The pot thickens

It’s a sunny May afternoon in New Kent County, but dozens of patrons are gathered indoors amid an arcadelike chorus of chirping touch screens displaying bright red cherries, neon lemons and ostensibly lucky numbers.

Players at Rosie’s Gaming Emporium at Colonial Downs withdraw cash from one machine and deposit it in another. They tap buttons at electronic games with titles like “Super Vegas Royale” and “Slush Funds.” Cartoon horses flash at the top of each screen. Security guards quietly stand watch as people make bet after bet. Bright signs display recent jackpots and encourage people to test their chances: “The next big win could be yours.”

“I can’t believe they got away with it in Virginia,” a patron exclaims inside what is the bleeding edge of legal gambling in the state.

The slot machinelike games at Rosie’s are technically not slot machines. Rather than random outcomes, Rosie’s machines are based on actual, albeit anonymous, historic horse races and have been legal in Virginia only since last year. The race being wagered on is identified onscreen after players make their bets. 

Such distinctions can get lost amid the glow of the gaming room floor, however important the technological differences might — or might not — be to state lawmakers.

“I’m not the moral police,” says state Sen. Mamie E. Locke, a Democrat who represents part of Portsmouth, when asked about her position on casinos. “We have many infrastructure needs. We have transportation needs. We have education needs. And this could be a source of revenue that could meet those needs.”

The uncertain outcomes being bet on at Rosie’s mirror the current hopes for casinos in Virginia, where legal gambling, for now, is limited to the kinds of games Rosie’s offers (historic horse racing, also known as instant racing), as well as horse betting, online fantasy sports, the Virginia Lottery and charitable games like bingo.

The push to open Virginia’s first full-fledged casino with table games such as blackjack and roulette has no shortage of players, but whether they’ll be able to get in on the action is an open question.

Current legislation
Legislation this year created a path to expand gambling in five economically distressed cities, but Virginia needs to deal a number of cards before would-be casino operators can claim a winning hand.

Introduced by state Sen. L. Louise Lucas, a longtime Democrat from Portsmouth, SB1126 authorized casino gaming to be regulated by the Virginia Lottery Board. The bill limited casino gaming to Portsmouth, Norfolk, Richmond, Danville and Bristol. However, the legislation goes into effect only if it’s re-enacted in the 2020 General Assembly session. Each locality would be limited to having one casino and would have to hold a referendum to approve any casino proposal. Only casino proposals that represent a minimum capital investment of $200 million would be eligible to obtain an operator’s license.

Gov. Ralph Northam signed SB1126 into law after a number of casino bills were debated in 2019, including legislation that would have allowed localities to hold votes on casino proposals this fall.

Lawmakers opted instead to take more time, directing the Joint Legislative Audit and Review Commission (JLARC) to produce a gaming study by November. JLARC is working with two gaming industry consultants, The Innovation Group and Regulatory Management Counselors, on the report.

JLARC Associate Director Tracey Smith, who is supervising the study, says it will address a few broad questions: If Virginia chooses to expand legalized gaming, how should it be governed, regulated and administered? What approaches to expanded gaming in Virginia would have the best fiscal and economic impacts for localities and the state? And what other policy considerations should inform decisions about whether and how to expand gaming?

“Our starting point will be looking at what would be … the economic impact of locating a casino in the localities that are identified in the legislation,” Smith says.

JLARC is aware that Virginia’s Native American tribes also have an interest in the future landscape of gaming in the state, Smith says, but the study is primarily focused on the potential impact of commercial casinos, as opposed to tribal casinos. The social impact of casinos and gambling also will be included.

The study will not, however, include a recommendation on whether Virginia should expand gaming: “Ultimately that is a policy call that the General Assembly has to make,” says Smith. “Our job in this study is to provide the General Assembly with enough information to really make that decision.”

The players
As the regulatory framework is explored, a number of players have been making moves in anticipation of a new era of gambling in Virginia.

Regardless whether Virginia legalizes commercial casinos, the Pamunkey Indian Tribe, which was federally recognized in 2015, could open a casino through a regulatory process with the National Indian Gaming Commission, says tribal spokesman Jay Smith. The Pamunkey are working on plans to open a resort with a casino in partnership with Norfolk on about 20 acres owned by the city on the Elizabeth River near Harbor Park Stadium. For casino games, federal law requires a compact between a tribe and state government that addresses revenue sharing.

If Virginia legalizes casino gaming, then the Pamunkey would pursue a casino in Norfolk through the state regulatory framework as well. That’s because the state could be quicker to sign off on the Pamunkey’s casino plans than the federal government, allowing the tribe to tap into potential revenue sooner, Smith says.

“They’ve been pursuing this federal path long before the legislation this past session that brought forth commercial gaming,” Smith says. “The tribe didn’t want to be left behind, and so we said, ‘If the state’s ready to move forward, so are we.’”

