chapter 4
CASINOS, PART 2: COMMERCIAL CASINOS

THE MARKET

Commercial casinos are those owned and operated by large and small companies. They are heavily regulated by state governments. Each state sets different limits on the types and locations of casinos permitted. Some states allow land-based casinos, while others restrict casino games to floating gambling halls on barges or riverboats. A handful of states allow slot machines at noncasino locations, such as horse and dog racetracks or other commercial establishments. Most states specify exactly which table games can be played in casinos. Some states place a limit on the amount that can be wagered, in so-called "limited-stakes" gambling.

In gambling terminology, the "handle" is the gross amount of money wagered by gamblers. As reported by Dan Seligman in "In Defense of Gambling" (Forbes, June 23, 2003), approximately $600 billion was gambled at U.S. casinos during 2003. The American Gaming Association (AGA) reported in 2004 State of the States: The AGA Survey of Casino Entertainment that commercial casinos kept $27 billion of this amount in 2003. This is called the gross gaming revenue or "casino win." The remaining $573 billion was taken home by gamblers and is called the "payout." The casino industry considers its revenue to be consumer spending, as gamblers "spent" that money while gambling. In 2004 State of the States, the AGA reported that consumer spending on gambling ($27 billion) was far less than consumer spending on fast-food meals ($137.8 billion) but greater than spending on other leisure activities, such as amusement and theme parks ($10.3 billion) and movies ($9.49 billion).

2004 State of the States reported that there were eighty-three riverboat/dockside casinos operating during 2003 in Illinois (nine), Indiana (ten), Iowa (ten), Louisiana (fourteen), Mississippi (twenty-nine), and Missouri (eleven). Major markets for floating casinos included Chicago, Illinois; Tunica, Mississippi; the Mississippi Gulf Coast; and Bossier City, Shreveport, and Lake Charles, Louisiana. Some of the largest gaming companies, including Harrah's Entertainment, Inc., MGM Mirage, Park Place Entertainment, and Mandalay Resort Group, operated floating casinos.

According to the AGA, there were 432 major commercial casinos operating in eleven states during 2002. (Note: This total does not include casinos in Nevada with annual revenues less than $1 million.) The eleven states listed are also those in which full-scale casinos that offer table games and machines are legal:

• Nevada
• New Jersey
• Mississippi
• Indiana
• Louisiana
• Illinois
• Missouri
• Michigan
• Iowa
• Colorado
• South Dakota

NEVADA

Gambling has a long history in Nevada. It was widely practiced in the frontier towns of the Old West but was outlawed around the end of the nineteenth century, during a time when conservative values predominated. However, illegal gambling was widely tolerated throughout the state. In 1931 gambling was legalized again in Nevada. At the time, the country was in a deep economic depression.

Casino development was slow at first. Many business-people were not convinced that the rural desert towns of Nevada could attract sufficient tourists to make the operations

FIGURE 4.1

profitable. In 1941 the El Rancho Vegas opened in Las Vegas. Five years later, notorious mobster Bugsy Siegel opened the Flamingo Hotel, also in Las Vegas. Although Siegel was eventually murdered by his business partners for cost overruns, the Mafia became more and more invested in Las Vegas casinos. It was a relationship that lasted for another thirty years and tainted casino gambling in many people's minds.

Although the state of Nevada began collecting gaming taxes during the 1940s, regulation of the casinos was lax until the 1970s. Organized crime figures were gradually pushed out of the casino business as corporations moved in. In 1975 gaming revenues in the state reached $1 billion, according to the official Web site of the Las Vegas Convention and Visitors Authority (www.lasvegas24hours.com). In 2004 the gambling industry is the largest employer in Nevada and accounts for more than one-third of all taxes paid into the state's general fund.

There are many different forms of legal gambling in Nevada, including live bingo, keno, and horse racing; card rooms; casino games; and off-track and phone betting on sports events and horse races. "Restricted" slots are those located in establishments restricted to fewer than fifteen machines, such as bars, restaurants, and stores. "Nonrestricted" slots are primarily located in casinos, which are allowed to have more than fifteen machines.

During 2003 there were 256 commercial casinos operating in Nevada—by far, the most of any state. According to the Nevada Gaming Control Board, the state's commercial casinos (i.e., those not operated by Native American tribes) generated $9.6 billion dollars of revenue from gambling operations during 2003, up 1.9% from 2002. As shown in Figure 4.1 casino revenues leveled off at the beginning of the twenty-first century after climbing steadily during the 1990s.

Nevada casino revenue (or "total win") for calendar year 2003 is broken down by area and gambling category in Table 4.1. Slot machines accounted for 67% of the casinos' gaming revenue in 2003, the highest percentage ever. Revenue from games and tables was down by 0.82%, while that from slot machines was up by 3.25% from the previous year.

Patrons gambled nearly $118 billion at Nevada slot machines in 2003 and nearly $21 billion at games and tables. The quarter slot machine was most popular, accounting for $35 billion (30%) of the total wagered at

TABLE 4.1

slot machines. Among tables and games, Twenty-One had the highest amount wagered ($8.6 billion or 41% of the total). However, Three-Card Poker had the greatest increase in play from the year before. The amount wagered at this game increased by 30% to $478 million in 2003. Mini-Baccarat wagers were up by 16% to $1.3 billion.

Although casinos are located throughout the state, the major gambling markets in Nevada are in the southern part of the state in Clark County (home of Las Vegas and Laughlin) and along the California border in Washoe County (home of Reno) and the Lake Tahoe resort area.

