A dilemma in Iowa By Ken Adams, CDC Gaming Reports January 17, 2022 at 6:19 pm The Iowa Racing and Gaming Commission is considering granting an additional casino license proposed for Cedar Rapids. Opening the door to the possibility, in November 2021, 55 percent of the voters in the county approved the idea. Now Cedar Rapid’s mayor and city manager have taken up the cause and are lobbying the commission for a license. To assist it, the regulatory agency commissioned two market studies to determine 1) if there is an adequate customer base to support an additional casino in the state; 2) what impact another casino would have on the existing ones; and 3) the potential impact of future casinos in Nebraska, Illinois (Rockford), and Wisconsin (Beloit). As with the rest of the country, gaming in Iowa is in flux. In the first place, Iowa is faced with the possibility of as many 15 new casinos in neighboring states within the next two or three years. Most will impact current revenues and take some market share from Iowa’s 19 commercial and four tribal casinos. The second issue is sports betting; sports betting, including mobile wagering, has been legal since August 2019. In the first month after legalization, $8.7 million was wagered in Iowa; in 2021, the handle had risen to $2 billion. As sports betting gains popular support, it will over time also take market share from existing casinos. The disposable income that customers spend in a casino and on dining out, movies, streaming services, live entertainment, vacations, and sports is finite. It is not an unlimited pool of money that can endless be used on every additional attraction that comes along. Casinos in Iowa are even more vulnerable than in other states. They are located within a 60- to 90-minute drive from populations in other states. It may be difficult to assess the importance of out-of-state gamblers, but in Spectrum Gaming’s report, a quarter of the employees at Iowa casinos live in another state. It is not scientific, but I am guessing that at least an equal percentage of the customers come from another state. As those states add gaming options, Iowa’s customer base becomes increasingly vulnerable. Thus, there are two serious competitive threats to casino revenue in Iowa: remote betting and entertainment and additional casinos in neighboring states. The impact of the increasing competition will not be felt tomorrow or even this year. But it will make its presence known over the next few years. Now, back to Cedar Rapids and its mayor and city manager. Keen on having a casino, they’re prone to discount the loss of revenue to other casinos in the state. They also believe that the city’s location in the center of state will insulate it from competition in neighboring jurisdictions and states. That would help offset the loss of revenue to casinos closer to the borders of Nebraska, Illinois, and Wisconsin. In their minds, Cedar Rapids wins and so does the state in an increase in total tax revenue. The loss to the other casinos is not as important in that argument. Lawmakers are always susceptible to that argument. For example, in Illinois, the addition of freestanding VLTs has reduced casino revenue drastically. In 2011, Illinois reported $1.4 billion in gross gaming revenue and $400 million in taxes. In 2021, it reported $1.1 billion in GGR and $248 million in taxes. However, the state gained in the process; in 2021, Illinois collected $800 million in VLT tax revenue. Iowa has been more circumspect in its treatment of the casino industry than other states. Over the years, it has kept its tax rate constant and low. Iowa has also implemented a number of regulatory changes to make the casinos more competitive, including allowing them to discontinue sailing, later to move onto land, as well as dropping the $5 maximum bet and finally adding sports betting. The Iowa Racing and Gaming Commission has also been reluctant to grant additional licenses. Each time a new license is proposed, the regulators study the situation. And as with the Cedar Rapids casino, they ask if a new casino would hurt existing casinos, besides asking if it would be good for the community. It is a process that might serve other states. Some have limits on casinos licenses, so without new legislation, adding new casinos is not possible. But those states can and have added other gaming options, like the VLTs in Illinois and mini casinos in Pennsylvania. In our economy, the common wisdom holds that we allow the market to determine the winners and losers. But gaming is a highly regulated industry and the costs of entry and operation are higher than in other industries. Often, the competition comes from another jurisdiction where casinos operate under different rules and levels of taxation. The one place that letting the market decide seems to work is Las Vegas. Casinos come and go, while the total market continues to grow and prosper. But Davenport and Bettendorf are not Las Vegas. The odds in Iowa seem to favor a no vote on a new casino. Both reports opine a greater negative than positive with a new casino. And the Gaming Commission has a history of rejecting new proposals. But this is 2021, and we are still reeling from the pandemic. The country is expansion minded in the midst of a sports betting euphoria. And the Gaming Commission members are new since the last decision in 2017. For the mayor and city manager of Cedar Rapids, there is no dilemma; they say vote yes. For the existing casinos in Iowa, there is no dilemma; they say vote no. But for the Gaming Commission members listening to both sides and reading the two very long reports — one has 161 pages, the other 191— it is a dilemma of epic proportions.