Thursday, April 23, 2009

The Ohio Jobs and Growth (i.e. Quadruple Casino) Plan:
Is it fair to Ohio?

By Leon Bass, Entertainment Attorney

The "Ohio Jobs and Growth Plan" ( (translation, the "Ohio Constitutional Amendment Ballot Initiative to allow two business the right to build and operate four casinos in Columbus, Cleveland, Cincinnati and Toledo") overcame its first hurdle on April 13th when the state allowed the group to begin collecting the necessary 402,275 signatures from registered Ohio voters. If my ability to see into the future is correct, we will all be voting yes or no to these four casinos in November.

I have recently been asked to review the proposed constitutional amendment law and answer the question of "Is it fair to Ohio?". Admitting that there is a certain amount of subjectivity present, I believe that although it could be better, overall, it is relatively fair.

First, let's look at the simple factors supporting casinos in general: Ohio would get about 7,000 permanent jobs at the Casinos plus about 13,000 temporary construction jobs to build them. Moreover, we are continuously losing money (perhaps millions per year) in revenue from the neighboring states’ casinos. Those against casinos cite moral grounds, the draw of crime, and problems with addiction. I won’t touch the moral argument. I have yet to see any strong study on a clear relationship to a meaningful increase in crime. And we all know that not having casinos here does nothing to stop those with addictions from gambling illegally or driving to a neighboring state. Moreover, this initiative will contribute substantial funds to Ohio programs, thus improving our state’s ability to deal with addiction by creating help that we currently do not have.

With respect to this particular amendment, it would mandate that the state take 33% of "Gross Casino Revenue", which is defined as "the total amount of money exchanged for the purchase of chips, tokens, tickets, electronic cards, or similar objects by casino patrons, less winnings paid to wagerers." When compared to rates of other states, this is actually on the higher end. Some go significantly higher; for example, Illinois has been as high as 70% (currently has a sliding scale of 15-50%), Maryland is at 67% and Pennsylvania is at 55%. Therefore, Ohio could certainly do much better than 33%. On the other hand, Nevada, New Jersey and Mississippi have tax rates of less than 10 percent and Colorado, Missouri, Iowa, Indiana, and Louisiana range from 20-35%. The states in the lower tax brackets house the most casinos by far. Therefore, although Ohioians could likely get away with demanding a higher cut of the profits, we are certainly by no means getting ripped off at 33%. Of course, this being a ballot initiative, there can be no negotiation and we have to take it or leave it as is.

Also, Ohioans should consider the "fine print" of the law. For example, the term "Gross Casino Revenue" as defined does not include income generated from the casino that is not directly earned from chips (or tokens, tickets, etc.). Therefore, non-gaming related income, such as bar sales, food, hotel rooms, merchandise and retail operations, non-gaming entertainment, and parking would not be taxed at 33% and only subject to normal state taxes. While I do not think this is really out of line, if we had the ability to negotiate this law, Ohioans could likely get a large share of that revenue—and probably should as it is driven almost entirely by the draw of the gaming on the premises.

In addition, the amendment basically only allows the casinos to be built on four specified parcels of land, and thus in effect, would likely mean that only two companies would have the ability to own and operate these casinos. Therefore, the law does not allow the legislator or the to-be-organized gaming commission to allocate casino licenses pursuant to any type of merit based system that could potentially work more in the favor of Ohioans.

Another potential issue is the possible effect on the existing legal gambling enterprises in the state: Charitable Bingo and Lotteries. I have not seen any research or data purporting to predict to what extent, if any, consumer dollars currently being spent on charitable bingo or the lotteries would be diverted to the casinos. If significant funds were diverted, certain Ohio charities could take a hit along with the $672.2 Million generated by the lottery for education.

Finally, another "fine print" issue that was recently cited against the proposal by Ohio Secretary of State Jennifer Brunner was the fact that the proposed amendment actually can change if a neighboring state decided to change their law. Specifically, if another contiguous state adds another type of gaming not currently permitted, then it automatically becomes legal in Ohio. However, if they decide to make something illegal, it still stays legal in Ohio. This is because the proposal ties its definition of gaming to what the other neighboring states say it is as of January 1st, 2009. The actual text reads:

""Casino gaming" means any type of slot machine or table game wagering, using money, casino credit, or any representative of value, authorized in any of the states of Indiana, Michigan, Pennsylvania and West Virginia as of January 1, 2009, and shall include slot machine and table game wagering subsequently authorized by, but shall not be limited by subsequent restrictions placed on such wagering in, such states…"

What is clear is that no matter how “fair” the proposal is, passing a gaming initiative in Ohio is problematic. While many tout this proposal as the best yet, Ohio has turned down gambling at least three times since 1990 and we currently have a Governor that opposes it. Moreover, the 2006 initiative, Learn & Earn, which had 43% of voting Ohioans in favor (the highest percentage among four Ohio gambling issues) included a 45 percent tax of slot machines as opposed to the current proposals' 33%. In addition, Penn National, a backer of this ballot and probable owner of two Casinos, was against the most recent losing Casino initiative (Issue 6) that would have allowed for a 97-acre complex off Interstate 71 near Wilmington. Finally, it also remains to be seen if the candy coating of the name "Ohio Jobs and Growth Plan" will be a turn off to Ohioans. I would like to think that Ohioans are smarter than that and will vote on the merits of the amendment.


Leon Bass is an Attorney practicing entertainment, intellectual property, business and real estate law in Columbus, Ohio. 614-431-BASS