The casino is part of a larger effort by the Pamunkey to build tribal assets such as a cultural museum or a senior-assisted living facility in the area of its ancestral home, which stretches roughly from Richmond to the Virginia coast, Smith says. Investor Jon Yarbrough has acquired 600 acres in New Kent County with the intent of transferring the land to the Pamunkey as part of the tribe’s development plans, Smith says.

Asked whether the Pamunkey are eyeing a Richmond casino, Smith was noncommittal: “The tribe is focused on its proposed project in Norfolk but continue to look at other properties for a number of economic development, cultural and housing development opportunities.”

Elsewhere in Hampton Roads, a $700 million waterfront development with a casino is being eyed for Portsmouth. John Lawson, the executive chairman of W.M. Jordan Co., is in talks to develop the project on a 6-acre site owned by the city. Lawson says that Virginia Beach hotelier and developer Bruce Thompson could be a partner in the project. Lawson and Thompson have worked together on projects since the late 1990s, including the $81 million renovation of The Cavalier Hotel in Virginia Beach.

In light of the Pamunkey Indian Tribe’s plans, does Lawson think the Hampton Roads market is big enough to handle two casinos? “The first casino in the area should be successful,” Lawson says. “Two would be a challenge.”

At the other end of the state, two local businessmen — United Co. Chairman and CEO Jim McGlothlin and Par Ventures President Clyde Stacy — have floated plans to redevelop a defunct shopping mall in Bristol into a resort and casino. They envision a casino, a hotel, restaurants and other amenities.

“While we are evaluating a range of lodging, dining and entertainment options, our primary focus at this time is to achieve final passage of the legislation during the 2020 [General Assembly] session and passage of the local referendum,” says Andy Poarch, a spokesman for the Bristol Resort & Casino team.

“We plan to be ready to hit the ground running at such time as the General Assembly and the residents of Bristol give us the green light to proceed.”

In Southern Virginia, Danville leaders are also ready to welcome a casino. In February, Danville City Council unanimously passed a resolution in support of legislation that would allow a casino to open in the city with voter approval.

Danville also has been identified as a possible home for historic horse racing machines. Colonial Downs Group announced at the end of May that it had submitted paperwork to begin the process of voter referendums to open Rosie’s Gaming Emporium locations in Danville and Dumfries. There already are Rosie’s locations in New Kent, Vinton and Richmond. Another Rosie’s is planned for Hampton. Additionally, Colonial Downs Group plans to reopen the Colonial Downs racetrack to Thoroughbred horse racing in August. The company is keeping a close eye on the state’s gaming study.

“We have offered to be a resource for the study as the second-largest gaming provider in Virginia, following the lottery,” says Mark B. Hubbard, a spokesman for Colonial Downs Group. “The results of the study and any action during the 2020 Virginia General Assembly session will help guide our future efforts.”

The Virginia Lottery is also watching to see what comes of the JLARC report, says spokesperson John Hagerty. He downplays the possibility that an expanded casino market would eat into lottery ticket sales. “Maryland saw a relatively small but detectable lottery sales decline as it opened … [its] casinos, but those losses were only temporary,” Hagerty says.

Danville Vice Mayor J. Lee Vogler views the possibility of both a Rosie’s and a casino opening in his city as a great opportunity that could help fund necessities such as public safety and education. However, he says, “We should allow the citizens of our city to make that ultimate choice.”

Gambler’s fallacy?
Not everyone is ready to embrace casinos as engines of economic development. The Rev. Dewey Williams of Bristol’s Belle Meadows Baptist Church told Virginia Business in October that casinos would be built “on the backs of people who will lose $30,000 and $40,000 they don’t have.”

Del. Leslie R. Adams, a Republican who represents a district just outside Danville, opposes casinos but says he’s willing to learn more about them. Some studies have tied the presence of casinos to an increase in gambling addiction, though casino advocates dispute this.

“The way things stand now, I don’t see this as good for our region,” Adams says. While he recognizes Southern Virginia isn’t as prosperous as other parts of the state, “that doesn’t mean, well, any opportunity ought to be embraced fully, particularly when it comes with these social concerns.”

While multiple casinos could open across the state, some think if even one new casino opens in Virginia, it will do so at a disadvantage.

Richard McGowan, a Jesuit professor at Boston College who researches the economics of gambling, thinks Virginia is entering the game far too late. The commonwealth will face considerable competition from Maryland, which has six casinos, and West Virginia, where five are open. There were 979 casino gaming locations open across the nation as of December, according to the American Gaming Association trade group.

“Usually a casino depends on patrons coming from outside its jurisdiction,” says McGowan, who some call “Padre Pecado” (or the Priest of Sin) due to his area of expertise. “While casinos are certainly much more socially acceptable and tolerated, they will not provide the cash windfall that advocates will maintain.”

