Ohio gaming industry celebrates first birthday

By Rick Armon and Paula Schleis
Beacon Journal staff writers

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Happy birthday, Ohio casino industry. You turn 1 this week.

What a crazy year it’s been as you took your first baby steps.

There’s been plenty of excitement. Ask the gamblers who wagered $5.5 billion on slots and table games, and the casino owners who say they’re pleased with your progress so far.

But there’s also concern about the pace of your development. Ask the communities that aren’t getting nearly the amount of tax revenue they were told to expect, and the anti-gambling advocates who point out unfulfilled promises of jobs.

Oh yes, you’ve filled quite the scrapbook since the Horseshoe Casino Cleveland threw open its doors on May 14, 2012, to thousands of people lining the sidewalk with fistfuls of cash. Since then, you’ve grown three more casinos in Toledo, Columbus and Cincinnati.

And what about all those cousins of yours popping up? Scioto Downs Racino in Columbus and ThistleDown Racino in North Randall have given birth to slots-like video lottery terminals, and five more horse tracks around the state — including the Hard Rock Rocksino in Northfield — are expecting by the end of next year.

Clearly, you’ve only just begun.

Excitement

Count Carol Finefrock among the happy gamblers.

The 65-year-old Jackson Township woman is now spending almost all of her gambling money in Ohio.

Prior to Horseshoe Casino Cleveland opening, she would venture out of state every other month to West Virginia, Pennsylvania, New York and Las Vegas.

Now she has to travel only about 45 minutes north, proving the point of casino operators who predicted many Ohioans would keep their money at home.

Alan Silver, an Ohio University assistant professor of restaurant, hotel and tourism, said that’s one of the challenges for the Ohio casinos, which are not destination resorts. They must rely on repeat business by emphasizing loyalty programs and customer service, he said.

Finefrock likes that her money is benefiting Ohio.

“Everybody [was] going out of state to lose their money, so we might as well do it here,” she said.

She doesn’t think the casinos have brought bad elements to the area as some predicted, and she thinks Cleveland is doing a good job.

“I like it. It’s clean, the people working there are very friendly, and I like the security they have,” she said.

Expectations

But Ohio’s casino industry is not quite living up to its early hype.

Remember the television ads telling voters the casinos would spawn 34,000 jobs, including 7,500 permanent positions at the gambling venues, and generate $1.9 billion in revenue for local governments and schools?

We’re not there yet.

The casinos are employing about 6,200 people, and state budget makers were planning on $958 million this year — half of the early projections.

“Somewhat disappointing,” concluded a Fitch Ratings report released in March.

“It probably hasn’t ramped as strongly as most folks would have hoped,” said Michael Paladino, a Fitch Ratings senior director.

Many of the properties are pulling in less than $200 a day per machine, when you’d like to see more than that, he said.

He and others blamed the so-so performance, in part, on unregulated Internet cafes and sweepstakes parlors spreading across the state, sucking away gamblers.

If state leaders squash those businesses as proposed, then there’s reason for more optimism, Paladino said.

Forgive or not

Other experts are more forgiving, saying initial projections were likely inflated, and made before the state authorized the racinos, which are now competing with the casinos.

The professor Silver called it a “very, very good year” and urged caution against reaching any final conclusions, especially because the gaming market is still changing in the state.

“The industry is very young here,” he said. “We don’t have a lot of historical data. You need a year and a half or two to start looking at the trends.”

David Schwartz, director of the Center for Gaming Research at the University of Nevada at Las Vegas, didn’t have major expectations for Ohio.

“I thinks it’s doing OK,” he said. “As it continues to mature, we’ll see it settle down a little.”

Steve Norton, who helped start Resorts Casino in Atlantic City and now monitors the industry worldwide, said putting Ohio’s casinos in downtown locations could have contributed to the lukewarm start. He thinks suburban sites would have boosted revenue by 50 percent.

Still, “I’m sure your properties will grow revenues as dealers become more proficient and customer acceptance grows,” he said. “The percentage of residents that visit casinos or racinos will grow, as will their gaming budgets; so you can expect your bigger casinos to see their revenues grow to $30 million or more monthly.”

Only one casino, the Horseshoe in Cleveland, has consistently brought in more than $20 million in revenue a month.

Not surprisingly, gambling opponents have seized on the job and revenue numbers.

“They over-promised and under-delivered just as we thought they would,” said Rob Walgate, vice president of the Strongsville-based American Policy Roundtable, one of the most vocal gambling critics in the state.

“It’s not like we miscalculated four slot machines,” he said. “We’re talking about $1 billion here. And the other thing, when you look at around the country, the first few years are supposed to be the honeymoon period. That’s when they are supposed to make the bulk of their money.”

Operators respond

Revenue isn’t the only yardstick to measure the success of a casino from the community standpoint, though.

Horseshoe Casino Cleveland — which will celebrate May 31 with a free public festival and is giving away $1.5 million in prizes this month — pledged to be an urban casino and has followed through by integrating itself into downtown and promoting the central city.

Unlike other casinos that want gamblers to never leave, the Horseshoe has partnered with hotels, sports teams, entertainment venues and restaurants to encourage its customers to experience downtown, said Marcus Glover, the general manager at the Cleveland casino.

Rock Ohio Caesars also invested $350 million to transform the former Higbee Building into the casino, hired 90 percent of its 1,600-employee work force from the area, made $220,000 in charitable donations and helped boost occupancy in downtown hotels by 12.5 percent, the company said.

Five million people visited in the first year.

As far as the revenue, Glover wouldn’t say he’s happy. That would imply Rock Ohio Caesars, which also operates the Horseshoe in Cincinnati and ThistleDown Racino, is content, he said. Instead, he used the term “encouraged” and said there are opportunities still to grow revenue.

Penn National Gaming Inc., which runs the Hollywood Casinos in Toledo and Columbus, is pleased, spokesman Bob Tenenbaum said.

The company has stressed all along that “it takes a new facility, and particularly a facility in a brand new market, a minimum of a year ... before you get a solid picture of what your long-term revenue is going to be.”

And Penn National, which is building two racinos, remains bullish on the Ohio market, he said.

“The fact that we’re getting ready to invest basically a half a billion dollars, including all the fees, in two brand new racinos is an indication that we think this is an extremely good market and will remain so,” Tenenbaum said.

The casinos are also learning how to adjust to the racinos. For instance, Hollywood in Columbus, which competes with the video slots at Scioto Downs, has pulled out some of its slot machines and added more table games. The Horseshoe in Cleveland has done the same.

That makes sense in a state that apparently loves its table games.

While other casinos generate about 80 percent of their revenue from slots, the figure is about 70 percent in Ohio.

For good or for bad, the casinos are still getting lots of media attention.

“Part of it was the expectations of jobs and economic development. Part of it was just the excitement of something new and different in the state that didn’t exist,” Ohio Casino Control Commission Executive Director Matthew Schuler said. “You weren’t walking around with firecrackers. You were walking around with dynamite.”

Rick Armon can be reached at 330-996-3569 or rarmon@thebeaconjournal.com. Paula Schleis can be reached at 330-996-3741 or pschleis@thebeaconjournal.com. Follow her on Twitter at http://twitter.com/paulaschleis.


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