Opening five full-scale casinos in Virginia, legalizing sports betting and permitting online gambling would rake in $367 million in new tax revenue annually for the state, according to a 200-page report state auditors released Monday.
But they cautioned a major expansion of gambling likely wouldn’t be the job-creating economic boon local developers have pitched.
“They tend to project overly optimistic, positive economic impacts, and this is because they have tended to rely on some unrealistic assumptions,” said Tracy Smith, the associate director of the Joint Legislative Audit and Review Commission, which lawmakers tasked with studying wide-ranging proposals to expand gambling.
The review focused on five potential casinos in cities identified in legislation lawmakers passed earlier this year: Two in southern Virginia, Bristol and Danville; two in Hampton Roads, Norfolk in Portsmouth; and one in Richmond.
They estimated the five combined would bring in $969 million in total revenue every year, with Richmond bringing in the most ($297 million) and Bristol the least ($130 million).
Assuming a tax rate of 27 percent per year, which the study said represented an average of what other states have implemented, that translates $262 million in tax revenue every year.
They estimated legalized sports wagering could realistically bring in $55 million in tax revenue every year and online casino gambling could bring another $82 million.
From that, they subtracted an estimated $65 million in likely negative impacts — including a slight hit to lottery sales, the cost of regulatory oversight and support for problem gamblers — to reach their “realistic state net revenue estimate” of $367 million.
Though they weren’t asked to study it, they said a casino located in Northern Virginia appeared to have the highest revenue potential, bringing in another $155 million in potential tax revenue annually.
For context, the lottery — until recently the only legalized form of gambling outside of bingo games run by nonprofit charities — contributed just under $650 million to the state general fund last year.
“These scenarios are achievable and realistic,” Smith said.
A ‘modest’ impact on jobs
In Bristol, where the push for casinos began with a campaign backed by two local coal barons, developers have pitched the project as a way to reinvigorate the struggling local economy. They announced over the weekend that it would be operated by Hard Rock Café if lawmakers allow the project to go forward.
The auditors who oversaw the study challenged those assumptions Monday. While backers of the Bristol casino have said the project would employ 2,000 people in its first year and 3,000 or more by the fifth year of operation, the state study put the figure at just over 1,000.
That’s the lowest of any of the five potential casinos. Richmond had the highest employment potential, employing 2,050 people directly.
The state study also notes most of the jobs would be relatively low wage, with a median salary of $33,000 per year. Over 40 percent would be food, beverage and housekeeping positions that paid between $20,000 and $26,000 annually, according to the study.
“Casinos would have a positive economic impact, but that impact would be modest relative to the broader local economy,” said Joe McMahon, the commission’s principal legitime analyst.
The leaders of the Bristol-based United Co., a mining company that now focuses on entertainment ventures and kicked off the push for casinos with a $1 million lobbying effort, expressed mild disappointment.
They flew into Richmond with Bristol City Manager Randy Eads to listen as auditors presented their findings to the commission to a meeting room packed with lobbyists and industry stake-holders.
“There’s some things pointed out that obviously didn’t seem consistent with what our understanding was,” said the company’s president, Martin Kent. “We’ve got to go through the whole report.”
Colonial Downs frets about competition
The Bristol developers weren’t the only group with a financial stake in the gambling debate that didn’t seem thrilled by the report’s findings, which stopped well short of endorsing any particular project or business interest.
Colonial Downs Group — currently the only state-sanctioned entity operating anything close to a casino in Virginia — issued a statement urging lawmakers not to undercut the $300 million operation it’s established in the last two years.
In 2018, lawmakers voted to legalize slots-like historical horse racing machines, creating a lucrative revenue stream that enabled a new operator to buy and reopen the New Kent County race track and open three off-track gambling parlors in Richmond, Hampton and the town of Vinton in Roanoke County.
Competition from casinos, the report said, could cut historical horse racing revenue almost in half.
A gambling bill that didn’t protect Colonial Downs, the company said, would “undo what legislators approved just two years ago.”
“This would send a terrible message to other job creators and capital providers looking to invest in Virginia,” the company said in a statement circulated by McGuireWoods, the lobbying and PR giant that worked with Colonial Downs to help pass the 2018 legislation.
Earlier this month, voters in two localities — Danville and the town of Dumfries in Prince William County — approved ballot referendums that give Colonial Downs permission to open off-track betting sites in their communities.
Del. Charniele Herring, D-Alexandria, asked several questions about casino’s impact on Colonial Downs, saying she was worried about creating “volatility in the market.”
Outgoing Senate Majority Leader Tommy Norment, R-James City, was less sympathetic, arguing Colonial Downs was trying to expand its reach as quickly as possible in pursuit of a “monopolistic advantage.”
“I don’t know that it is completely accurate to think of historical horse racing and casinos as being independent of one another,” Norment said.
Pamunkey tribe seeks protection
A representative for the Pamunkey Indian Tribe, which could use its federal tribal recognition to open a casino with or without the General Assembly’s blessing, said opening up the process to competitive bidding could cause the tribe’s unique status to be overlooked.
“The Senate bill protected Virginia’s only tribe with federal gaming rights by allocating two localities for them to operate a casino,” said Jay Smith of Capital Results, the firm representing the tribe.
The pending legislation designated Norfolk and Richmond for a tribe-operated casino. The Pamunkey Tribe is pursuing a casino deal in Norfolk, but the tribe hasn’t ruled out opening casinos in both cities or using Richmond as a backup plan if the Norfolk project falls through.
The report also called attention to the proliferation of so-called skill games in bars and convenience stores across the state. Those unregulated games offer players a slots-like experience, but include a small element of skill that has left state agencies confused about whether they are or aren’t legal. Allowing unregulated and untaxed machines to persist, the report said, could dampen other types of gambling and leave consumers unprotected.
Norment said he intends to file legislation to ban the machines outright, saying the “skill” label was a “euphemism for marketing purposes and to circumvent the law.”
Representatives for Queen of Virginia, one of the most high-profile skill-machine operators in the state, said the company is willing to work with the General Assembly on regulations for its industry.
“We would hate to see Virginia ban a game that has been legal, that is legal so far,” said Tom Lisk, a lobbyist representing Queen of Virginia. “And take this away from the businesses and the citizens that enjoy playing them.”
What happens next?
What lawmakers will choose to do with JLARC’s information remains unclear.
With Democrats taking power and a host of other issues on the policy agenda, Norment said the General Assembly may not have the bandwidth to resolve the gambling issue.
“That’s not a partisan comment, that is based on institutional history,” Norment said.
Herring, who will serve as the new House majority leader come January, also seemed unsure of how legislators will respond. Asked where her caucus stands on the issue, Herring said: “We haven’t explored that in-depth yet.”