Las Vegas

Perhaps no other city is more associated with casinos than Las Vegas. According to the Las Vegas Convention and Visitors Authority (LVCVA) the city had 35.5 million visitors in 2003, and they spent nearly $33 billion. The number of visitors was up 1.3% from the previous year. The city had 130,482 hotel/motel rooms in 2003. The hotel/motel occupancy rate was 85%. This compares with a national occupancy rate of only 59%. The LVCVA reported that the average Las Vegas visitor in 2003 was fifty years old and stayed 3.4 nights in the city. During 2003 Las Vegas was the site of more than 24,000 conventions that attracted more than five million people.

A four-mile stretch of Las Vegas Boulevard south of downtown Las Vegas is known universally as "the Strip." According to the AGA, the casinos on the Las Vegas Strip made up the number one commercial casino market in the country in 2002.

There are more than forty hotel/casinos along the Strip, several of which are among the largest hotels in the country. These megaresorts offer guests such amenities as lavish decorating themes, spas, pools, multiple restaurants, and top-notch entertainment. The large companies operating megaresorts in Las Vegas generate a substantial amount of revenue from nongambling sources, including lodging, dining, and entertainment.

According to the LVCVA casinos in Las Vegas made $6.1 billion in gaming revenue in 2003. Casinos along the Strip accounted for $4.8 of this total. All Las Vegas casinos account for 63% of the state's entire gambling revenue.

Beyond the well-known casinos of the Strip, other casinos are located throughout Clark County. Casinos located off-Strip in Las Vegas are geared toward local markets. They are less flashy and feature more casual dining and entertainment options. In total, the 150 casinos in Clark County, both on the Strip and off, accounted for $7.8 billion in gaming revenue during 2003, according to "Nevada Gaming Revenues Calendar Year 2003 Analysis" (Carson City, NV: State of Nevada Gaming Control Board, Tax and License Division, February 11, 2004). This is 81% of the state's total casino gambling revenues for that year.

Casino gambling has had an enormous effect on Clark County's growth. The population of the county went from 48,289 in 1950 to nearly 1.4 million in 2000. During the 1990s alone, the county's population increased by 86%. This compares with a national average of 13.1%. Clark County residents make up 70% of the state's entire population. Traffic congestion has become such a problem on the Strip in Las Vegas that a four-mile monorail was built to move people around. The monorail began operation in 2004 and makes stops at various resorts and the city's convention center. It is expected to carry nineteen million passengers per year.

NEW JERSEY

In June 1976 casino gambling in Atlantic City, New Jersey, was legalized by the state's voters, making it the second state (after Nevada) to permit casino gambling. New Jersey casinos are regulated under the state's Casino Control Act.

Atlantic City

Atlantic City was an immensely popular resort destination throughout the late 1800s and early 1900s. It was easily accessible by rail, and people visited the beautiful beaches and elegant hotels along the nearly five-mile boardwalk. During the 1960s the city lost most of its tourist trade to beaches further south, mainly in Florida and the Caribbean, and the city fell into an economic slump. Casinos were seen as a way to revitalize the city and attract tourists again. The first casino, Resorts International, opened in 1978, followed by Caesars Atlantic and Bally's Park Place in 1979. By 1991 casino gambling was permitted twenty-four hours a day.

Although it has only thirteen casinos, Atlantic City is the second-largest gambling market in the country according to the AGA, with a gross revenue of $4.48 billion in 2003, up 3% from 2002. (See Table 4.2.) All Atlantic City casinos are land-based. According to the New Jersey Casino Control Commission 2003 Annual Report, as of December 31, 2003 they offered 1,370 table games, sixteen keno windows, and 42,378 slot machines. Atlantic City casinos employed 46,159 people in 2003 and paid wages of $1.1 million. They paid taxes of $358 million.

Atlantic City differs from Las Vegas in many ways. There are far fewer hotel rooms (only about 13,000) with fewer amenities. Atlantic City is considered a "day-tripper market," meaning that it attracts people mostly within driving or train distance who visit for the day (many of them from New York City and Philadelphia). Casino development has been sluggish in Atlantic City. No new casinos were built during the 1990s. The Boyd Gaming Corp. and MGM Mirage collaborated to open the city's newest casino/hotel named Borgata in July 2003 in the marina district of the city.

In Atlantic City each casino is assessed an 8% tax on its gross revenue (i.e., casino revenue after all bets are paid but before taxes and other expenses are paid). These payments go into a fund that is distributed among various programs throughout the state, primarily for physical and mental health programs for the elderly and people with disabilities. According to the New Jersey Casino Control Commission, in fiscal year 2003 (July 2002–June 2003) fund expenditures totaled $435 million and were distributed as follows:

• Physical and Mental Health Programs—90%
• Transportation Programs—5%
• Educational, Cultural, and Intellectual Development—4%
• Economic Planning, Development, and Security—1%

TABLE 4.2

The casinos of Atlantic City have not changed the town into a trendy tourist destination as was originally hoped. In fact, Atlantic City has the reputation of being "a slum with casinos." Industry experts point to two primary factors for this perception. First is the town's reliance on day-trippers rather than long-term vacationers. Second is the way in which casino tax revenues have been invested. The tax revenues generated by the casino industry have largely funded physical and mental health programs throughout the state rather than being invested in local infrastructure and economic development programs.

MISSISSIPPI

Gambling along the Mississippi River and its connecting waterways was widespread during the early 1800s. The rivers were the modern-day equivalent of the interstate highway system, carrying cash-laden farmers, merchants, and tourists to bustling towns along the riverbank. Many of these towns developed gambling halls, notorious establishments that attracted many professional gamblers. These sharps, chiefly cardsharps, soon had an unsavory reputation for cheating visitors out of their money.

By the 1830s the cardsharps had worn out their welcome in riverbank towns. According to Richard Dunstan in Gambling in California (Sacramento, CA: California Research Bureau, 1997), five cardsharps were lynched in Mississippi in 1835, and the professional gamblers moved to the riverboats cruising up and down the rivers. Gambling between riverboat passengers was a popular pastime during the 1840s and 1850s. The onset of the Civil War (1861–65) and then the antigambling movement around the turn of the twentieth century dampened, but did not destroy, open gambling in the state.

