Small Town, Big Casino: Is It a Winning Gamble?

Casinos, especially full-featured resort casinos, present an economic opportunity. However, they can be a mixed blessing and can seem especially scary in smaller communities that already have more than their fair share of problems. The most common worries are crime and the direct impact of gambling on residents. Easier to overlook are the secondary economic effects, like potential distortions in the local housing and labor markets.

This is a challenge facing Virginia at the moment, as multiple retail casino construction projects are currently underway in the state. Opinions on the projects vary widely, even among experts.

This past August, Caesars Entertainment and the Eastern Band of Cherokee Indians broke ground on a $650 million casino resort in Danville, Virginia. The grand opening isn’t until late 2024. In the meantime, a smaller, temporary location is slated to open this summer.

Not surprisingly, city officials and Caesars have both talked up the economic benefits of the project. But others worry about the unexpected drawbacks of developing such a large casino in such a small market. Danville’s population is just 42,000, while Caesars is the nation’s largest retail casino operator.

Danville city manager Ken Larking is cautiously optimistic, telling Bonus:

I put my focus on making the best of the opportunity when the State allowed a referendum and the residents voted in favor of allowing casino gaming. This included using a competitive process to select an operator, negotiating a strong agreement that included supplemental revenues, and making plans to use those revenues to invest in things that will bring economic opportunity and prosperity to our community.

Billed as a “destination resort” casino, Caesars Virginia will sit on 78 acres alongside a 500-room hotel. The casino will feature over 1,400 slot machines and table games, a Caesars Sportsbook, and a 25-table poker room with WSOP branding. There will also be restaurants, bars, a 40,000-square-foot convention space, and an entertainment venue with a capacity of 2,500 guests.

Jobs, Revenue… and Possibly Housing Issues

According to a report from the Joint Legislative Audit Commission (JLARC), the resort may generate around $51 million in tax revenue for Danville once it’s fully operational. As for employment, building the casino has already created about 900 construction jobs. Once it opens, the company’s contract with the city stipulates:

Caesars Virginia agrees to employ at least 1,500 full-time employees and at a living wage of $31,200 a year.

The JLARC report estimates it will do a little better than that, probably requiring almost 1,600 employees, or 3.2% of the city’s workforce. That doesn’t include workers for any other businesses that pop up in the area due to the casino’s presence.

According to Kenneth Danter, a Virginia real estate market researcher who presented a separate report on Danville’s housing market last August, Danville alone isn’t big enough to fill all that demand, plus the 2,300 new jobs unrelated to the casino he expects to appear in 2023. That means people from outside Danville will need to relocate there.

At that point, housing becomes the problem. Danter estimates Danville will need to add over 600 new homes and nearly 800 more apartments to accommodate all those newcomers. That won’t happen immediately, and housing prices could soar in the short term.

Do Casinos Create Economic Activity or Divert It?

There’s no denying that casinos are big money-makers. However, some of that money may be pulled away from other local businesses.

Patrick Pierce is professor emeritus of political science at Saint Mary’s College, Notre Dame and author of Gambling Politics: State Government and the Business of Betting. He told Bonus:

Casinos will provide some additional employment and they will certainly provide states and municipalities with additional revenue. But they are poor generators of economic development.

If Pierce comes off as overly pessimistic, he’s mainly basing his assessment on casinos’ effects on smaller towns. In that regard, casinos have had a rocky and often one-sided track record. That said, he feels they may not be a bad option for areas that are in sufficiently dire straits to begin with:

I usually put it this way. If your community has hit rock bottom and no potential businesses want to locate there, then the casino can’t hurt you much and it will provide some revenue. If there’s no local business to cannibalize, then you might generate some new businesses.

If you have a relatively safe community, one with viable businesses – particularly in the entertainment and leisure sector – then you have a fair amount to lose. Politicians and casino corporations have a lot to gain, no matter what.

Pierce, like Danter, expects a rise in property values, “harming long-term residents of the Danville area.” He also worries about increased gambling addiction, which may harm families and lead to crime.

Drawing Out-of-State Visitors is Important

One advantage of resort casinos over standalone gambling properties is that they reduce the problem of revenue cannibalization by bringing in money from other regions.

Says Pierce:

On the demand side, you hope that customers come from outside the community. Put bluntly, you want outsiders to [lose money at] the casino, with the revenue going to the state and municipalities… The casino will have no major metropolitan areas nearby, so you won’t get ‘casual’ gamblers. Potential customers will have to travel a fair distance, so the casino must offer attractive entertainment, dining, hotel rooms, amenities, to draw them in. Major highways, train routes, and bus routes can help.

Virginia legalized gambling in 2019. The five cities approved by the state for a casino — Danville, Bristol, Portsmouth, Norfolk, and Richmond — were designated as “economically challenged” and seemingly picked for that reason. Voters in Richmond declined the opportunity, while the other four referenda passed.

Bristol, population 17,000, jumped out with the state’s first casino. The Bristol Casino, also temporary and future home to a Hard Rock Casino, created over 600 jobs and has already seen financial success. Meanwhile, Richmond is attempting to make up its mind about the possibility of a second referendum, while nearby Petersburg wants a shot in its place.

JLARC’s study estimates that nearly one-third of the total casino revenue for Virginia will come from non-Virginians, and the Danville property will be one of the greater beneficiaries. However, this is a two-edged sword as it means that gambling expansion in other nearby states can undermine the casinos’ success.

As stated in the audit:

Out-of-state visitors would contribute especially to the viability of the Danville and Bristol casinos because of their small local markets. . . . [But] this would also make them vulnerable if casino development were to occur in North Carolina and Tennessee.

