By Paul D. Hayes
The recent gaming market reports commissioned by the Iowa Racing and Gaming Commission highlight the challenge that the commissioners face as they consider applications for new gaming licenses from Linn and Greene County developers.
As a member of the commission in 2009-10, when new licenses in Iowa last were considered, I recognize that there is never a perfect applicant or location for a casino. The commissioners in the end have to decide what is best for the citizens of Iowa.
Making a decision is no easy task considering that they have thousands of pages of information and data to review. While everything has some degree of importance, some factors seem to rise in importance during the evaluation process. In 2009-10, it was a time of great uncertainty in the financial markets. As a commissioner then, I wanted a high level of certainty that a project could, in fact, be financed before granting a license. Some applicants made assurances, but had little to document financing with any significant degree of certainty.
In 2014, the important factor to consider appears to be the amount of revenue capture by the proposed casinos.
The reports from the various consultants create more confusion than certainty by reporting ranges of 30 percent to 93 percent of the proposed Linn County gaming revenue captured from other casinos. As a result, it appears to be very difficult to get a reasonable degree of certainty on how much revenue a new casino in Linn County will capture from existing Iowa casinos. In the past, the actual results of revenue impact on existing casinos often have varied from the studies, but the commission can ask any number of questions to narrow the range of expected outcomes reported and to conclude whether the impact is acceptable to the state as it seeks additional revenue sources.
Questions could include:
How do the consultants explain the range of conclusions? How do the methodologies differ among the studies and what are the strengths and weaknesses of each method that might cause a bias in one direction or another? Was the actual revenue loss of existing casinos accurately projected by past studies?
Why is the Meskwaki revenue treated as captured revenue, since none of the gaming at Meskwaki provides any gaming tax revenue to the state of Iowa? Why does one of the studies not consider revenue captured from Meskwaki as a source of additional tax revenue? If a study indicates there is a difference between rural and urban casinos, how is that reflected in their results? What impact is given under the different studies to the influx of people to Iowa City for various sporting events during the year?
Why does the projected impact on revenue at Riverside range from capturing 9 percent to 46 percent of Riversideís revenues? Is it reasonable to assume that 46 percent of Riversideís customers travel the 40 to 50 minutes from the Cedar Rapid/Marion area day in and day out? What impact does weather have on the consultantís model, travel times and frequency of visits?
For the existing casinos, at what level of revenue capture will the existing casino still be able to both provide a reasonable ongoing return to investors and maximize tax revenues to the state? What should the balance be between maximizing state revenues and maximizing casino profits?
The rules for granting licenses provide a list of criteria for the commissioners to consider in evaluating an application. These rules can be grouped as addressing the following general criteria:
l Operation of the business: Will the applicant be able to open the doors of a quality constructed building, on time, adequately capitalized and professionally managed that will operate as projected?
l Benefits to the state: Will the benefits of opening a new casino be incrementally beneficial to the state? What is the net impact to state revenues? Will other operators be impacted to the point that they will not earn an adequate return to assure their continued operation of a quality business and not eliminate a source of Iowa tax revenue?
l Benefits to local residents: Will a casino be beneficial to the community in which it is located after considering employment, amenities, taxes, fees paid to the charitable license holder and other factors that will affect the community?
In my experience, I know that I found a high degree of comfort that I had made the right decision by going to the general criteria and answering each question in the affirmative.Paul D. Hayes of Urbandale is a former member of the Iowa Racing and Gaming Commission. Comments: PHayes@clubjim.com