During and after World War II (1939–45), the Mississippi coast experienced a resurgence in illegal casino gambling, particularly in Harrison County, home of the city of Biloxi and Keesler Air Force Base. The officers' club at the base is reputed to have openly operated slot machines. During the 1960s the Alcohol Beverage Control Board began refusing licenses to public facilities allowing gambling. A few private clubs and lodges continued to offer card games and slot machines, but they were eventually shut down by the mid-1980s.

In 1987 the ship Europa Star and several other ships from Biloxi ports began taking gamblers on "cruises to nowhere"—cruises to international waters in the Gulf of Mexico where onboard gambling could take place legally. Although supported by the city of Biloxi, the state initially opposed these cruises until it became apparent that they were reviving tourism in port towns. The state was in desperate economic times, having been proclaimed the poorest state in the country by the 1980 census. In 1989 Mississippi became the first state to permit cruises to conduct gambling in state waters when the ships were on their way to or from international waters.

Dockside casino gambling was legalized by the Mississippi legislature in 1990 with passage of House Bill 2. The bill established the Mississippi Gaming Control Act and the three-commissioner Mississippi Gaming Commission to regulate dockside casinos and charitable gaming. Each parish (county) was allowed to decide whether it would allow gambling. Fourteen parishes along the Gulf Coast and Mississippi River held referendums regarding dockside casinos, and all voted them down. The next year, a city-by-city vote was held, and voters in Biloxi, which was nearly bankrupt at the time, approved the referendum. In 1992 nine dockside casinos opened in Biloxi.

There are three major casino regions in the state: the northern region centered in Tunica, the central region based in Vicksburg and Natchez, and the coastal region centered in Biloxi, Gulfport, and Bay St. Louis. According to the AGA the casino markets in Tunica and Biloxi were ranked among the top ten markets in the country during 2002.

Mississippi has not set a limit on the number of casinos that can be built in the state, instead allowing competition to determine the market size. By law, casinos must be permanently docked in the water along the Mississippi River and the Mississippi Gulf Coast. The gambling halls of the casinos actually sit on the water, while their associated lodging, dining, and entertainment facilities are on land. Along the Mississippi River, the gambling halls sit in slips cut into the riverbank. The Choctaw Indians operate the only land-based casinos in the state.

As of March 2004 there were twenty-nine commercial casinos operating in Mississippi. (See Table 4.3.) In total, they employed 28,794 people and offered nearly 1.5 million square feet of gaming space, nearly 40,000 slot machines, more than one thousand table games, and one hundred poker games. Games offered include blackjack, craps, roulette, baccarat, mini-baccarat, big six wheel, keno, and various forms of poker and other card games. The state allows round-the-clock gambling with no bet limits. Gross casino revenue for the state was $2.7 billion in calendar year 2003, virtually unchanged from 2002. (See Figure 4.2.) In fact, commercial casino revenue leveled off during the early twenty-first century after growing steadily through the 1990s. The casinos had more than 14,000 hotel rooms and received nearly fifty-four million visitors during 2003.

According to statistics provided by the Mississippi Gaming Commission, the casino industry produces 10% of the state's annual budget, generating in excess of $300 million in wagering, sales, and income taxes. For fiscal year 2004 (July 2003–June 2004), casinos paid $332 million in taxes; half went to the state's general fund, one-third went to local governments, and the remainder went into the Bond Sinking Fund and Highway Fund. In total, $2 billion was collected in casino taxes in Mississippi between July 1992 and June 2004.

LOUISIANA

Louisiana has a long gambling history, according to The Rivergate, a documentary on the destruction of the Port of New Orleans Exhibition Center to make way for a Harrah's casino. In 1823, eleven years after Louisiana became a state, its legislature legalized several forms of gambling and licensed six "temples of chance" in the city of New Orleans. Each was to pay $5,000 per year to fund the Charity Hospital and the College of Orleans. The casinos attracted many patrons, including professional gamblers, swindlers, and thieves. In 1835 the legislature repealed the licensing act and passed laws making gambling hall owners subject to prison terms or large fines.

However, casino-type gambling continued and even prospered throughout the southern part of the state. By 1840 New Orleans contained an estimated five hundred gambling halls employing more than four thousand people, but these halls paid no revenue to the city. Riverboat

TABLE 4.3

FIGURE 4.2

casinos frequented by hundreds of professional gamblers floated up and down the Mississippi River between St. Louis and New Orleans. When the Civil War broke out, the riverboats were pressed into military service. In 1869 the legislature legalized casino gambling once again, requiring each casino to pay the state a $5,000 tax.

In Bad Bet on the Bayou (New York: Farrar, Straus, and Giroux, 2001), author Tyler Bridges credits Louisiana gamblers for popularizing craps and poker in the United States during the nineteenth century. Both were games of chance that had originated in Europe. The Louisiana state lottery began in 1868 but was outlawed in 1892, along with other forms of gambling, after a massive fraud scandal. Casino gambling went underground and continued to flourish well into the 1960s, thanks to mobsters and political corruption. Two of the state's governors, Earl Long and Edwin Edwards, were well-known gamblers. Edwards reportedly hosted high-stakes gambling games at the governor's mansion.

During the early 1990s the state legalized gambling once again, authorizing a lottery, casinos, and the operation of video poker machines in restaurants, bars, and truck stops. In 1991 the legislature authorized operation of up to fifteen riverboat casinos in the state; all but those along the Red River were required to make regularly scheduled cruises. The riverboat casinos were required to be at least 150 feet long and decorated to look like nineteenth-century paddleboats. The first riverboat casino, the Showboat Star, began operating in the fall of 1993.