Learning from the Past

Larking is not unaware of such issues and hopes to be proactive in dealing with them. In a series of bullet points, he laid out Danville’s task ahead:

  • We believe that the casino will draw regionally for its employees, which includes a much larger population.
  • Caesars Virginia projects over one million visitors to Danville per year. Many of those visitors will come from the larger metro areas in North Carolina.
  • We have attempted to anticipate any issues that could arise. This includes a strong development agreement, creating a master plan for the area around the casino, studying traffic impacts and making infrastructure investments, etc.
  • We have put a strong emphasis on housing needs in our community and are taking steps to increase the availability of housing so that market forces don’t create skyrocketing housing costs.

To paraphrase George Santayana, Larking seems admirably determined to learn from the past to avoid repeating it. A past that offers plenty of hard lessons, if nothing else.

In 2017, for instance, Bloomberg Citylab writer Melissa Chadburn analyzed the impact of casinos on different American cities. She determined that:

In short, the public returns from gambling decline over time—often quite fast.

Chadburn cited two communities in particular: the Hollywood Park Casino in Inglewood, California and the casinos of Tunica County, Mississippi. These areas welcomed gambling with open arms back in the 1990s. Chadburn reported that, by 2012, Inglewood had run up an $18 million deficit, and the state had taken over its school district. Similarly, by 2017, Tunica faced a 30% poverty rate and double-digit unemployment, while only 57% of its children in the area were graduating from high school.

Problems May Also Be Short-Lived

But if the economic advantages of casinos are short-lived, the downsides may likewise fade with time.

College of Charleston economics professor Douglas Walker takes a long view on casinos. He believes that, eventually, an equilibrium is formed between gambling entities and the communities they move into. Asked about potential downsides to adding so many jobs to such a small labor market in a short period, he told Bonus:

Wages should adjust across the various industries, so that [labor shortage] isn’t a problem.

Walker, who wrote Casinonomics: The Socioeconomic Impacts of the Casino Industry, is more optimistic than his peers about some of the other issues as well, like crime:

In terms of crime, there’s no good evidence that crime rates are affected by the introduction of a casino. However, Danville should expect at least a short-term increase in problem gambling behaviors. However, these effects should revert back to ‘normal’ after some time.

On the topic of housing:

Yes, a new business opening with lots of new jobs may cause new workers to move into the area and push up housing prices/rents. If this occurs, you’d expect existing residents to be less affected; new transplants would be more likely to bear the burden of higher rents, and there will be more people competing for existing housing. Or, they’ll have to wait for new housing to be built. While this adjustment between supply and demand may take some time, I wouldn’t expect a long-term increase in housing prices, so long as there is space to grow around Danville.

How Important is Skin in the Game?

Walker remains a firm believer not just in market forces but the experience and self-interest of casino companies. While admitting that Caesars probably doesn’t care what percentage of gamblers come from Danville and how many come from out of state, Walker stresses that “they wouldn’t be willing to make the investment to build the casino if they don’t expect there to be enough customers.”

Walker has more faith in the wisdom of private enterprise than of public policy planners. He told Bonus:

Caesars has a stronger incentive than anyone to build the best property for the area to maximize value. They have absolutely no incentive to open an operation in a climate that won’t work.

Who has more ‘skin in the game’ when it comes to designing the right property for the location?

Pierce, on the other hand, is as skeptical of the motivations of city planners as much as he is of the casinos:

To be blunt, elected officials and planners never take these considerations [employment, housing, addiction] into account. The casino, like the lottery, serves as a ‘voluntary tax.’ So those officials experience a windfall in their budgets and no one complains much. Given the difficulty of raising taxes, you can see why they would skip over the potential harm.

On this, at least, Walker agrees:

Politicians specifically are more interested in being able to say they did something to help create jobs or increase tax revenues than they are in consumer benefits. Even if the tax revenues are modest, introducing a casino may be politically easier for them than raising taxes or cutting spending. So it’s politically expedient.

Somehow Fun Always Falls by the Wayside

Adam Scavette, a regional economist at the Baltimore branch of the Federal Reserve Bank of Richmond, falls somewhere in between Pierce and Walker. He took a balanced view in a July 2022 economic brief titled Casinos and Regional Economies: Has the Game Changed?:

As casinos and other forms of legalized gambling have proliferated throughout the U.S. over the past 30 years, both the potential upside for the regional economy and the negative community consequences have likely diminished. . . . When gambling was more of a regional monopoly, communities stood to bring in more tourists if they legalized commercial casinos in their state. However, as the means to gamble proliferate and gambling-restricted states dwindle, commercial casino expansion is less likely to induce economic growth.

But in all this talk of economic impacts, it’s easier to forget about a casino’s core function for locals and visitors alike: a form of entertainment.

To Walker, that’s as important as anything else:

The key benefit is likely to be for those consumers who just enjoy the activity of gambling. Generally, the impact of casinos is no different than any other new business that might open in Danville. It gives consumers some new options for spending their money, and it provides more jobs for workers to choose from.

About the Author

Devon Jackson

Devon Jackson

Devon Jackson is a freelance writer with Bonus. He’s written for many different magazines and newspapers, from The New York Times and People to Sports Illustrated and Bloomberg. He has also worked as an editor—for The New Yorker, the Santa Fean, The Village Voice, and Discover, among others. Jackson likes to focus on the broader ramifications of the gaming industry—issues such as responsible gambling, the effects of cryptocurrency, or crossover between gambling and esports. In an era of fake news and truthiness, Jackson tries as best he can to leave the opinionating to the talking heads and give as big a picture as possible to the reader.
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