the impact of casino expansion in ottawa aug 1-13-2

7/27/2019 The Impact of Casino Expansion in Ottawa Aug 1-13-2

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The Impact of Casino Expansion in OttawaRob Simpson 1

1. Framing the Economic Issue

The debate in Ottawa is over where to locate a casino despite the fact that there is no analysis thatshows any economic benefit to having it in the first place. Surely, responsible government standardswould dictate having a solid business case before committing to become a host community.

A recent economic analysis in Waterloo Region assessed both sides of the ledger the outflow of fundsfrom gambling and the offsetting inflow. Adapted to Ottawa, this approach will allow municipal officialsand citizens to look at the big picture and decide whether the benefits of a casino outweigh the costs.

2. Casino Revenue Analysis

Ottawa, with a population 922,000, is earmarked for a casino with 2,000 slots and 84 table games slightly smaller than Caesars Casino in Windsor. With this scope in mind, the first step in assessingeconomic impact is to determine the amount of money the casino will remove from Ottawa and theamount that will flow back.

Outflow: The five largest Ontario casinos 2 generate an average of $154,383 per slot machine per year.Applying this number to the 2,000 slot machines proposed for Ottawa generates an estimated $308.8million annually in revenue (or net gambler losses). This is the outflow from the community.

Inflow: Money returns to host communities (inflow) in three principal ways: payroll, localexpenditures, and hosting fees.

Payroll can be determined by extrapolating from Ontarios five largest casinos. On average, they employ1.1 employees per slot machine, and the average expense for salaries and benefits is $49,976. Applyingthese rates, Ottawas 2000 slot machines would require 2,200 employees (2,000 slots X 1.1), and theannual payroll would be $110 million (2,200 employees X $49,976).

Local expenses for supplies and services can be estimated from OLG data on the Brantford casino, where539 slots generate $1.3 million in purchases. The proposed Ottawa venue has 4.1 times as many slots,and so would generate an estimated $5.3 million in local expenditures annually.

OLGs hosting fee - 5.5% of the first $65 million, 3% of the next $135 million, and 2.5% of the remaining$16 million would generate $10.4 million annually in hosting fees.

Another flow back cited by OLG is in the form of donations to local causes in Brantford, this amounted

to $34,785 in 2011. Using the 4.1 multiplier, we can estimate an annual expenditure of about $140,000.

1 Rob Simpson was the founding CEO of the Ontario Problem Gambling Research Centre from 2000 2010. He wasco-editor of the International Journal of Gambling Studies from 2005 2010. He is not against gambling per se ,but stands squarely in opposition to gambling harm.

2 Caesars Windsor, Casino Niagara, Fallsview Casino, Casino Rama, and the Brantford casino.


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From the above, the estimated inflow from payroll, local expenditures, hosting fees and donations totals$125.8 million annually.

3. Net Financial Impact on Ottawa

The bottom line impact is the difference between the outflow of casino revenue/gambler losses and the

inflow of hosting benefits. In this case, it yields a net loss of $183 million annually, as shown in Table 1.

Table 1Net Benefit/Loss from the Proposed Ottawa Casino

4. Impact on the Local Economy

Economic impact would come from new expenditures on gambling attributable to the casino. Thesewould be over and above what is currently spent at the Rideau Carleton Raceway, where 1,275 slots,generated $142.3 million in 2011. Accordingly, the proposed casino, with 2,000 slots and 84 tables,would extract an additional $166.5 million each year ($308.8 minus $142.3 million).

Impact on Local Businesses: A key question is where a new consumer expenditure of this magnitudewould come from. Here, the research literature unequivocally points to a reallocation of disposableincome, principally from discretionary spending in the hospitality and leisure sectors 3.

Although revenue figures for the Ottawa hospitality and leisure sectors are no longer available due tocutbacks to Statistics Canada, an estimate can be created from figures generated for Waterloo Regionbefore the cutbacks. Here, these sectors generated $800 million in annual revenue (with gamblingrevenue removed) from a population base of 700,000. Given that the Ottawa population is 31.7%

3 Statistics Canada defines these sectors as: performing arts; spectator sports and related industries; heritageinstitutions; amusement, gambling, and recreation industries; accommodation services; food services anddrinking places.

OUTFLOW

Gambler losses (after winnings are paid) $308.8 million $308.8 million

INFLOW

Wages and benefits to casino employees $110.0 million

Local expenditures $5.3 million

Hosting Fees $10.4 million

Contributions to local causes $0.14 million

Total $125.84 million $125.8 million

Net Annual Benefit/(Loss) to Ottawa ($183.0 million)


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larger, Waterloo revenues can be proportionately adjusted to estimate a current hospitality and leisurebase of $1.1 billion annually.

Against this base, the $166.5 million in new spending at the casino would represent a 15.1% loss to theOttawa hospitality and leisure sectors. A loss of this magnitude would cause substantial harm to localbusinesses and jobs.

Impact on jobs: Of particular interest is the number of jobs created in the gambling sector versus thehospitality and leisure sectors. The five largest casinos in Ontario average eight employees per milliondollars revenue, whereas the entertainment and leisure sectors average 18.4 employees 2.4 times asmany. In other words, consumer reallocation from these sectors to gambling would result in a loss of2.4 jobs for every one created at the casino.