In 1993 New Orleans received special permission from the legislature to allow a limited number of land-based casinos. In January 1995 Harrah's began construction on one in the heart of the city. By November 1995, the casino had declared bankruptcy. Following years of negotiations with the state and city, it reopened in 1999 but threatened bankruptcy again in 2001, blaming the state's $100 million minimum tax. The legislature cut the tax to $50 million for 2001 and $60 million for subsequent years to help keep the casino in business.

On April 1, 2001, the legislature ended the so-called phantom cruises of the riverboat casinos, ruling that it would actually be illegal for them to leave the docks. All riverboats were allowed to begin dockside gambling. However, their tax rate was increased from 18.5% to 21.5%.

Up to fifteen floating casinos are allowed in Louisiana. According to revenue reports published by the Louisiana Gaming Control Board, the state's riverboat casinos admited

TABLE 4.4

just over twenty-eight million people during fiscal year 2004 (July 2003–June 2004). (See Table 4.4.) This number is down from thirty-one million people admitted during fiscal year 2002. Total adjusted gross revenue for the river-boats in fiscal year 2004 was $1.57 billion. The state's one land-based casino in New Orleans admitted nearly 6.6 million people and had gross revenue of $300 million. Although attendance was slightly down from previous years, the casino made more money. Its gross revenue increased by 14.5% between 2002 and 2004.

Three racinos grossed nearly $233 million in slots revenue during fiscal year 2004. Slot machines at racetracks are relatively new in Louisiana. The first racino began operating in 2002 and was joined in 2003 by two more establishments.

Total gross casino revenue in Louisiana for fiscal year 2004 was $2.1 billion, up from $1.8 billion during fiscal year 2001 and $1.4 billion during fiscal year 1999. (See Figure 4.3.) The state took in approximately $433 million in taxes from the casinos/racinos during fiscal year 2004. This is up from $400 million collected during fiscal year 2001.

There are four major markets in the state: Shreveport–Bossier City, New Orleans, Lake Charles, and Baton Rouge. The Shreveport market was the tenth-largest casino market in the United States in 2002, according to the AGA. A wide variety of games are allowed at Louisiana casinos, including blackjack, poker, craps, roulette, baccarat, keno, bingo, big six wheel, and slot machines. The state's video gaming division reports that there were 14,296 slot machines at noncasino locations as of June 2004, primarily truck stops, bars, and restaurants.

INDIANA

The state of Indiana legalized riverboat gambling in 1993 with passage of the Riverboat Gambling Act, which was enacted by Public Law 277-1993 and codified as Indiana Code 4-33. The act established the Indiana Gaming Commission and gave it authority to issue up to eleven riverboat licenses in specific areas of the state—in the northwest corner along Lake Michigan, at the southern border along the Ohio River, and around Patoka Lake in the southern part of the state. The Patoka Lake site initially received a riverboat license, but it was later vetoed by the U.S. Army Corps of Engineers.

The first riverboat began operation in December 1995 in Evansville. By December 1996, six riverboats were operating. By 2002 there were ten in operation, leaving one unused riverboat license. In February 2002 the Indiana Senate passed legislation permitting dockside operation of the riverboats in counties that would accept it. Permanent mooring allows patrons to access the casinos anytime during operating hours rather than just during cruise boarding times. The Senate passed the measure to

FIGURE 4.3

make Indiana casinos more competitive with those in Illinois. The Indiana legislature approved the measure in June 2002. However, a provision that would have transferred the inactive riverboat license from Patoka Lake to Orange County was vetoed. Orange County politicians had hoped to use gambling revenues to renovate two historic hotels and boost employment in the south-central Indiana county.

All ten riverboats were allowed to become dockside casinos in July 2002. The change was accompanied by a change in the wagering tax structure from a 22.5% flat tax on adjusted gross receipts to a graduated tax rate of 15%–35%. A portion of the increased tax revenue is distributed to counties that do not have casinos. The admissions tax remained unchanged at $3 per person. The admissions tax is split three ways, with one dollar each going to the state, county, and city.

In fiscal year 2003 (July 2002–June 2003) there were ten riverboats operating in Indiana as shown in Table 4.5. Five of the casinos were along Lake Michigan and five along the Ohio River. Together, the ten riverboats had 17,601 slot machines and 620 table games in 2003. Games allowed include blackjack, craps, roulette, baccarat, big six, and poker. Eight of the riverboats are docked at locations with associated land-based hotels, restaurants, and entertainment venues. The other two are docked at pavilions offering only dining and shopping.

According to the Indiana Gaming Commission Annual Report to the Governor: Fiscal Year 2004, total river-boat admissions in Indiana were 26,545,058 from July 2003 to June 2004. This number is down dramatically from 41,373,160 during 2001. The total win for riverboat casinos during fiscal year 2004 was $2.31 billion, up from $1.84 billion in 2001. In 2002 southeastern Indiana made up the ninth-largest casino market in the United States in terms of gross revenue, and the combined northwest Indiana/northeast Illinois market was third largest, according to statistics published on the AGA Web site (www.americangaming.org).

As stated in the Indiana Gaming Commission Annual Report, total admission and wagering taxes paid in fiscal year 2004 were $742 million. Total admission and wagering taxes paid from the inception of riverboat gambling in 1995 through 2004 were nearly $3.8 billion.

In November 2003 Orange County voters approved a measure that would allow development of a riverboat casino in their county. As of August 2004 several development proposals were under consideration by state and local authorities.

TABLE 4.5

TABLE 4.6

ILLINOIS

Illinois legalized riverboat gambling in 1990, only the second state to do so. The Illinois Gaming Board was authorized under the Riverboat Gambling Act to grant up to ten casino licenses. Each license allows up to two vessels to be operated at a single specific docksite. Each docksite can have no more than 1,200 gaming positions, and all wagering is cashless. The first riverboat casino opened on September 11, 1991. The tenth license was issued in 1994. It went to a casino called the Silver Eagle owned by Emerald Casino, Inc. The casino closed in 1997, and the owners asked in 1999 to relocate it to another location. This move was opposed by other casino owners who hoped to obtain the tenth license. A long court battle began that still was not resolved as of mid-2004.

