Since the first casino opened in Windsor in 1994, there has been a proliferation of gaming (a.k.a. gambling) facilities throughout Ontario under the watchful authority of the Ontario Lottery and Gaming Authority (OLG). From the early bingo halls in church basements to today’s mega hotel-casino-theatre entertainment complexes, gaming is big business in North America.
The Nation’s Capital has had a part of the casino wave. During the late 1980s and early 1990s, there was discussion about getting a casino on Sparks Street to inject some excitement to the otherwise dead downtown. Instead, Hull (now Gatineau) beat Ottawa to the punch and built a world class Casino du Lac-Leamy with a 5-star Hilton Hotel within an eye’s view of the then young National Gallery of Canada. When Lac-Leamy opened in March 1996, there were 14 other gaming establishments within a 500-mile radius compared to more than 80 two decades later (Ottawa Citizen). Ottawa did get on to the casino bandwagon eventually albeit in a less celebratory way when the 1,200 slot machines were installed at the Rideau Carleton Raceway in 2000 to support the declining horse racing attendance.
Fast forward to 2012 when OLG undertook a major initiative to modernize the gaming industry in the Province which included a competitive RFP process inviting proponents to submit proposals for the development or redevelopment of gaming operations / entertainment centres in the 29 designated zones. In May 2017, OLG selected Hard Rock Ottawa as the winning proposal in the corresponding designated zone that included Ottawa and Prescott-Russell. Hard Rock Ottawa (HRO) is a partnership between Hard Rock International and the Rideau Carleton Raceway Casino to undertake a major $318 million 6-year renovation and expansion of the existing facilities in a rural location off Albion Road turning the site into a mega integrated hotel casino. The new mega integrated hotel casino will include a 9-storey 200 room hotel, a 2,500-seat theatre, an additional 750 slots, 55 gaming tables, parking garage and 4 new restaurants including Hard Rock Café.
With almost every new casino proposal including the HRO project, one can find an accompanying economic impact study expounding the amazing benefits to be realized in terms of job creation, income generation, multiplier effects and incremental government taxes and other revenue. The are several reasons why economic development impact studies are popular with casino proponents. First, casinos have been very controversial with opponents focussing in on the social costs and community risks associated with problem gambling (depression, anxiety, personal debt, family violence and breakups, alcoholism etc.) and related issues like crime. An economic impact study can be used to show how a casino can be a positive influence on the local community.
Second, OLG requires municipalities to agree to be the host and approve the revenue sharing agreement before casino proposals can go ahead. New casinos may also require rezoning approvals and other community improvements in transit services or road construction for example. Economic impact studies provide a communications tool to secure political support. In 2013, Ottawa City Council decided that, as the “host city”, the only acceptable location for an expanded gaming centre would be the current location of the Rideau Carleton Raceway which had at that time 1,250 slots and an approved expansion for 21 gaming tables. And in February 2018, the City received a Zoning Bylaw Amendment application to permit the hotel and theatre uses on the subject site as well as to increase the number of gaming tables from 35 to 55. The rezoning was approved by City Council on May 9, 2018.
This is an exciting project that will generate significant economic benefits and will build a world-class entertainment destination right here in the Nation’s capital! Hard Rock Ottawa
Casino expansion project will create thousands of local jobs, bring needed economic development to the rural part of the City, and re-energize Ottawa’s entertainment scene. National Public Relations Press Release: February 15, 2018
An economic impact study was prepared by Shore-Tanner Associates for National Public Relations on behalf of HRO. Although not required as supporting documentation for the rezoning application, the economic impact report dated April 18, 2018 was submitted to the City. It is not clear why the study was undertaken in the first place since the project proposal had already received approvals from City Council and the OLG. City Council had directed staff back in 2012 and again in 2013 to provide an analysis of potential benefits and impacts of an expanded gaming facility so perhaps the Shore-Tanner report was used by staff to cover off that requirement. City staff has since then hired KPMG Canada to undertake a third-party peer review of the study even the rezoning has been approved.
I am finding myself becoming less stoic the more I read these economic impact studies. My initial aim when I started with this blog was to review the methodology and assumptions and contained in the HRO economic impact report in some detail. Even though there are substantial flaws in the study, I decided that this was not going to be very meaningful. Instead, I want to focus more on important policy implications related to the economic impacts. Some of the study shortfalls will still come out from this discussion.