While McGowan says casinos opening near resorts could fare better, history doesn’t bode well for these kinds of projects if Atlantic City is any measure.
Atlantic City embraced casino gambling in 1978, with one reporter observing at the time, “The city will never be the same again.”

Between 2014 and 2016, five of Atlantic City’s 12 casinos closed before the market stabilized with fewer operators, according to The Associated Press. Today, Atlantic City is home to nine casinos, after the Hard Rock Hotel & Casino and Ocean Casino Resort opened last year.

Gaming revenue for casinos in New Jersey has been on the rise, but operating profits are down, according a report from The Press of Atlantic City newspaper. In the first quarter of this year, revenue from Garden State casinos was up 17.6% to $704.6 million, but profits were down 29.6% to $87 million, reflecting an increasingly competitive environment in which operators are spending to woo customers and stand out from the pack.

Virginia’s casino legislation appears to skirt some of those pitfalls as the General Assembly would allow just one casino each in five cities throughout the state, in contrast with the density of Atlantic City casinos. In fact, McGowan says the commonwealth could reclaim some of the tax revenue the state leaves on the table when Virginia residents visit casinos in other states.

The volume of annual casino tax revenue flowing to New Jersey’s coffers peaked at more than $500 million in 2006 — 38 years after the state began collecting it. Since then, casino tax revenue has been on a more or less steady decline. In fiscal year 2018, New Jersey’s cut of tax revenue from casinos was $217 million.

Closer to home, West Virginia’s commercial casinos saw their sixth year of declining revenues in 2017, according to an American Gaming Association report. Commercial casino revenue dropped 4.6% to $624.6 million in 2017 as competition increased from neighboring states, the report said. West Virginia collected $293 million in tax revenue from casinos in 2017 — down from $304.7 million in 2016.

And to our north, Maryland has seen gains since its 2012 referendum to expand legalized gambling beyond slot machines to include dice and card games. Casino gaming revenue in Maryland has risen steadily over the last five years, from $608.3 million in fiscal year 2013 to $1.6 billion in 2018. In fiscal year 2013, $284.34 million generated by casinos went to the Maryland Education Trust Fund. That figure rose to $496 million in fiscal 2018.

Advocates of expanding gaming in Virginia laud examples of tax windfalls such as this, but a 2015 study commissioned by Old Dominion University throws cold water on claims about the tax money casinos could bring to localities. The ODU study examined the likely economic impact a new casino would have on Hampton Roads. The report was done by Douglas M. Walker, an economics professor at the College of Charleston in South Carolina and the author of the book “Casinonomics: The Socioeconomic Impacts of the Casino Industry.”

Walker argues that overall tax revenues might increase after a casino opens in Hampton Roads, but they may do so at the expense of other local businesses.

“While the evidence suggests that, on average, the introduction of a casino will lead to increases in overall tax revenues, the relationship is not as strong as one might imagine,” Walker wrote in his 2015 report. “Spending in casinos may replace some spending that would have occurred in other retail, restaurants, bars, hotels and amusement sectors.” Walker adds that a decrease in revenue flowing to other parts of the local economy would be smaller, though, if the casino attracts people from outside of Hampton Roads.

Given all of this, Walker wonders why politicians are often adamant in their support for casinos as a tax revenue tool: “One possible explanation is that casinos provide a large political benefit to policymakers because it is often much easier to increase casino taxes than it is to raise income, sales or property taxes.”

Walker goes on to say that an expansion of legalized gambling likely will impact existing legalized gambling industries such as the Virginia Lottery. For example, Virginia gamblers could substitute buying a stack of lottery tickets for a trip to the slot machines. In this way, consumer spending on gambling — along with any accompanying tax revenue — would simply shift from one pool to another rather than creating a new market.

As one might expect, the gaming industry touts the economic benefits casinos bring to communities. Casey Clark, a spokesman for the American Gaming Association, says casinos invest heavily in communities, create jobs and increase tourism.

“There are antiquated stereotypes about gaming that continue to persist that … requires some education of people to really understand what it means when these sophisticated, multinational businesses invest in communities,” Clark says.

Whatever the sticking points may be, plenty of state politicians appear ready to wed casinos to the Virginia Way — or at least let voters choose whether that’s what they want.

State Sen. Bill Carrico, a Republican who represents Bristol, introduced legislation this past session related to casino gaming that was incorporated into SB1126. He says he wouldn’t personally vote in favor of a casino but he supports letting residents decide.

“I’m letting the democratic process take place by allowing them to vote on it,” Carrico says.

Portsmouth Democrat Del. Stephen E. Heretick echoes Senator Locke’s enthusiasm for casinos.

“Trying to invent gaming laws … out of thin air is going to be a big challenge for us,” Heretick says, adding that states such as Maryland and New York have a big head start on Virginia. “We want to make it uniquely Virginian.”