Originally, riverboats were required to cruise during gambling, but dockside gaming was approved in 1999. The first full year of dockside casino gambling occurred during 2000.

According to the American Gaming Association, in 2004 nine riverboat casinos were operating within the state: two on the Fox River and two on the Des Plaines River near Chicago in the northeast part of the state, one on the Illinois River in the central part of the state, one on the Ohio River in the south, and three on the Mississippi River to the west. Illinois riverboat casinos generated $1.71 billion of adjusted gross revenue (gross receipts less winnings) in 2003, a 6.6% decrease from 2002. (See Table 4.6.) The vast majority (85%) of 2003 revenue was from electronic gambling devices. The remainder was from table games. Admissions were 16.6 million in 2003, down 11.8% from 2002.

Illinois casinos are levied an admissions tax and a wagering tax. In 2002 the state legislature increased the admissions tax from $2 per patron to $3 per patron. In 2003 the admissions tax was increased to $4 per patron for casinos admitting 1–2.3 million patrons per year and to $5 per patron for casinos admitting more than 2.3 million patrons per year. Also in 2003 the legislature established a new rate structure for wagering taxes based on adjusted gross revenue (AGR). The rate begins at 15% for casinos with AGR less than or equal to $25 million and increases with increasing AGR. Casino taxes are shared by the state and local communities in which casinos are located. According to the 2003 Illinois Gaming Board Annual Report, during 2003 the casino industry paid $617.8 million in state taxes and $102 million in local taxes.

The state's tenth casino license has been dormant since 1997. Although Emerald Casino, Inc. has applied for renewal several times, the applications have been denied for a variety of legal and regulatory reasons. In 2001 the Illinois Gaming Board denied the company's latest bid for renewal following allegations that company owners were associated with known members of organized crime. The company was also accused of violating Board rules and providing false information about its operations. In 2003 the company was forced to file for bankruptcy. As part of its reorganization plan it was agreed that the casino would be sold and top company managers would be banned from the state's casino industry.

The controversy did not end there. In March 2004 the Illinois Gaming Board agreed to allow Emerald Casino to sell its gaming license for $518 million to Isle of Capri Casinos, Inc. The new company announced plans to build a casino in the town of Rosemont, a suburb of Chicago. Although the mayors of Rosemont and Chicago were in favor of the deal, it was vigorously opposed by state officials. The Illinois attorney general launched an investigation amid allegations that the licensing deal was approved by Gaming Board directors despite strong objections from Board staff members. The attorney general sued the Board seeking a halt to the license review process. As of November 2004 the issue had not been resolved.

In May 2004 Chicago Mayor Richard Daley announced his plan to ask the state legislature for permission to build a city-owned land-based casino in downtown Chicago. In response, Governor Rod Blagojevich announced that he would veto any such legislation.

MISSOURI

In November 1992 a referendum to allow riverboat gambling was approved by 64% of Missouri voters. The initiative read as follows: "Authorizes riverboat gambling excursions on the Mississippi and Missouri Rivers, regulated by the State Tourism Commission. Excursions may originate where locally approved by the voters. Five hundred dollar maximum loss limit per person per excursion. The proposal is intended to produce increased General Revenue."

What followed was eighteen months of policy changes and legal maneuvers. Following complaints in the media about loose regulation, the General Assembly repealed sections of the referendum. In April 1993 Senate Bills 10 and 11 were passed, which placed casino riverboats under the authority of a five-member board called the Missouri Gaming Commission and ordered that the boats be continuously docked if in the best interest of public safety. In February 1994 the Missouri Supreme Court ruled in Harris v. Missouri Gaming Commission that the legislature did not have the authority to allow games of chance on river-boats, only games of skill. The court ruled that by repealing portions of the referendum and issuing bills, the general assembly was acting of its own accord rather than of the people's accord, a violation of the state constitution.

In response, the legislature drafted a constitutional amendment as follows: "The general assembly is authorized to permit only upon the Missouri and Mississippi Rivers, lotteries, gift enterprises, and games of skill or chance to be conducted on excursion gambling boats and floating facilities." However, the measure was defeated by the state's voters in April 1994. The general assembly responded with Senate Bill 740, which defined games of skill and authorized riverboats to be located in artificial basins. In May 1994 the commission granted the first two licenses for riverboat casinos. However, because the casinos could not offer games of chance, chiefly slot machines, competition from Illinois riverboats kept customers away and the casinos were not profitable.

A petition effort brought the issue to a vote yet again. In November 1994 voters considered the following new initiative: "Shall the General Assembly be authorized to permit only upon the Mississippi River and the Missouri River, lotteries, gift enterprises, and games of chance to be conducted on excursion gambling boats and floating facilities? This proposal would increase state revenues from existing gaming boats approximately $30,000,000 per year. Impact on local governments unknown." The initiative was approved by a vote of 943,652 in favor to 807,707 against.

The result was significant. Revenues from casino riverboats during the first quarter of fiscal year 1996 were more than twice what they had been during the first quarter of the previous year. Initially, the casinos were only allowed to hold two-hour gambling "excursions." This was changed in 2000, when a law was passed allowing continuous boardings. However, the original $500 loss limit per excursion approved in 1992 still applies. Patrons are allowed to purchase only $500 worth of chips or tokens in any two-hour period, preventing them from losing more than that amount within the "excursion" period. The commission has repeatedly complained that the loss limit hurts the competitiveness of Missouri riverboat casinos compared to those in neighboring states.

