Economist tells Senate that expanded gambling could create more revenue, but likely will cannibalize existing business
As Florida lawmakers decide the fate of the future of gambling in the state with the governor's proposed agreement with the Seminole Tribe, one unpleasant issue continues to emerge -- cannibalization.
It's the term used by state economists when one business feeds off the other to expand. The official definition: "creating demand for one product at the expense of another" and it is central to the success of any changes in state gambling law now being debated by lawmakers.
The proposed agreement signed by Gov. Rick Scott with the Seminole Tribe would allow the tribe to expand its casino games to include craps and roulette at its seven casinos, and add black jack at the two slots casinos that currently do not offer them. It also allows for the dog track in Palm Beach County to add slot machines and creates an opening for a fourth slot machine license in Miami-Dade County.
With each new gambling option allowed by law, the money must comes from somewhere and, state economists conclude, most of it comes from within the state -- either replacing the purchase of another good which would have been taxed in a different manner, or replacing what would have been spent on another gambling products.
A 2013 report by Spectrum Gaming Group, a New Jersey-based research firm hired by the Florida Legislature to assess the economic and social costs of expanded gambling in Florida, found that 93 percent of the gambling in the state is done by Florida residents, generating $2.4 billion in revenue for casinos.
"It matters not so much how much those two new slots generate but where the money comes from,'' said Amy Baker, head economist with the Legislature's Economic and Demographic Research at a workshop on the gaming compact at the Senate Regulated Industries Committee. "If we say it's a shifting of the gambling dollars from one type of gambling to another, then the amount of money that you bring in would be less,'' she said. "It matters the location and the amount of money you bring in."
For example, because Palm Beach County is far enough away from any other gambling facility, "you could potentially bring in other folks from that," she said, noting that among the options for expanding slot machines without cannibalizing from other businesses, "Palm Beach was definitely the strongest."
But, Baker added, even in Palm Beach County, the money for the new gaming could come from other areas.
"Where will they be diverting that money from? Are they diverting it from the Lottery? Are they diverting it from an expenditure they would have made at the Hard Rock? So are they diverting it by not going out to dinner, and therefore sales tax?"
The experience shows that as new gambling venues open, it often just shifts money from one pocket to another. A 2013 report by Spectrum Gaming Group., a New Jersey-based research firm hired by the Florida Legislature to assess the economic and social costs of expanded gambling in Florida, found that 93 percent of the gambling in the state is done by Florida residents, generating $2.4 billion in revenue for existing casinos.
Dania Jai Alai has just reopened and they are now being included in the revenuee estimating forecast and yet state economists included that "almost all of the money coming to Dania is just a reshuffling from all the other pari-mutuel facilities," Baker said.
The experience shows that as new gambling venues open, it often just shifts money from one pocket to another.
In Miami Dade County, the second venue that would be allowed to issue a new slot machine license under the proposed compact, lawmakers must decide what impact that will have on the existing pari-mutuels.
"Putting another slots facility already in Miami-Dade is going to be competing with everything that is already going on in Miami-Dade, so the cannibalization factor is higher there,'' she said. How much the new slots casino shifts money from its competitors depends on where the new facility goes and how it looks in comparison to the other slots facilities in the region, she said.
Geography is often central to the cannibalization argument and senators heard from two North Florida gaming interests who want lawmakers to give them slot machines because, they argue, they are too far away from the tribe's casinos to offer competition.
Antonio Jefferson, the city manager of the tiny City of Gretna, told the group about the group of investors who want to invest $250 million in his city to build a slots casino along the I-10 corridor at the former barrel racing facility.
"The poverty rate in Gadsden County is just around the range of 40 percent,'' he said. The rural county has approved a local referendum that would allow for the slot machines and now needs a recognition that it will not violate the state's gaming compact with the tribe.
"We have banded together to lift ourselves out of the bowels of poverty,'' Jeffereson said. "Now what stands in our way is an issue of fairness. We have just as much a right as the other areas of our state to grow our economy, employ our citizens and also build wealth."
Baker also attached some numbers to the alternatives legislators are considering. For example, Baker said that while the lower tax rate is a benefit to the pari-mutuels but "it's a pure loss to the state." For example, if the state lowered the rate from 35 percent to 30 percent, the state would lose $26 million and if it lowered to 25 percent, the loss to the state would be $52.2 million.
If the state were to give two pari-mutuels slot machines, the state would collect another $40 million in tax revenue.
Rep. Rob Bradley, chairman of the committee, would not commit to whether or not the Senate will release a bill to ratify the compact, or propose its own alternative. He said, however, there is plenty of time.
"Going from this committee to the floor, is something that could happen in fairly short order,'' he said. "We are not in any particular rush or hurry."
Bradley said that the issue of cannibalization will continue to be a focus and Baker will remain an important resource as the committee decides which pari-mutuels will get expanded games or lower tax rates, which will be allowed to compete directly with the tribe and which must compete with a tribe that operates at a financial advantage.
"At the end of the day, we need to be in a better financial position after all this is done than we are right now,'' he said.