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CITY FILE | Dropping the "C" bomb

Are we prepared to gamble the city's economic future on a downtown casino?

By Sean Burak

In May 2012, the Ontario Lottery and Gaming Corporation (OLG) announced an ambitious plan to "modernize" its operations by replacing the Slots at Racetracks Program with a series of privately operated casinos spread throughout the province.

The OLG wants council to approve a casino downtown, a move that could simultaneously kill Flamboro Downs and determine a new fate for our steadily rejuvenating core. We have until the end of February to decide. Before we do, we must be certain that we understand the economic ramifications.

Why is the OLG terminating the symbiotic relationship between track betting and machine gambling? Their 2012 Strategic Business Review says, "The requirement to locate slots at racetracks limits site locations and impedes OLG's ability to serve customers closer to where they live." They're starved for customers. Why? A major income stream has been lost. "Over the past 10 years, the profits from gaming facilities close to the U.S. border have dropped from $800 million in 2001 to $100 million in 2011." That's an 87% decline caused by a strong Canadian dollar, stricter border security and a growing number of casinos on the U.S. side. "If the customer base was significantly broadened, meaning more people playing a little, the province could benefit." Their goal is to turn 5% of Ontario residents from non-gamblers to gamblers. That's 640,000 people.

This partially explains the OLG's new obsession with downtown casinos. They want to be as close as possible to a great number of residents; they need new local gamblers to replace the lost American ones. But that's not the only reason. The December report by Hamilton's Medical Officer of Health contains another clue. "According to a March 2012 briefing with OLG senior management, OLG wants to decrease the average age of their gambling customers by two years by 2017." By putting casinos in urban centres, the OLG will be better positioned to capture not only more gamblers, but younger ones.

Should Hamilton shrug and accept its piece of the gambling pie? It's tempting, but there's a problem: the slice is going to be thin. Hamilton currently receives $4.4 million a year in Flamboro slot revenue kickbacks. In November, OLG president Rod Phillips told The Spectator that this could increase by up to 10% if the facility were moved to a more densely populated area — an increase of up to $440,000 a year. But their Strategic Review also says that slot machines "have limited appeal to players under 45," and "Demand for slot machine gaming is not expected to grow and will plateau in the coming years." Since Hamilton's cut comes from slots alone, will we see any increased revenues in the long run?

Downtown casinos also have an unfortunate tendency to drain the local economy. Casinos are designed to include a multitude of services, so a gambler never has to leave, making it less likely they'd spend money elsewhere. But the proximity doesn't affect only merchants. People don't want to live next to casinos either. The potential blast radius of vacant apartments and struggling businesses would lower property values and harm development. The resurgence of our core has garnered media attention beyond our borders. The economic impact will be hard to calculate, but we must consider the risk of stifling this organic growth by dropping a casino in the middle of it.

What about tourism? The Economic Development Journal studied the potential effects of casinos when the OLG moved into Windsor. They determined that "there is great advantage to placing legal gaming in a tourist destination." But they went on to caution, "The economic function of casinos becomes a more dubious proposition, however, when the primary market is the local population. In such cases the transfer of income and assets benefits the local casino at the expense of local residents." A downtown casino would be operated by a private firm that would share 95% of the customers' gambling losses with the OLG. That's over $87 million dollars, and doesn't include income from tables, which Hamilton gets no share of. Where will this money come from?

If a casino could attract tourists, it might feed the local economy instead of draining it. The problem is, they don't do it alone and even if they did, ours would be up against serious competition. In October, Ernst & Young delivered a Commercial Casino in Toronto Study, which based its projections on a 22- to 25-acre site with a 125 kilometre catchment area. Less than an hour down the QEW, Fallsview Casino competes for gamblers' attention. Brantford's gaming floor is only a half hour away. With the disappearance of American gamers and a ring of competing facilities, how many tourists will we attract? Will travellers choose us over the international tourist destination cities of Niagara Falls or Toronto? It seems certain that the $87 million required to meet the OLG's performance targets will come largely from locals.

Other casinos aren't the only competitors, either. In their Business Review, the OLG outlines a determination to enter the world of internet gambling. They lament "an estimated $400 million is spent annually on gaming sites." Additionally, they plan to license private operators to replace the OLG-run lotteries with "new games that appeal to new customers." This plan includes a private-sector deployment of lottery terminals, which the OLG hints might take the form of selfserve lottery machines. When the OLG is in every checkout aisle, and in our homes, will a Hamilton casino be able to compete?

What should we do? Surely we can't afford to throw away the 4.4 million dollars we currently receive from the Flamboro slots. It turns out we may not have to. When OLG boss Rod Phillips visited in October, he told The Spectator's editorial board that Hamilton was in control of the location decision. He said we could opt to put the facility in Flamborough, warning that the slot revenue could drop by 15% due to increased competition from the other new Ontario casinos. But this is only a $660,000 decline — peanuts in a city that spends $120 million on roads alone every year. We'd still get $3.7 million. The question is, should we accept this certain win, or should we gamble our city away on a downtown dream?