According to the Missouri Gaming Commission Annual Report to the General Assembly: Fiscal Year 2003, eleven riverboat casinos operated in Missouri during fiscal year 2003 (July 2002–June 2003). The state has six general markets: St. Louis, Kansas City, Caruthersville, St. Joseph, LaGrange, and Boonville. All of the riverboats remain dockside. Games allowed include slots; blackjack, Red Dog, Pai Gow, mini-baccarat, poker, and other card games; craps; roulette; and several wheel games. Missouri gaming revenue topped $1 billion for the first time during 2001, and reached $1.3 billion during 2003. (See Figure 4.4.) Just over fifty-one million people were admitted to the state's casinos during fiscal year 2003.

Casino operators pay an 18% tax on adjusted gross receipts to the state and a 2% local tax to the home dock city or county. In addition, a $2 admission fee is paid for each patron per excursion. This fee is split evenly between the state and the local jurisdiction. The casinos also pay costs associated with Missouri Gaming Commission (MGC) agents assigned to each casino. According to the MGC the average annual cost was $568,000 per casino during 2003.

During fiscal year 2003 (July 2002–June 2003) total admission fees were $102 million and gaming taxes collected were $261 million. According to the Missouri Riverboat Gaming Association gaming fees and taxes were the fifth-largest source of tax dollars for the state.

The MGC is not limited in the number of licenses it can issue. However, the state's constitution limits river-boat casinos to locations along the Mississippi and Missouri rivers. In 2004 the town of Rockaway Beach in southwestern Missouri was behind a ballot initiative to change the constitution to allow riverboat casinos along

FIGURE 4.4

the White River. The town of fewer than six hundred residents was suffering from economic depression and had hoped that a riverboat casino would bring in much-needed jobs and income. Despite an expensive media campaign waged by the casino's backers, the initiative was rejected by the state's voters in August 2004.

MICHIGAN

Pari-mutuel horse racing was legalized in 1933 in Michigan. During the 1970s, the state lottery was legalized, and a concerted effort began to bring casino gambling to Detroit. These efforts were unsuccessful until 1994, when the Windsor Casino opened just across the river from Detroit in Windsor, Canada. By this time, more than a dozen tribal casinos were operating around the state of Michigan, and Detroit was in an economic downturn. Attitudes toward casino gaming changed, and in November 1996 Michigan voters narrowly approved ballot Proposal E, authorizing the operation of up to three casinos in any city that met the following conditions:

• A population of 800,000 people or more
• Located within 100 miles of any other state or country in which gaming is permitted
• Casino gaming is approved by a majority of voters in the city

Proposal E was approved by a 51.5% majority of voters and subsequently modified and signed into law as the Michigan Gaming Control & Revenue Act (Public Act 69 of 1997; MCL 432.201). The Michigan Gaming Control Board was given authority to license, regulate, and control the casinos and to enforce the act. Eleven casino proposals were submitted, which were narrowed to three in 1997: Atwater/Circus Circus Casino (later called MotorCity Casino), owned by Detroit Entertainment; Greektown Casino, owned by the Sault Ste. Marie Tribe of Chippewa Indians; and the MGM Grand, owned by MGM Grand Detroit Casino. The casinos were granted permission to open at temporary locations while an upscale casino district was developed along the downtown Detroit waterfront.

The first casino, the MGM Grand, opened in July 1999 in a former IRS building. The MotorCity Casino opened in December 1999 in a former bread factory. The Greektown Casino opened in November 2000 in the heart of the city, becoming the first tribally owned casino to open off of a reservation. Detroit became the largest city in the country to allow casino gambling.

Plans for permanent Detroit casino locations incorporating large hotel complexes have faltered again and again. Although the casino companies began purchasing land along the waterfront, rising costs and local opposition forced them to abandon the idea of a casino district there. Hotel plans were scaled back after marketing studies showed that many casino customers were regional and did not need overnight lodging. The mayor and city council have bickered over permanent arrangements for the casinos, although city leaders and tourism officials are very eager for the casino/hotel complexes to be open by January 2006, when Detroit hosts the National Football League's Super Bowl.

In August 2002 the Detroit City Council approved agreements negotiated by Mayor Kwame Kilpatrick for permanent locations for the three casinos. Each of the permanent casinos is to have four hundred hotel rooms.

However, the fate of Detroit casinos remained uncertain as of 2004. The Lac Vieux Desert Band of Lake Superior Chippewa Indians filed a lawsuit against the casinos in 1997, alleging that preferential treatment was given to Atwater/Circus Circus (now MotorCity) and Greektown during the casino selection process, because the two campaigned heavily in the original statewide election on bringing casinos to Detroit. The suit has dragged on for years. The Sixth U.S. Circuit Court of Appeals in Cincinnati ruled in January 2002 that the selection process was unconstitutional. The city of Detroit tried to appeal to the U.S. Supreme Court, but the court refused to hear the appeal. In July 2002 U.S. District Judge Robert Bell denied the tribe's request for a halt to permanent casino development agreements and for reopening of the bidding process, saying "the egg cannot be unscrambled at this late date." However, only two months later, a U.S. appeals court ruled that the city must delay issuing building permits for the permanent casinos until the tribe's suit is completely reviewed.

In April 2004 the Lac Vieux tribe accepted a $79 million settlement with two of the casinos, MotorCity and Greektown. As of August 2004 the lawsuit against the MGM Grand has not been resolved, meaning that plans for permanent casinos in Detroit are still on hold. In addition, Michigan's legislature and senate approved separate measures during 2004 that would allow slot machines at racetracks, creating so-called racinos. A final compromise on the legislation still has to be worked out.

