Issues Concerning Racino Development in Michigan  (Revised 02-06-04)
By Donald F. Holecek, Ph.D., MTB Editor-In-Chief and Director of the MSU Tourism Resource Center
 
In the next few weeks, the Michigan Senate will be voting on a series of bills (HBs 4609-4612) that would permit racinos to be developed at seven horse tracks in southern Michigan.  These bills were introduced and passed in the Michigan House of Representatives this past spring.  Until this month, the racino policy-making process has taken place largely outside the view of the general public with proponents lobbying hard to bring the legislation to the Senate floor for a vote and opponents waging a campaign to avoid bringing them to the Senate for consideration.  In the closing days of this legislative session, it was announced that the Senate would take up racino legislation when it returns to Lansing in January 2004.  This turn of events has sparked extensive coverage of racinos in the media, which has brought the issues underlying their development to the forefront for public discussion.  Whenever gaming becomes an issue, sorting fact from fiction is always a challenge, and this case is no exception.  For many engaged in the current Michigan racino policy debate, facts are only relevant and mentioned if they support their position for or against racinos.  Facts will not alter the positions of those who oppose gaming in any form on moral grounds or those who stand to lose or gain financially if racinos are developed in Michigan.  But, facts are important to anyone whose objective is to frame her/his position based upon the public policy merits of the proposed legislation.  Since this legislation would impact Michigan’s tourism industry, it is important that our readers expand their understanding of the issues involved and, if they are so inclined, communicate their position to their State Senator. 
 
In the interest of brevity, I will confine my remarks to issues that have been raised in the media recently to which I have reasonably sound information to contribute. 
 
Issue # 1:  Are “racinos” allowed under the existing Michigan Constitution?   

The legislation in this case is framed to be an extension of existing provisions in the constitution that permit the lottery and gaming at racetracks.  The key provision in the legislation is that gaming machines that would be installed at the tracks are video lottery terminals (VLTs).  Although they look and play like slot machines, the systems on which they are based are adapted from those that drive lottery games.  A similar legal convenience has been used to circumvent the constitutional issue in other states where VLTs are installed at racetracks, which suggests it will survive legal challenges in Michigan as well. 
 
Issue #2:  “Racinos” will or won’t have a positive effect on Michigan agriculture and horse industry.  
 
Everyone agrees that Michigan’s horse racing industry is in decline, as it is in most other states.  No one knows whether it will survive (or how low it will sink) with or without racinos.  Earlier this month researchers at the University of Arizona reported that:  “[Racino] Gaming generally has a positive effect on such things as purses, races, starters, average field sizes, quality races, and the number of active stallions, mares and foals in a jurisdiction…The study notes upward trends in these factors in most states with racetrack gaming compared to stagnant or declining trends in neighboring states without such gaming.”  It isn’t clear at this time whether the benefits observed in racino states represent a revival of interest in horse racing overall or a shift in activity from neighboring non-racino states.  It is clear that racino states have a competitive advantage and, since more states will soon be adding racinos, Michigan’s horse racing industry will be operating at an increasing disadvantage without racinos. 
 
Issue # 3:  The gaming market is or isn’t finite.   

Those who argue that the gaming market is finite contend that racinos will only take market share away from existing casinos in Detroit and Indian casinos in northern Michigan.  While the finite market theory is intuitively appealing and is raised time and again in response to proposed new gaming venues, it has yet to be supported in Michigan or even Las Vegas, which has the greatest concentration of casinos anywhere in the world.  No one really knows why the finite gaming market has consistently failed to stand the test in “real world” gaming markets.  Possibly, there is simply considerably more latent demand for gaming than anyone can imagine.  Or possibly the gaming market is growing at least as fast as new supply is being added.  It is also probable that consumers are choosing gaming over other entertainment options, which is in keeping with declining attendance at Michigan’s horse tracks.  The only way to establish how many casinos are enough is to legalize them, as they are in Nevada, and allow competitive market forces to decide.  Finally, there are about 13,000 slot machines operating in southern Lower Michigan or about 500 persons per machine for the population over 18 years old.  In racinos states, there are about 250 persons per machine for the population over 18 years old.  This would indicate that the supply of slots in Lower Michigan could increase by 100% and operators would capture enough revenue to be highly profitable. 
 
Issue # 4:  Residents favor or oppose racino development in Michigan. 
 
It has been reported that three public opinion surveys conducted by separate pollsters have found that Michigan voters oppose the “racino” legislation by landslide margins.  The result differs markedly from our polling data.  In our survey of Michigan residents, 82% of respondents stated that they “Go to casinos or don’t care if others go,” which is in line with reported recent national polling results.  However, when asked if they support establishing Michigan racinos, 46% of our respondents said “no,” 44% said “yes” and 10% were undecided.  How can these contrasting polling results be explained?  Polling results are sensitive to a number of factors including: who is surveyed, when they are surveyed, what specifically they are asked, and how well informed those asked to respond are about the underlying issues.  All of these factors likely play some role in explaining the Michigan racino polling result differences that have been reported.  Given that all of the polls, including ours, were conducted in a population with only limited awareness of what a racino is and what is included in the series of bills that would enable their development in Michigan, I am unable to confidently conclude that residents do or don’t support racino development in Michigan.  However, given that the vast majority of residents “go to casinos or don’t care that others go,” I am skeptical of polling results which indicate that “voters oppose the ‘racino’ legislation by landslide margins.”
 
