Backers of the proposed casino in York County say the business would create more than 2,000 jobs and $45 million in annual tax revenue, but history shows that those numbers are by no means a sure bet.
The hard truth is that casinos frequently fall short of the tax revenue and job creation estimates touted by their backers when they are trying to get the projects approved.
Case in point: A 2010 economic impact study on the then-proposed Oxford Casino in Oxford predicted that the casino would create 1,700 permanent jobs and $60 million in annual tax revenue. It has only produced about 400 permanent jobs and $32 million in annual tax revenue, according to state records.
Economic studies paid for by casino developers are often overly optimistic and designed to garner support for the project, according to economic analysts. Such studies often assume a larger project than what actually gets built, fail to fully account for competition in the area or rely on other faulty assumptions, they said.
PERSUASION VS. INFORMATION
“In my experience, casino development projects are often associated with rosy projections about the jobs and tax revenue that will be created,” said Rachel Volberg, principal investigator on the Massachusetts Gaming Commission’s Social and Economic Impacts of Gambling in Massachusetts study. “However, efforts to actually monitor those impacts and assess their magnitude are rarely undertaken.”
One reason for the difficulty in making accurate predictions about the economic impact of a proposed casino lies in the assumptions that are built into the models used to make such projections, she said.
Those assumptions often rely on estimates of economic activity, rather than on detailed data from casino operators, said Volberg, who was speaking generally and not about the York County casino study in particular.
“Another reason is that different economic models are based on different estimates and will therefore produce different predictions,” she said.
Clyde Barrow, general manager of Massachusetts-based economic analysis firm Pyramid Associates LLC, agreed that all it takes is one change to a key assumption to dramatically alter the outcome of an economic analysis.
“You tweak an assumption about propensity to gamble, and that number can go way up or way down,” he said.
Pyramid Associates was the firm hired to perform the economic analysis on Oxford Casino when it was being proposed in 2010 – the one that predicted more than four times the jobs and twice the annual tax revenue it actually produced. Barrow noted that the economic analysis his firm conducted for Oxford Casino was based on plans for a much larger project than what was actually built.
“They did what a lot of developers decide to do: build smaller and test it out,” he said. “They built about half of what they proposed.”
Barrow said that while economic analysts do their best to be accurate, studies undertaken on behalf of casino developers are often designed to persuade as much as they are to inform. He said they should be scrutinized to determine where their data and assumptions come from, and whether their findings seem realistic.
“I think that you need to look at all of them skeptically, including my own,” Barrow said.
$45 MILLION A YEAR IN TAX REVENUE
Progress for Maine, the campaign behind the York County casino referendum, released an economic analysis on Sept. 14 that says voter approval of the casino in November would result in 2,165 permanent jobs, 2,767 temporary construction jobs, $64.4 million in annual household earnings from operation of the casino, more than $100 million in household earnings from construction and at least $45 million a year in tax revenue for the state.
The referendum in November would give exclusive rights to develop a casino to international gambling entrepreneur Shawn Scott or a company owned by him.
The casino would have to be built in York County, in a community that agrees to accept it.
David Evans, principal of Florida-based Evans, Carroll & Associates Inc., is one of the authors of the York County casino study. The firm has been hired by states such as New York, Pennsylvania and Wisconsin to study the impact of policy changes on topics ranging from infrastructure to utility allowances. The cities of Las Vegas and Orlando also have hired Evans, Carroll & Associates to conduct gaming, travel and tourism studies.
COMPETING WITH OTHER CASINOS
Evans said the economic analysis his firm produced for the York County project was based on a widely accepted methodology known as the regional input-output modeling system.
The revenue projections were based in part on data collected by the state from Oxford Casino, Evans said, which generates average revenue of about $200 per slot machine per day from its roughly 850 slot machines. The York County casino projections are based on plans to have 1,500 slot machines at the proposed facility – the maximum number allowed by the voter referendum, he said.
Evans said his firm even reduced the house’s estimated “win” from each slot machine from $200 to $181 per day, to account for the fact that the York County casino would be competing with two others in the state. Currently, Oxford Casino only has one Maine competitor: Hollywood Casino Hotel & Raceway in Bangor.
“As there are more available options, yes, there is some cannibalization,” Evans said.
Still, Barrow said he has concerns about Evans’ economic analysis. He believes it is too optimistic.
“First of all, I thought the revenue estimate was rather high for the type of casino that they’re proposing,” he said.
Barrow noted that there is a massive casino under construction in Boston – just over an hour’s drive south of York County – that would pose serious competition for the proposed casino in Maine. The Wynn Boston Harbor casino resort, developed by Las Vegas developer Steve Wynn, is a $2.4 billion project with more than 3,000 slot machines, a 29-story hotel, 13 restaurants and a 3,000-car garage, scheduled to open in June 2019.
Barrow questioned whether Evans’ firm took into account the anticipated competition from that project if the York County casino is built.
MODELS ARE PART ART, PART SCIENCE
Evans said his firm did not try to game out the exact amount of revenue that the casino might lose as a result of the Wynn project, but he said the firm generally took a conservative approach in its estimates, knowing that there would be competitors.
“What we did not do is say, ‘Hey, what’s our fairway estimate, and kind of our best guess for this casino if it were the only one in the area?’ and then specifically subtract out the impact of the competition,” Evans said.
University of Maine economics professor Todd Gabe said there are a number of accepted models that can be used to perform an economic analysis, including the model used by Evans, Carroll & Associates for the York County casino study, which Gabe said he has not read.
Still, he said all of the models allow for a degree of flexibility, and that economic analysts have to make certain judgment calls while doing their work.
“A lot of people, when they hear the word ‘model,’ they think it’s a black box that everyone uses,” but that’s not the case, Gabe said. “There’s an art and a science to doing an economic impact study.”
J. Craig Anderson can be contacted at 791-6390 or at:
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