According to the Michigan Gaming and Control Board Annual Report to the Governor: Calendar Year 2003, the Detroit casinos together grossed $1.130 billion in calendar year 2003 (see Figure 4.5), up very slightly from 2002. For 2003 each casino paid 8.1% of adjusted gross receipts as a state wagering tax. The entire amount went into a statewide School Aid Fund for K–12. More than $91 million was paid into the fund during 2003. During that same year, the casinos paid an additional 9.9% of adjusted gross receipts as a local wagering tax to the city of Detroit. This money was used for public safety, anti-gang and youth development programs, taxpayer relief, capital and road improvements, and other programs designed to improve the quality of life in the city. In total, adjusted gross receipts were taxed at 18%.

In addition, each of the three casinos pays an annual state services fee equal to one-third of $25 million adjusted by the Detroit consumer price index and a yearly licensing fee of $25,000. The casinos together pay an additional $4 million annually as a municipal services fee. The Compulsive Gaming Prevention Fund receives $2 million each year from the state services fee for treatment, prevention, education, training, research, and evaluation of pathological gamblers and their families under the Michigan Department of Community Health.

In 2004 the Michigan House of Representatives passed a bill that would have doubled the casino wagering tax rate to 36%. Detroit's casino industry was vigorously opposed to the increase and warned that it could force them to lay off personnel and prevent them from building the new permanent casinos. An editorial in the Detroit News suggested the proposed tax hike was a "back-door ploy" to encourage the casinos to drop their opposition to slot machines at the racetracks. However, the state's senate voted to raise the tax rate to 24%, and in August 2004, the Michigan legislature voted to approve the gaming revenue taxes at 24%, which took effect September 1, 2004. The breakdown of the new tax rate allocated 12.1% of revenue to the State Casino Gambling Fund and 12.1% to the city of Detroit. According to the Michigan Gaming Law Web site, the Greektown Casino cut 182 casino jobs that August, and the MGM Grand laid off 150 employees in September.

Unlike casinos in some other states, Detroit casinos are not permitted under the Michigan Liquor Control Code (Public Act 58 of 1998; MCL 436.2025) to provide free alcoholic drinks.

FIGURE 4.5

IOWA

Gambling was outlawed in the state of Iowa from the time of its statehood in 1846 until 1972, when a provision in the state constitution prohibiting lotteries was repealed. In 1973 the general assembly authorized bingo and raffles by specific parties. A decade later in 1983, pari-mutuel wagering at dog and horse tracks was legalized. A state lottery was authorized in 1985. In 1989 gambling aboard excursion boats was authorized for counties in which voters approved gambling referendums. Between 1989 and 1995 referendums authorizing riverboat gambling were approved in more than a dozen counties. The Iowa Racing and Gaming Commission granted licenses allowing river-boat gambling in ten counties: Clarke, Clayton, Clinton, Des Moines, Dubuque, Lee, Polk, Pottawattamie, Scott, and Woodbury. By law, the residents of these counties vote every eight years on a referendum to allow riverboat gambling to continue. In 1994 pari-mutuel racetracks were permitted to operate slot machines.

In 2003 there were ten riverboat casinos and three racetrack casinos operating in Iowa. As stated in the Iowa Racing and Gaming Commission 2003 Annual Report, admissions were 12.7 million to the riverboats and 6.7 million to the racinos. The riverboats are required by law to meet space requirements for nongamblers and to provide shopping and tourism options. Slots are allowed at racetracks only if a specific number of live races are held during each racing season. The renewal or extension of a particular gambling license is decided by referendum every eight years.

As shown in Figure 4.6 total adjusted gross revenues during calendar year 2003 topped $1 billion for the first time. This was a 5% increase from the year before. During 2003 casino revenues accounted for 68% of the total, and racino revenues accounted for 32%. According to 2004 State of the States: The AGA Survey of Casino Entertainment,

FIGURE 4.6

nearly $210 million was collected in city, county, and state taxes. Iowa's gaming tax rate ranges from 5% to 20% depending on revenue. The city and county each get 0.5% of this amount. Another 0.3% goes to gambler treatment programs, and the remainder goes to designated state funds.

Allocation of tax revenues collected by the state is dictated under Iowa Code section 8.57(5)(e). Beginning in the fiscal year extending from July 1995 through June 1996, the first $60 million in tax revenues collected by the state from all casinos was allocated to the state's general fund. Revenues in excess of that amount were allocated to the Rebuild Iowa Infrastructure Fund. Beginning in the fiscal year extending from July 2000 to June 2001, revenues in excess of $60 million were allocated to the Vision Iowa Fund, the School Infrastructure Fund, and the Rebuild Iowa Infrastructure Fund. The Vision Iowa Fund is used for recreation, education, entertainment, and cultural projects. According to the Iowa Gaming Association, in fiscal year 2004, gaming revenues topped $240 million, with appropriations going to the general fund ($60 million), Vision Iowa Fund ($15 million), School Infrastructure Fund ($5 million), gambling treatment ($3 million), Endowment for Healthy Iowans ($70 million), local city and county taxes ($10.5 million), Rebuild Iowa Infrastructure Fund ($41.6 million), and the Environment First Fund ($35 million).

COLORADO

During the 1800s gambling halls and saloons with card games were prevalent throughout the mining towns of Colorado. However, gambling was outlawed in the state around the turn of the twentieth century.

In November 1990, Colorado voters approved a constitutional amendment permitting limited-stakes gaming in the towns of Black Hawk and Central City, near Denver, and Cripple Creek, located near Colorado Springs. The first Colorado casinos opened in October 1991 and had gross revenues of nearly $8.4 million during their first month of operation. Only blackjack, poker, and slot machines are permitted, with a maximum single bet of $5. Any increase in betting limits, additional types of games, or new gambling locations would require a statewide vote authorizing change in the constitutional amendment. Since 1992, there have been seven votes on whether to expand casino gaming to additional locations; each time, expansion has been defeated by at least a two-to-one margin. The most recent vote was held during November 2003. Voters rejected by an 81% to 19% margin a proposal to allow slot machines at the state's horse and dog racetracks.