Robbing Gatineau to Pay Ottawa: The $62 Million Transfer
The development of a high quality gaming and entertainment destination in Ottawa will recapture spending from Ontario residents and tourists who are currently travelling to Quebec for gaming entertainment. It is estimated that nearly $60 million dollars is lost to the neighboring province on an annual basis. Hard Rock Ottawa
According to the HRO study, the largest single impact to be realized in Ottawa’s economy once the new integrated hotel casino is in full operation is the $62 million “transferred” annually from the Lac-Leamy Casino in Gatineau. This total represents the estimated leakage of money today by residents / visitors from Ottawa and Ontario to Gatineau’s casino. The $62 million leak is also the one economic impact that has gained the most interest in the media and political circles even though the dollar amount has no basis in terms of real economic data that are required to prepare a measure of impact because the needed revenue and visitor origin statistics are not available – an observation that is also made in the HRO study. Instead, the $62 million amount is strictly based on anecdotal evidence obtained from casual discussion of different experts and observation of car licence plates at Lac-Leamy where the report notes that between 50% and 80% come from Ontario. Indeed, I estimate that the so-called transfer amount could be even greater. According to Loto Québec’s 2016/17 Annual Report, the total revenue from Casino du Lac-Leamy was $257 million. Allocating just 50% of this total revenue to Ottawa/Ontario visitors generates a potential leakage amount of about $130 million or twice the amount guessed at in the HRO study.
The $62 million amount does not have any real meaning by itself. How significant is the leakage in terms of Ottawa’s overall economy? How many jobs does that amount represent? The HRO study does not go beyond simply identifying the dollar amount. The $62 million actually represents about 0.0001% of Ottawa’s 2013 GDP (adjusted to current dollars) based on Statistics Canada data.
Regardless of the amount, what is most significant aspect about the revenue loss is that it symbolizes the primary motivation of City Council and in particular, the Mayor, for supporting the HRO project. According to the economic impact study, the total incremental tax revenue to all levels of government after project completion is estimated to be $206 million annually with $12.8 million going to the City compared to about $4.4 million the City currently receives for Rideau Carleton Raceway. It is not surprising then that more and more municipalities like Ottawa are supporting casinos in their communities as a source of additional revenue without increasing property taxes.
Robbing Gatineau to Pay Ottawa Works Against Economic Development at the Metropolitan Level: Can Ottawa-Gatineau’s Gaming Market Sustain Two Hotel Casinos?
Setting aside the political justification, this competition between the two hotel casinos and two municipalities is an unfortunate by-product of having a provincial boundary splitting a metropolitan area into two distinct municipal governments. The net result with adding a new casino at Rideau-Carleton is that the full economic potential of both the Lac-Leamy and Hard Rock Ottawa locations will be weakened. In the end, there is no net economic gain at the metropolitan level since the revenue is simply transferred from one location to another.
With increased competition and proliferation of casinos, the industry has likely reached market saturation point which may affect profitability especially in a relatively small market like Ottawa where there will be two world class integrated casinos. There are a couple of key questions that are not answered in the HRO economic study. One, can the Ottawa-Gatineau gaming market sustain two world class integrated casinos or will it become over saturated? Two, how important is tourism to the future economic sustainability of two casinos given that tourism is a key revenue stream in any casino business plan?
The HRO economic impact study does make an attempt to estimate the size of the entertainment / leisure market, and not just gaming, in order to capture the full spending potential, but the study’s methodology is flawed. The study delineates the catchment market area as comprising Eastern Ontario (east of and including Kingston) but excludes Gatineau and the rest of Quebec assuming that gamers living in that Province will visit Quebec based casinos. Except for Ottawa and possibly Kingston, Eastern Ontario is comprised of mostly smaller sized and rural communities, many of whom are experiencing economic problems, lower than average incomes and minimal and even negative population change. This means that the market strength for the two hotel casinos in the Nation’s Capital will largely be dependent on the demographic dynamics of the metropolitan area. Distance plus competing casinos in Gananoque and the GTA (and perhaps Upper New York State) will also weaken Kingston’s draw potential. The City has a highly successful K-Rock Centre which opened in 2008 and can hold between 3,000 and 7,000 people depending on the venue.
In coming up with a list of industry sectors to be included in the entertainment / leisure market, the study also includes questionable economic activities like the purchase of recreation equipment including children’s toys, computers, home entertainment equipment, recreational vehicles such as motorcycles etc. – hardly consumer markets targeted by casinos. The study also double counts many of the entertainment / leisure expenditure items.
A very important omission from the HRO study’s market analysis is tourism. The first casinos in Ontario were located in Windsor and Niagara Falls, both border cities located at major entry points from the USA. Niagara Falls is also an international tourist destination. Another successful casino is the Casino Rama entertainment complex located on First Nation’s reserve near Orillia. Opened in 1996, Casino Rama has attracted headliner entertainers to its 5,000 seat theatre. In this case, the Casino’s success can be attributed to its popularity as a destination for “tourists” from Greater Toronto.
