in fiscal year 2009, taxes on casinos have fallen every year but one, declining 20.6 percent to $247.8 million in fiscal year 2014. Tax revenue through the first nine months of the current fiscal year stands at $184.9 million.
Gambling officials in the Magnolia State said new casinos in Alabama, would figure to erode that even further. Alabama Senate leader Del Marsh, R-Anniston, is sponsoring a bill to simultaneously launch a lottery and allow four casinos – one at each of the state's greyhound dog racing tracks – to help prop up the state budget.
"It would have an impact on Mississippi," said Allen Godfrey, the executive director of the Mississippi Gaming Commission. "That would be significant. ... You'd have to be crazy to think it wouldn't have an impact."
"After that, the state will be broke again and will have to come up with a new gimmick." -- William Thompson
As Alabama lawmakers debate the wisdom of casino gambling, the Mississippi numbers serve not only as a reminder of what increased competition might mean for that state but also a glimpse at what Alabama might expect down the road. Industry experts appear divided between those who believe gambling soon will hit its limit and those who think it already has.
"Overall, the trends suggest that gambling in the form of casinos might be reaching saturation point, particularly in certain regions of the state where there are too many casinos," gambling expert Lucy Dadayan wrote in an email. "In general, the strong revenues received from new casino operations are short-lived. More so, we are seeing steady economic growth. So, the weakness in gambling revenues is not as much attributable to (the) economy."
Dadayan, a senior policy analyst for The Nelson A. Rockefeller Institute of Government at the State University of New York in Albany, authored a report in March that found casino revenue nationwide declined by .8 percent between fiscal years 2013 and 2014.
Short-term boost seen
William Thompson, a gambling expert at the University of Nevada at Las Vegas, said he sees some "open space" in Alabama. He said casinos in the state, particularly in Birmingham, have the potential to draw visitors from nearby markets without casinos, like Atlanta and Nashville. But as a budget-solving measure, he said, it is not a viable long-term strategy.
"It will have a five- to 10-year run," he said. "After that, the state will be broke again and will have to come up with a new gimmick."
Mississippi jumped into gambling far before most of the copycats. And unlike most other states, it does not limit casino licenses. The state currently has 28 casinos, with another one under construction in D'Iberville. Two Indian casinos also operate within the state.
Some two-thirds of gamblers at Mississippi casinos come from outside the state. According to the Gaming Commission, Alabama is near the top of that list. For the first quarter of 2015, 12 percent of Mississippi casino patrons came from Alabama. That was just behind Louisiana, where 12.4 percent of Mississippi casino visitors live.
Alabama is even more important to Mississippi's coastal casinos, with some 17.3 percent of patrons during the first three months of 2015 coming from the Heart of Dixie. Godfrey said a casino near Mobile, as envisioned by Marsh's legislation, would divert some of those customers. He noted that revenue from the coastal casinos is up over last year.
"There's some good things happening on the coast and that (a casino in Mobile) would take some wind out of the sails," he said.
Godfrey said increased competition already has had an effect. The Poarch Band of Creek Indians offers slot-like electronic bingo in Atmore, Montgomery and Wetumpka. Meanwhile, a casino added to a greyhound racing track in West Memphis, Ark., cut into Mississippi's Tunica casino market.
"Everywhere you go, there's gambling," Godfrey said. "It concerns us."
Mississippi imposes an 8 percent tax on gross gambling revenue. Most of that flows into the state's general fund, with $3 million a month dedicated to road repairs. The casinos pay an additional 4 percent, which goes to local schools and city and county governments where the facilities are located.
Gambling revenue makes up nearly a third of the budget in the city of Biloxi, but Interim Mayor Kenny Glavan did not express panic over the prospect of casinos in neighboring Alabama. He said Alabama's dog tracks, where the casinos would be located, could use a shot in the arm.
"Does it hurt the casino experience in Biloxi? I don't think it significantly does," he said. "Usually, competition makes businesses that are competing better."
Glavan said city officials are focusing on trying to diversify the local entertainment base. That is part of the strategy behind a minor league baseball stadium set to open this year and plans to develop east Biloxi.
"The (gambling) industry only has so much to go around," he said. "It is getting close to the outer edge of the saturation that everyone is so concerned about."
'Significant ripple effect'
Chris Moyer, a spokesman for the American Gaming Association, said there still is room for growth in the industry despite increased competition. In an environment of expanded gambling, states must compete against one another to maximize the return.
"As a result, states can earn that revenue," he said. "What we have found is that those who are opposed to the industry are not living in places where casinos are operating."
Moyer said casinos form a $240 billion industry that supports 1.7 million jobs nationwide and delivers $38 billion in tax revenue.
"There is a significant ripple effect in the economy," he said.
Under the bill sponsored by Marsh, the state would tax gross casino gambling revenues at 13 percent, with the money going to plug a hole in the state's General Fund budget. Revenue from an additional 1 percent tax would go to local governments.
Economist Semoon Chang, who once served on a gambling task force appointed by former Mobile Mayor Mike Dow, said he thinks the proposal is the wrong way to go about introducing casinos. Rushing casinos at the dog tracks in an effort to get tax revenue flowing quickly is likely to hurt the long-term success of the operations, he said.
Chang said for casinos to succeed – and not just redirect spending from other Alabama businesses – the Alabama facilities need to draw at least half of their customers from out of state. To do that in the face of Mississippi's more established operations, he added, Alabama needs distinctive casinos.
"The few we have have to be really luxurious and fancy," he said. "If they are not very nice, they will have primarily local gamblers. ... We have to have something very creative to make our casinos attractive."
Updated at 12:57 p.m. to clarify a quote from casino industry spokesman Chris Moyer.