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Discussion: Casino's Impact on Economy and Politics in Iowa

posted on February 15, 2008 at 5:00 PM

Wes Ehrecke is President of the Iowa Gaming Association, and Jack Ketterer is Administrator for the Iowa Racing and Gaming Commission.

Yeager: Gentlemen, welcome. The first question is can we sustain the ride that we’re on. Jack, I’ll start with you.

Ketterer: Well, I think we’re starting to see some evidence of saturation now. We’ve licensed an additional four casinos out of ten applications two years ago, and we’re seeing that although the revenues in total are continuing to rise, the same store, if you will, facilities have started to show some flattening out or even a slight decrease.

Yeager: Well, that was the case – the revenue increase we saw on that graphic there, it’s up 14.9 percent over the year before, and that’s not even having the operations up for a full year in some cities, including Waterloo was about a six-month case. I ask the question to you, Wes. Can we sustain this growth?

Ehrecke: Well, certainly I think that you have to put them in the – at the time when they put them in the four areas was underserved areas. I think the commission did a remarkable job of really analyzing where new casinos should go and determining how that best serves those communities and the citizens that decide to have that. Certainly we’re not recession proof, by any means, and right now we’re faced with $3 gas and the housing slump and the economic woes.

This is an entertainment complex, and people are spending their discretionary dollars earmarked for entertainment. And so sometimes with tightening the belts, it might be -- At least in the upcoming year I don’t think we’ll see the kind of double-digit increases that we’ve seen in past years. But certainly I see that there’s some real opportunities because of the new footprints that are going in now that are enhancing the entertainment amenities beyond just gaming. And I think that’s going to be a tremendous opportunity throughout the state.

Yeager: Well, and that’s something I want to get into in just a little bit. We mentioned a couple of communities in the piece, Ottumwa and Fort Dodge. Newton has now come forward. They haven’t passed it in the referendum state as saying they would like it. How do you weigh – And I know you don’t set policy, Jack, with the group, but how does the commission weigh when

people are knocking at the door saying we would like in on this action too?

Ketterer: Well, I think a couple of ways that the commission is approached in the past has been that – For instance, Iowa people may ask, well, why don’t you give a license to everybody that has a suitable background and is okay and -- from that standpoint. And I think that the commission has looked at maybe doing something more like a limited monopoly where they can demand a certain amount of capital investment in the community, so it’s not just a building with gaming equipment and a casino.

But there’s also hotels, restaurants, entertainment venues, and other things that create economic development and create jobs. And to do that and require that amount of investment, they need some sort of protection, and that’s what’s gone in so far. So that’s one of the things I think they’ll have to consider, and what I spoke before is the revenue growth and whether that’s plateaued or not.

Yeager: Well, and that’s a question -- Do you think that that could be a future growth for the casino industry, a franchise of sorts, kind of like how we saw touch play was in each individual store in every city across the state. Is that something we could maybe see licenses everywhere? Would that be a different revenue stream or a new revenue stream to go after?

Ketterer: Well, certainly if your only desire was to maximize tax revenue, you would want to put a casino in every state on every corner. I don’t really think that’s what the people of Iowa want. And so that’s the task that the commission faces when they consider this issue.

Ehrecke: Let’s rewind the tape back to 1989, when we were coming off the heels of a farm crisis. Certainly some of the communities were very hard hit with manufacturing and the downturn of jobs and the like. And really the legislative leaders at the time said: let’s find something that would be a catalyst for economic development, create good jobs, generate tourism dollars.

I think if you look now – fast forward sixteen years later, I think we’ve exceeded those expectations in an extraordinary way. But again, the kind of expectations are that it has to be a catalyst for economic development. It generates tourism dollars. It’s putting it beyond just a gaming facility is what Jack alluded to.

Now, with the hotels and convention centers, great restaurants, spas, salons, bowling alleys, golf courses, you can’t just put one of those in every corner and I don’t think we should. It’s really going to benefit not only those communities, but the outlying areas, because of the charitable contributions that are going on throughout the entire state.

Every county benefits from gaming dollars, plus the Buy Iowa First and other things that are occurring that it is -- you need to have, I think, a balanced look at that. I think that’s where the commission certainly has done so.

Yeager: Well, it’s a competition of sorts. Riverside came on the line in an area – Cedar Rapids and Iowa City are very close by with that facility, but it is a golf course and a spa and many of those things that you mentioned. When the restrictions were lifted to not make it on water so much, is that what opened up the door to that type of development, or do you think that’s the way we were going already before that rule was relaxed?

Ehrecke: I think that certainly to be competitive – And we like to think of ourselves as Iowa’s largest tourist attraction collectively, with over 22.5 million visitors per year. And over 65 percent – or up to 65 percent of the people are coming from out of state. You have to continually upgrade your facility.

If you look at it like other entertainment, movie theaters, you know the movie theater mold is not what it’s like today with the stadium seating and the surround sound and all the expectations. Likewise, in a gaming facility, you need to provide additional amenities and continually upgrade with a design and how that looks. And so I think that’s really -- It’s very exciting to see what the potential is now as more of the properties do come up off the water onto – and the land-based structures really have a bigger footprint by which to work with.