Issue  # 5:  The total revenue projected, if racinos are developed, is too high.   

Revenue projecting is not an exact science, so there is always room for comparing, contrasting and debating varying revenue projections.  In this case, there is more room for debate than might otherwise be involved because of uncertainty surrounding: 1) the scale and nature of racinos that might be developed, 2) the possibility that new Indian casinos (I am aware of three in varying stages of planning) could be built in southern lower Michigan, and 3) how existing casinos in the area will respond to competition created by new racinos.  Drawing upon data from our research archives, some obtained in our racino survey in April 2003, and secondary data from many other sources, we developed revenue projections assuming all seven racinos included in the legislation will be developed.  Projections for both the “locals” market (up to 50 miles from a racino) and “non-locals” market (more than 50 miles from a racino) were developed.  Competition from existing casinos in the area was taken into consideration in our projections.  Our projections for total annual gross revenue from VLTs (a.k.a. slot machines) at the seven proposed racinos are as follows:
 
Conservative scenario projection:  $1.7 billion
Moderate scenario projection:  $2.2 billion
Aggressive scenario projection:  $2.7 billion
 
These projections are considerably higher than those developed by state legislative analysts which racino opponents have criticized as being too optimistic.  I’m betting that the projections developed by the state legislative analysts will actually prove to be low. 
 
Issue # 6:  Racinos will not be good for tourism. 
 
Opponents to racino legislation have concluded that racinos will prove to be a net negative for Michigan’s tourism industry.  Their argument appears to be that racinos would deprive existing casinos of the revenue flow necessary for them to expand and become destination resorts.  All gaming operations across the state would in essence become locals casinos.  Imbedded in this position is the assumption that the gaming market is finite which is addressed under Issue #3 above.  In addition to the lack of evidence to support the finite gaming market assumption, there are other reasons to dispute the proposition that racinos would be bad for tourism.  First, racinos can be expected to materially benefit the horse racing industry, which implies that more racing enthusiasts and horse industry visitors would be drawn to racino venues.  Second, access to racinos would reduce the outflow of Michigan gaming dollars to other states thereby boosting local economies and local tourism businesses.  Third, development of racinos will actually drive diversification of the casino product rather than reduce gaming entertainment to a commodity for a locals gaming market.  Racinos will reduce “locals” business for some existing casinos forcing them to seek new markets, with tourists being a promising new target market.  Finally, it is likely that some of the racinos will be developed to boost tourism to areas of the state not deemed to be major tourism attractions.  In essence, racino development will “level the playing field” with respect to gaming entertainment, which is not currently a tourism development option. 
 
Issue # 7:  Racinos would be good for the gaming public. 
 
Interestingly, the gaming public has not surfaced as an issue in the debate surrounding this legislation.  I believe that the public’s interest in this legislation extends beyond the business side of horse racing, gaming and tourism, or the tax revenues that racinos will generate and those who might benefit when these revenues are disbursed.  Public policy should ultimately serve the interests of the broadest possible public, which here includes gamers.  Racinos would create more competition for the gaming entertainment dollar.  The monopoly position held by existing casinos would be somewhat mitigated, which can be expected to result in more choices for gamers and more value received from what they spend on gaming entertainment.  Racinos will reduce average drive time to a casino resulting in more convenience and less travel cost for the pubic, reduced risk of having a traffic accident, and some reduction in energy consumption.  There is little doubt that this legislation would benefit the gaming consumers who represent an increasing proportion of the general public. 
 
The above seven issues do not include all possible issues that might be raised concerning these four bills that would create racinos at Michigan racetracks.  Many issues that are commonly raised when gaming is debated, such as problem gaming, bankruptcy and crime, are relevant here but have not been central to the current debate, possibly because the most vocal racino opponents are those with economic ties to existing casinos.  For existing tourism businesses, a major concern with gaming development is always how it will impact their businesses.  Some are able to capitalize on the increased traffic that casinos generate while others may be not able to compete with what the casino can offer.  I believe the racinos that would be developed will be inclined to work in concert with other tourism interests in their market area to boost overall tourism to the area.  Hence, they will prove to be powerful engines for tourism development. 
 
This is the last issue of Michigan Tourism Business that will be published this year, so it is timely that we extend season’s greetings and our best wishes for the New Year to our loyal readers.  All of us in the Tourism Resource Center look forward to the opportunity to work with you in 2004!  Have a safe and enjoyable holiday season.
 
Your feedback is welcomed and may be e-mailed to Don Holecek.
http://www.imakenews.com/tourism/e_article000213195.cfm__________________________________________________________________________________

Here's an article about the price Michigan could charge for licenses to gamble at tracks, published by the Mackinac Center for Public Policy in 2004 http://www.mackinac.org/article.aspx?ID=6566___________________________________________________________________________________

The four bills from 2003/2004 on racing and gambling in Michigan: