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Gaming Guru

 

Added Gaming Competition: Net Gain for Public Schools

25 July 2001

The entertainment options available to Michigan residents continue to grow at a rapid rate. One section of Michigan's entertainment economy that has experienced massive change during the last 20 years is legalized gaming. These changes have been driven by two primary factors: 1) consumer tastes and 2) governmental oversight.

As new consumer options become available, it is natural to see a reapportionment of how consumers select to allocate their purchases. The gaming industry experiences the same market pressures. Consequently, the dollars wagered at Michigan's horse racing tracks have seen a decline as the State legalized charitable gaming, the State Lottery, and, most recently, tribal and private casinos. However, the mere introduction of a new form of gaming options is not the only reason more established forms of gaming see declining profits. One must look to a large array of economic indicators to truly identify why any industry experiences losses.

Recently there has been a considerable amount of publicity about the decline in State Lottery revenues and its direct effect on the State's K-12 funding. A review of the numbers indicates that the expansion of Michigan's gaming industry through the addition of the Detroit casinos will result in a net gain for the State's School Aid Fund.

In 1996, when voters passed Proposal E, which legalized casino gaming in Detroit, they also authorized that an extra 18 percent business tax be levied on the casinos. Of the 18 percent wagering tax, 55 percent was to be given to the City of Detroit for: 1) police; 2) neighborhood and downtown economic development programs; 3) anti-gang and youth development programs and 4) other programs designed to contribute to the improvement of the quality of life in the City. The remaining 45 percent was allocated to the State's School Aid Fund to provide additional funds for K-12 classroom education.

Since the first Detroit casino opened in July of 1999, the Detroit casinos have contributed a total of $113.9 million dollars to the School Aid Fund. In addition to the $113.9 million the State school system has received from the wagering tax, each casino also pays normal State and City of Detroit business taxes, which account for tens of millions of dollars of additional review that the State would not have generated without the legalization of the Detroit casinos.

Recently, the Michigan Lottery reported a net decline of $70 million in its first nine months of fiscal year 2001 compared with the same period one year earlier. Therefore, if the Lottery continues on the current pattern, it will experience a $93.3 million dollar loss for the year. The effect in lost revenue to the State School Aid Fund will be $35.5 million (38 percent of every dollar generated by the Lottery is allocated to the State's School Aid Fund). However, the projected increased revenue to the State School Aid Fund from the Detroit casinos wagering tax will be $76.8 million, a net gain of $41.3 million.

As a result of the Detroit casinos, the State's School Aid Fund is better off today than it would be without them. In addition, as the Detroit casinos gain in popularity and revenues at the three casinos increase, the State will continue to benefit. As it relates to the Michigan Lottery, which is State-run, it will be a difficult but manageable project to increase revenues from Lottery ticket sales by responding to consumer demand. With an open and creative mindset the State of Michigan's gaming entertainment options will continue to evolve. Through proper governmental oversight, the significant portion of funding for Michigan

David Waddell
David Waddell is an attorney for Regulatory Management Counselors, P.C. (RMC), which assists businesses in navigating the legislative, regulatory and licensing systems governing Michigan’s commercial and tribal casino industries. He is the co-author of The State of Michigan Gaming Law Legal Resource Book and one of the founders of The Michigan Gaming Newsletter.

David Waddell Websites:

www.michigangaming.com
David Waddell
David Waddell is an attorney for Regulatory Management Counselors, P.C. (RMC), which assists businesses in navigating the legislative, regulatory and licensing systems governing Michigan’s commercial and tribal casino industries. He is the co-author of The State of Michigan Gaming Law Legal Resource Book and one of the founders of The Michigan Gaming Newsletter.

David Waddell Websites:

www.michigangaming.com