Yeager: You mentioned two interesting numbers right there in that statement. One was over 20 million visitors.

Ehrecke: Twenty-two.

Yeager: Twenty-two million people come to this state to gamble for tourism. They come to the casinos every year. That’s a statistic meaning you traveled more than 50 miles. And you also mentioned 65 percent not from Iowa. So if we take out everything around the border, do we have any idea where that number would be? Is that something that the racing and gaming commission keeps a look at?

Ketterer: We don’t track those – the players and where they’re coming from as well as the casinos themselves do with their players club programs, but it’s certainly in areas such as Council Bluffs and Omaha, Worth County with Minnesota gamblers, and all along the Mississippi River, we attract people from Wisconsin and Illinois. And that fuels the tourism that Wes was speaking of.

Yeager: Well, we talk about tourism. And there’s a couple of economists who I had some background discussions with, talking about where that money is coming from, is it going to truly help the community and economic developments. I’ve heard this discussion at a couple places where the boat was going to go in, and they would say it’s going to help all these bars and restaurants and all the entertainment facilities around us, but in some cases that hasn’t been the case.

Do you have research or any thoughts on what it does economic impact for a community when a facility comes in? Does it help the area around the gambling facility, or it is just mostly what that gambling facility does and what it expands to?

Ehrecke: I think it helps the areas around. I mean if you take each of the locations now, what they have that’s grown up around there, not only like the restaurants and other entities that have located, because when you have a large number of people coming to a specific spot, you’re going to want other things to go to.

I know a couple that I talked to here recently where they come into the state, they’re from Illinois. They go to a restaurant, they go out to eat, they may go to something, and then they go to the casino for maybe an hour, and then they go back home. They tie it into a small package, and so we really want to partner with all the tourism attractions within the state because I think there’s a real benefit and opportunity for that kind of a partnership.

It's also for people to go and see the other things that Iowa has to offer within those communities, and I do see that that occurs. And a good example like a restaurant over in Council Bluffs, it was brand-new when the casinos first came. I think the name of it was Tish's, and they thought, well, this is going to go out of business. Well, I think they tripled in size. Not everybody goes and eats at the casino all the time, but will come and if you have good food, good service, and other things to be offered, people are going to come to those as well.

Yeager: Okay. Well, just a few minutes left here. I want to talk a little bit, Jack – When we talk about – What’s the percentage of tax money of the general budget? I think you said around four or five percent.

Ketterer: It’s up to about four to five percent of the Iowa budget right now.

Yeager: Do we look at -- Are you -- Do you anticipate that number is going to go up? Will we see a tax hike? Do we see different revenue streams that could come down the line? What are you charged to do to look for – Are you ever charged to look for different ways to make money through the Iowa Racing and Gaming Commission?

Ketterer: I don’t know about different ways to make money, but we are responsible for ensuring that the state does get its share, and sometimes to help with forecasting for the Iowa fiscal bureau to determine what tax revenues may be down the roadway. So I think that the legislature has done a good job in terms of they’ve capped the amount of gaming tax revenue that goes to the general fund so that state government is not too reliant upon gaming tax for how it operates. The remainder of the tax revenue above that threshold goes to the Rebuild Iowa Infrastructure Fund. It’s gone to Vision Iowa, which has created a lot of tourist attractions and destinations in Iowa. And so I think they’ve done a good job of shepherding that money.

Yeager: And that’s something that’s always a constant battle. I know you’ve had to make it to the legislature a couple times. What are lawmakers asking you right now? What are they wanting you either to look at or what are they trying to get a hold of from your brain and from your position as the Racing and Gaming Commission?

Ketterer: Well, I think primarily they’re always interested in things that their constituents asked of them, and right now I think that is one of the things that’s foremost in their mind about additional licenses. And our commission is addressing that issue in March. They looked at it last year in March and decided that they wanted to see how some of these new casinos – At that time Waterloo had not opened – how they would have performed and what adverse impact they might have on existing casinos. And so they’re going to have a discussion about that, hear from folks from Ottumwa, Fort Dodge, Tama, possibly Newton, about how they feel.

Yeager: We’re under a minute so I’ll give you twenty seconds each to look ahead in the next twenty years. What does the state of gambling in Iowa look like twenty years down the road? What do you think we’ll see?

Ehrecke: Well, certainly in the last sixteen years what has evolved from the riverboats to what we have now has been remarkable. Over $2 billion in taxes paid to the state for use in a lot of visionary ways. I think gaming certainly is a viable part of Iowa’s economy. It’s adding a lot of value to the state’s entertainment and tourism industry, so I think there’s going to be a lot of positives yet to come.

Yeager: Jack, same question.

Ketterer: I think Iowans take a great deal of pride in their ethics and values, and typically gambling has faltered or been taken away. And our history as a country, when there have been scandals or other things involved with gambling, so I think if we can keep it clean --

Yeager: We’ll see how it goes from there. Jack Ketterer, Wes Ehrecke, thank you, gentlemen, for coming in here.

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