Using rates described earlier, the 725 new slots in the casino (2,000 minus the existing 1,275) wouldgenerate 798 new jobs (725 X 1.1 employee/slot machine). The corresponding loss in the hospitalityand leisure sectors, at 2.4 times greater, would be 1914 jobs. The net loss would be 1189 jobs (798minus 1914).

Impact on Tourism and Business Base: Casino proponents across Ontario invariably cite increases intourism, conferences and conventions, and the inflow of new businesses as benefits. However, there isnot a single credible business case to back up these assertions.

A first principle is that the proposed Ottawa casino will offer the same array of slot machines and tablegames as Gatineau and the casinos planned for 28 other Ontario municipalities. Where, then, is theevidence that:

tourists, who would otherwise have gone elsewhere, will select Ottawa because it has a casino;

businesses, which would otherwise have located elsewhere, will select Ottawa because the

casino was the tipping point; conference and convention planners, who would otherwise have gone elsewhere, will select

Ottawa because delegates will have access a casino?

These canards are repeatedly cited by pro-expansion proponents but, in the absence of a defensiblebusiness case, must be dismissed as unsupportable, if not fatuous.

5. Problem Gambling

Prevalence: Casinos offer only slots and tables, and so problem gambling rates should be specific tothese types. OLG minimizes rates by including low prevalence/high participation types of gambling such

as lotteries, and salting the rates with non-gamblers (not unlike including men in pregnancy rates).

Rates for high-severity problem gamblers among slots players are 5.5% and they generate 31% of allslots revenue. From the Ottawa population of 922,000, 72% are adults, of which 16.5% will play slots,and 5.5% (6,000 people) will be high-severity problem gamblers. About three times as many will bemoderate-severity problem gamblers (18,100 people).


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Among table game players, 12.1% are high-severity problem gamblers and they generate 57% of alltable game revenue. Among adults, 6.5% play table games, of which 12.1% will become high-severityproblem gamblers (5,200 people), while another 15,700 will be moderate-severity problem gamblers.

In total, the proposed casino will support 11,200 high-severity problem gamblers and 33,800 moderateseverity problem gamblers, for a total of 45,000 people who are being directly harmed by theirgambling. On average, each affects 2.8 family members, causing an additional 126,000 people to furtherendure the burden of problem gambling.

The harm to problem gamblers and their families includes financial duress and bankruptcy; liquidation offamily assets; family breakdown; depression, anxiety, and stress disorders; spousal/partner assault;theft and fraud; and suicide.

Gambling is the only government initiative known to harm the people it was elected to serve.

Crime Rates: Crimes such as fraud, theft, and spousal/partner assault, common among problemgamblers, are not reported as gambling-related by police departments. In the absence of such records,

the police typically report no increase in crime following the opening of casinos. In addition, gambling isseldom identified in suicide records, often out of consideration for the family. Finally, casino-basedcrimes such as loan sharking and money laundering, which are seldom addressed by municipal police,are also absent from local statistics.

Problem Gambler Churn: The problem gambler population is not static. Despite their addiction, asmany as 20% will cut back or quit gambling each year due primarily to financial distress and othernegative consequences. Prevalence rates remain constant, however, as those exiting are replaced by anequal number of new problem gamblers. This phenomenon, known as churn, increases the totalnumber of people harmed by gambling over time in Ottawas case, by up to 9,000 per year (45,000 X20%).

Prevention: The current CEO of OLG, wrote in the Toronto Star, We realize there are risks associatedwith gambling and we deal with them head-on. Ontario provides the best-funded responsible gamblingprograms in North America. Despite such assertions, OLG has consistently failed to adopt anysignificant research-validated measures known to prevent gambling harm seehttp://www.longwoods.com/content/23103 for a review of effective measures that OLG ignores. OLGscareful use of best funded has nothing to do with effective.

6. Conclusions

Mayor Watson, in his submission to the July 9 meeting of the Finance and Economic Development

Committee, stated that the proposed casino:

will provide better oversight, accountability and results through improved coordination ofeconomic development services and resources for enterprises already located or looking tolocate in Ottawa, will showcase Ottawa as a compelling and vibrant destination to visitors, andwill improve the quality of life for residents.


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I beg to differ. The proposed casino will undermine economic development in Ottawa with a netoutflow of $183.1 million annually, extracted principally from the hospitality and leisure sectors. Thesesectors will realize an estimated 15.1% decline in revenues, causing substantial financial distress,business failures, and job loss. Ottawa will forfeit $2.50 for every dollar flowing back.

The formidable burden of problem gambling and the harm to local businesses and jobs will diminish thequality of life for a substantial number of residents. Adding a casino to existing Ottawa attractions willcontribute nothing to being perceived as a compelling and vibrant destination for tourists, conferences,or conventions.

Ottawa city council should have conducted a full due diligence analysis of the casino to ensure that thepublic interest was being met. In its absence, the case I have provided might inspire much neededdebate about the merits of Ottawa becoming a host community. Arguing about where to locate acasino puts the sulky before the horse.

the impact of casino expansion in ottawa aug 1-13-2

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