Gambling revenue to pay for stadium is risky

Stadium concept
This concept image provided by the Minnesota Vikings shows the development of business in the area surrounding a possible football stadium in Arden Hills.
Courtesy of the Minnesota Vikings

The Minnesota Vikings, the city of Minneapolis and the Dayton administration may soon announce a deal for a new stadium on the Metrodome site.

Paying for it could depend on millions of dollars in new gambling revenue. But new data show gaps between the promise and the reality of gambling expansion around the country — at times, wide gaps.

At the moment, gambling is the most likely option to fund the state's share of the cost for a new NFL stadium for the Minnesota Vikings.

Bills introduced at the Capitol would use money from an expansion of charitable gaming in the form of electronic pull tabs, or slot machines at Running Aces and Canterbury Park, the state's two horse racing tracks.

While some lawmakers may be more willing to vote for gambling rather than new taxes for a stadium, data from around the nation show gambling proceeds have their own problems.

Newly released research by the Rockefeller Institute of Government and the Pew Center for the States shows that in the last decade, new gaming has often fallen short of its promise.

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Graph: 25 years of charitable gambling proceeds

"This is a very volatile and regressive source of revenue," said Lucy Dadayan, a senior policy analyst at the Rockefeller Institute who studies state sanctioned gambling around the country.

A study based on her data, published last week by Pew's Stateline news service, found that 10 major U.S. gambling expansions since 2002 raised less than expected. Several fell short of projections by more than half. Only two major expansions, South Carolina's state lottery and horse tracks in Indiana exceeded projections.

In Pennsylvania, then-Gov. Ed Rendell promised significant property tax subsidies when casinos were legalized in 2004. Pennsylvania has yet to hit Rendell's goal.

"The former governor talked about having a billion dollars towards property tax relief. We haven't quite got there yet," said Richard McGarvey, spokesman for the state's gaming control board.

"You know, we'll have to see what happens here in the future, as we open more casinos. We still have a good possibility of getting there and beyond."

McGarvey said casinos pay about $780 million dollars in property tax subsidies annually, but that amounts to about three-quarters of what the former governor suggested.

Pennsylvania's experience illustrates another point: the revenue from its 10 casinos may be new only to Pennsylvania.

Over the last four years, the take across the state line in New Jersey's Atlantic City fell by 25 percent.

It's the biggest decline in the country, Dadayan said, although tribal gaming in Connecticut also reportedly declined in the shadow of new, often more attractive casinos in Pennsylvania. Nationwide, Dadayan says, gambling may be a zero-sum game.

"In fiscal year 2011, the revenues from casinos increased by 3.7 percent," Dadayan said. "However, most of the increase is again attributable to Pennsylvania. If you take Pennsylvania out, the increase is only 0.6 percent in fiscal 2011, compared to 2010. And if you adjust the numbers for inflation, you see a decline."

GAMBLING HITS A WALL

That competitive pressure is only growing, Dadayan said, as states across the country are increasingly turning to gambling in the wake of recessions in 2001 and 2008.

"Gambling in its current form has reached a saturation," Dadayan said. "No doubt, further expansion of gambling will lead to a relatively rapid growth in revenues and high profit margins. But such growth is not sustainable and is short-lived."

Expanded gambling isn't always new gambling, said David Schwartz, director of the Center for Gaming Research at the University of Nevada in Las Vegas.

"Obviously, you're going to have to get that money from somewhere. It may come from existing Indian casinos. It may come from surrounding states," Schwartz said. "You know there might be some new business generated, but that money's definitely going to come from somewhere."

States are conservative about what the gambling proceeds are used for, Schwartz said. Some dedicate proceeds to historic preservation, tax relief or scholarships, or even the state's general fund. Schwartz doesn't know of any states that earmark them for debt service, which could potentially link it directly with the state's credit rating.

Minnesota funds environmental initiatives with its lottery proceeds.

In Nevada, the money goes straight into the state's general fund.

"If gaming revenues fall, the state employees... well, nothing good happens," Schwartz said. He doesn't know of any that pledge the money to state-backed bonding. States are willing to put jobs and development on the line, but "not the credit rating," Schwartz said.

UNSTEADY RELIABILITY

Gambling numbers in Minnesota already raise questions about whether the revenue will be reliable.

The state's last significant gambling expansion was in 2008, when the Running Aces horse track opened in Anoka County. Track betting there and at Canterbury has since fallen 23 percent, according to Minnesota Racing Commission data.

And although the state-run lottery shows consistent growth, private gambling operations prove much more volatile, slumping over time. Pull tabs and other charitable gambling dropped by a third in the decade after the year 2000.

Heavy taxes on pull tabs are partly to blame for depressing the industry, said King Wilson, head of the state's charitable gambling trade group. He said piling on a stadium mortgage of $30-$40 million annually for the next three decades may only make matters worse.

"If you needed $24 million, I mean that works. But it's just to the point that I'm not sure we're going to be able to get significant tax reform or relief where this is actually gonna work."

That ultimately will depend on what kind of deal is struck with the Vikings, and how big a bet the state is willing to put on gambling revenue.