Once completed, the combined Hard Rock Ottawa / Lac-Leamy hotel casinos will provide a total of approximately 115 gaming tables, 3,800 slots and individual theatre capacity of 2,500 and 1,000 respectively. The number of gaming tables and slots equal or exceed those at Casino du Montreal (115 and 3,000 respectively) although its theatre capacity of 5,000 is higher. According to Statistics Canada, Montreal’s metropolitan population in 2017 was 4.1 million compared to Ottawa-Gatineau at 1.4 million. During Canada’s 150th 2017 celebrations, approximately 11 million tourists came to Ottawa spending a total of $2.3 billion. The same total number visited Montreal spending more than $4 billion. The only other metropolitan area in either Ontario (including Toronto) and Quebec with two major casinos is Niagara Falls with about 14.5 million visitors in 2017, the combined Casino Niagara and Fallsview Casino have 4,300 slots and 170 game tables.
Based on the above preliminary assessment, the competition will be tough between the two Ottawa-Gatineau casino locations in a fairly limited market and Ottawa’s recapture of part of Lac-Leamy’s revenues will be a challenge. First, the Lac-Leamy casino still remains more accessible than the Albion Road location to a large portion of Ottawa’s resident population as well as tourists and other visitors to the city especially the downtown area. For example, the Hard Rock Ottawa casino is more than 4 times further from the Rideau Centre compared to Lac-Leamy in terms of both travel time and travel distance and is located in a rural area with limited transportation accessibility. The Casino is also not designated as an LRT stop on the future Trillium Line South planned for 2021.
Second, the Lac-Leamy casino will not likely sit back and watch see all of its Ottawa customers leave without a fight. The Casino recently completed a $50 million renovation/upgrade, for example. The adjacent 5-star Hilton Lac-Leamy also finished a one-year renovation initiative in 2016.
Jobs, Jobs and More Jobs – Or Are There?
Another popular aspect of economic impact studies from a political perspective is the promise of windfall of new employment opportunities. First, there are the construction jobs which can be significant. The Hard Rock Ottawa study estimates that project will result in a one-time 3,578 construction jobs expressed in person years with each worker making an average of annual salary of $45,000. The study further estimates that an additional 36 retail jobs will result from the spending of construction workers and another 1,310 employment opportunities in manufacturing, services and transportation which an undetermined amount will be retained in the local economy. The latter total represents the multiplier effects associated with construction expenditures. How the study actual calculates these job numbers is not very clear in the report.
The second set relates to permanent jobs after construction is completed and the mega centre is fully operational. The economic impact study estimates that the new Hard Rock Ottawa hotel casino will provide approximately 1,000 full-time equivalent positions annually, an increase of 500 jobs compared to existing number of employees. Unlike typical economic impact studies, The HRO report does not provide very much detail or specifics on employment effects related to multiplier effects limiting the forecasts primarily to more vague expenditure amounts. Even then some of the assumptions used such as in the retail jobs estimates, are questionable.
Once in full operation, it is unlikely that the HRO casino will encourage non-gaming businesses to open nearby. Because casinos are designed to be an all-absorbing environment, unlike a movie theatre or a sports event, local residents and tourists who visit HRO’s casino will not likely wander out to visit other nearby shops even if they existed on Albion Road. Similarly, visitors who also go to one of the four restaurants at the HRO casino means that they then are not spending the same discretionary money at other restaurants in the community. The spending of an additional 500 full time equivalent employees with modest and lower average salaries will also not have a measurable multiplier impact. Finally, the additional jobs Ottawa receives from the “transfer” of revenue from Lac-Leamy, whatever that amount ends up being, is balanced by the same number of jobs lost by Gatineau which ends up being a zero-sum game at the metropolitan level.
The construction of a world class hotel casino / entertainment complex in south Ottawa will undoubtedly generate economic benefits but whether it will be an economic boon or not has to be seen. One certainty is that any transfer of gaming revenue and associated jobs from Lac-Leamy as part of this boon is at the expense of Gatineau and a zero-net gain at the metropolitan level. The new facility will provide also new employment opportunities even if the jobs only offer modest salaries and many being part time.
City Council decisions on complex and controversial gaming projects like the HRO “super-regional” entertainment centre require consideration of economic benefits, social costs, community risks and municipal demands (e.g. infrastructure investment, services like transit, policing etc.) Ultimately, City Council needs to determine if the HRO centre is the type of project that is desirable for Ottawa’s future quality of life and if the additional hosting revenue of about $8 million a year represents a fair return on social investment. It is interesting to note that the City of Toronto rejected OLG’s proposal for a downtown casino in 2013 by a resounding vote of 40-4. There was a strong grassroots opposition to a new casino concerned about the social and economic costs as well as infrastructure demands. In addition, OLG was not willing to agree to the City’s annual $100 million hosting fee demand. The only gaming facility in the Province’s prime OLG market is Woodbine Racetrack where about 3,000 slots were introduced in 2000. The City received an approximate $15 million hosting fee in 2016/16 from the facility.
Turning to economic impact studies, I have become skeptical of their purpose and value in general. As I mentioned earlier, I am not sure why the HRO study was undertaken given that all the important City approvals were already in place. It is also important that if an economic impact study is to be undertaken it should be a rigorous, timely analysis based on good data and a sound methodology.