According to the Colorado Gaming Commission there were forty-four casinos operating in the state during 2003. They had gross revenues of $711 million during fiscal year 2004 (July 2003–June 2004). As shown in Figure 4.7 annual revenue grew steadily from 1992 through 2002 and then leveled off. The Black Hawk casinos have historically been the most successful in the state, accounting for 70% to 75% of casino gaming revenue each year. The Cripple Creek market is second in gross revenue, accounting for 20% to 25% of the annual total. The Central City casinos typically account for 5% to 10%.

According to Gaming in Colorado: Fact Book & 2003 Abstract, a publication of the Colorado Division of Gaming, total adjusted gross revenue earned between the inception of casino gambling and February 2004 added up to $5.8 billion. The casinos have paid $780 million in gaming taxes to the state over that time period. The

FIGURE 4.7

money has been used to fund historical restoration projects in Colorado and to offset the costs of casino gaming to state and local governments (including regulatory costs associated with the casino industry).

The casinos are overseen by the Colorado Division of Gaming, a division of the Colorado Department of Revenue. The Division of Gaming, which is responsible for regulation and enforcement, is headquartered in Lake-wood, near Denver. It investigates gaming license applicants and monitors existing license holders for problems, such as ties to organized crime. Division investigators patrol the casinos to watch for any violations of gaming laws, rules, and regulations.

Casino rules and regulations are promulgated by the Colorado Limited Gaming Control Commission, a five-member group appointed by the governor. The commission establishes the gaming tax rate and has final authority over all gaming licenses issued in the state.

The gaming tax rate is graduated depending on each casino's adjusted gross proceeds (AGP), the amount of money wagered minus the amount paid out in prizes. The tax rate is set by the commission on an annual basis. In June 2003 the commission decided to retain the tax structure in place since July 1999 as follows:

• 0.25% on $0–$2 million AGP
• 2% on $2–$4 million AGP
• 4% on $4–$5 million AGP
• 11% on $5–$10 million AGP
• 16% on $10–$15 million AGP
• 20% on AGP greater than $15 million

In addition the casinos pay an annual state device fee of $75 per slot machine and game table. They also pay annual device fees ranging from $750 to $1,265 per year to their local jurisdictions. The Colorado Gaming Commission newsletter reported in October 2004 that there were 15,663 slot machines and 175 table games operating in the state. The slot machines range in denominations from pennies to $5 per play. All machines are legally required to pay back at least 80% of all money taken in by the machine over the long term.

SOUTH DAKOTA

Commercial casino gambling in South Dakota is restricted to the town of Deadwood in Lawrence County. Deadwood, located approximately sixty miles from Mount Rushmore, is a rustic mountain town that was designated as a National Historic Landmark and is listed on both the National and South Dakota Register of Historic Places. The town features more than eighty historic casinos, with a total of 112 casinos in all. Games allowed are blackjack, poker, and slot machines.

The rocky history of gambling in Deadwood is described in The Last Gamble: Betting on the Future in Four Rocky Mountain Mining Towns by Katherine R. Jensen and Audie L. Blevins (Tucson, AZ: University of Arizona Press, 1998). The gold rush of 1876 brought large

FIGURE 4.8

numbers of people into the town, and it soon became packed with saloons and gambling halls. The town became associated with such notorious characters as Wild Bill Hickok, Poker Alice, and Calamity Jane.

Although gambling was outlawed in the Dakota Territory in 1881, it continued quite openly in Deadwood with the apparent complicity of the local sheriff. In 1907 gambling opponents complained that the town's gambling halls "operated as openly as grocery stores, running twenty-four hours a day." On a busy Saturday night in 1947, South Dakota's attorney general sent sixteen raiders into the bars of Deadwood to show the town that the state meant business. The blatant days of gambling were over in Deadwood, although locals say that the establishments continued to operate quietly for the next four decades.

In 1984 a group of Deadwood businessmen and community leaders began working to bring legalized gambling back to Deadwood, primarily to raise money to preserve the town's historic buildings. The group developed the slogan "Deadwood You Bet" and had it printed on hundreds of buttons. Despite widespread local support, though, the state's voters and legislators were not keen on the idea. It failed at the ballot box in 1984 and was voted down by the legislature in 1988. The measure made it onto the ballot anyway in November 1988 following a massive petition effort. In 1989 South Dakota voters approved limited-stakes casino gambling for Deadwood, making South Dakota the third state (after Nevada and New Jersey) to legalize casino gambling again. Originally, the casinos could only offer a $5 maximum bet. This limit was raised to $100 in 2000.

Deadwood's casinos are regulated by the South Dakota Commission on Gaming. According to the South Dakota Commission on Gaming Annual Report Fiscal Year 2004, Deadwood casinos pay an 8% gaming tax on their adjusted gross revenue and an annual fee of $2,000 per card game or slot machine. The gaming tax is allocated as follows: 50% to the Commission Fund, 40% to the Department of Tourism, and 10% to Lawrence County. The annual device fees also go into the Commission Fund.

In calendar year 2003, Deadwood casinos had total gross revenues of $70.4 million, a 6% increase from 2002. (See Figure 4.8.) South Dakota casino revenues held steady for most of the 1990s. Unlike casinos in many other states, however, they have experienced robust growth during the early twenty-first century. There were nearly three thousand licensed gambling devices and more than eighty table games operating in Deadwood during 2003. The average overall payout to patrons during December 2003 was 90%. Since the reintroduction of legalized casino gambling through December 2003, gross revenues totaled $669 million.

Nearly $5.5 million in gaming taxes was collected during 2003. Between 1989 and 2003 a total of nearly $52 million was collected. Of this amount $26 million went to the state's gaming commission fund, $21 million was allocated to promote tourism, and $5 million was turned over to Lawrence County.