Cleveland Gambles on Casino to Boost Local Economy

Allegra Kirkland, Editor-in-Chief

The signs on the front doors of the Horseshoe Cleveland provide a friendly reminder to visitors: “No Smoking, No Weapons.” Inside, the casino floor is crowded with security officers making their rounds and waitresses in black miniskirts and gold corsets taking drink orders on iPads. A couple shares a delighted embrace as coins pour out of a clanging Dashing Dolphins slot machine. In many regards, the Horseshoe Cleveland feels like any other casino in the United States. There are the crystal chandeliers and odd showroom furniture — white velvet sofas and puffy vinyl bar chairs. Retirees sit in front of the Sex and the City slots, sipping on white wine. Voices are drowned out by the clinking of the slots and the loud, unrecognizable ’80s music pulsing through the speakers.

The Horseshoe casino, located in downtown Cleveland, opened in May to mixed reviews from locals. A 2009 Ohio constitutional amendment legalized casino gambling in hopes of revitalizing the state economy.

Yet the overall effect is subdued and contained, in contrast with the polychrome labyrinths of Las Vegas or Reno, and the crowd of Cincinnati Bengal’s fans moaning over a bad pass at the bar TV situate this Horseshoe firmly in Ohio. Located in the historic Higbee Building in the heart of downtown, the designers maintained the high ceilings and Art Deco styling of the original interior. On the first floor, the entrance is visible from the far end of the building, preventing the dislocating feeling provoked by the endless sea of slots and tables on more expansive casino floors. It’s as if the owners of the Horseshoe designed the casino with these potential criticisms in mind. As if they were trying to say: “We aren’t selling the city out.”


Roots in the Recession

The Horseshoe Cleveland is one of four casinos authorized for construction by a 2009 amendment to the Ohio constitution that allowed casino gambling in the state for the first time. Opened in May of this year, the Horseshoe was quickly followed by the opening of the Hollywood Casino in Toledo later that month. The Hollywood Columbus is scheduled to open in early October, and the final project, the Horseshoe Cincinnati, will open its doors in the spring of 2013.

These casinos represent the culmination of a decades-long battle over gambling in Ohio and its potential role in the revitalization of local economies throughout the Midwest. Already, there are some 48 casinos combined in the surrounding states of Michigan, Indiana and Pennsylvania.

As Assistant Professor of Economics Ron Cheung noted, “Midwestern states have been particularly active in increasing or legalizing gambling because they don’t want to raise taxes any other way.”

In Ohio, the issue has been on the ballot for nearly every consecutive year since 1990 and was overturned every year until 2009. The ballot initiative, Issue 3, finally passed after two casino companies, Penn National Gaming and Rock Gaming, waged one of the most expensive campaigns in the state’s history, spending $50 million to obtain construction rights.

Anti-casino groups are quick to point out that the amendment passed at the peak of the economic downturn, when unemployment and home foreclosure rates were at their highest point. Ohio was hit hard by the recession, losing 277,400 jobs between May 2007 and May 2012. Rust Belt cities like Cleveland and Toledo have witnessed steady depopulation in their urban cores over the past decades, resulting in a dwindling tax base and a remaining population that is most in need of public services.

Gary, a software salesman from Cleveland who preferred not to give his last name, was playing slots at the Horseshoe with a friend last week. That night, he was up, but he referred to Cleveland’s failing infrastructure as a reason why he felt the casino would ultimately not be a good investment for the city.

“I think it’s dragging a lot of money into this one project that people need to meet their basic needs. Morally, I don’t care what people do. I’m too old. It’s the economic factor that bothers me.”


A Local Angle

As each of the four host cities has a distinct character and economic makeup, the debate over the impact of the casinos is unique to each city. Pro-casino interests argue that the Horseshoe Cleveland will create local jobs and have a positive domino effect on related industries like hotels and restaurants. The opposition insists that these factors won’t be enough to resurrect the city’s economy, and some voice concern about the social effects of crime and gambling addiction.

Casinos require a high volume of staff to operate, including servers, bartenders, dealers, security, janitorial staff, as well as upper-level marketing, accounting and sales positions. The Horseshoe Cleveland created 1,600 jobs, 90 percent of which are filled by Northeast Ohioans. It has an annual payroll of $55 million. City officials and Rock Gaming have proudly touted these numbers to the press but emphasize the importance of building up commercial development downtown in order to have a long-term impact on the local economy.

Joe Marinucci, president of the Downtown Cleveland Alliance, noted, “The ability to attract visitors to the city is more and more based on the types of amenities you can offer. Gaming is increasingly one of the choices that people look to in terms of where to bring a conference or where to bring a training session or where to visit.”

Few people deny the need to invest in the vitality of downtown, but some remain skeptical that the mere presence of the casino will breathe new life into the city.

“Perhaps the casino will function as an anchor, like in a mall,” said Professor Cheung. “They’re the tenant that allows the little restaurants to survive. But this is not automatically going to happen. People are still going to have to want to stay downtown, so the city will have to make this an attractive option by encouraging hotels to locate, by making sure the streets are safe, clean and well-lit.”

Rock Gaming insists that the Horseshoe has already had a positive effect on other local businesses, providing an influx of new customers. As part of its collaborative effort to boost other businesses, the casino maintains a rewards program for loyal casino customers, providing them with free meals at a dozen partner restaurants.

“We have a similar situation with three downtown hotels: the Ritz, the Renaissance and the Marriott,” said Jennifer Kulczycki, communications director for Rock Gaming. “We’ve booked more than 5,000 [hotel] room nights for our casino guests since opening in May.”

Yet the notoriously insular architecture of casinos and the myriad entertainments they offer call into question how much the presence of the Horseshoe will really affect neighboring businesses. People who come into town for a night out need never venture outside its walls.

“One thing you always see in the literature on this in urban sociology is the design — how casinos are made to turn inward on themselves,” said Visiting Professor of Sociology Aaron Howell. “They become sort of an adult Disneyland.”

Four Corners or Beyond?

Pro-casino groups argue that the casino developments benefit all Ohioans, as they will generate significant tax revenues for the state and host cities. Cuyahoga County stands to receive between $10 -15 million per year in tax revenues and, as a host city, Cleveland will receive another $29 million annually once all four casinos are operational. For a state economy long in decline, these figures are significant and are supplemented by increased tax revenues on industries related to the casino.

“The hotel bed tax and the parking tax levels are up,” Marinucci affirmed. “Those seem to have ranged from 8-15 percent increases as a result of the casino opening.”

While the short-term increases in local tax revenues have been substantial, some argue that the economic issues faced by cities like Cleveland are endemic and that the tax revenues ultimately serve as a quick fix to a far more complicated problem. Brian Rothenberg, executive director of Columbus-based nonprofit Progress Ohio, brought up the fact that the revenues generated by the casinos are not stable, which limits how much municipalities can rely on them from year to year.

“It’s not steady revenue like income tax revenue or something. It’s very dependent on how much is generated through each casino, and what is generated today might not be the same as what’s generated tomorrow as people have less money to spend or as casinos open in neighboring states to compete,” he said.

Competition from out of state is a real, immediate concern. As reported in the Cincinnati Community Press, the Hollywood Casino in Lawrenceburg, IN, has laid off 10 percent of its work force in the last month as a direct result of competition from Ohio casinos. A study by the consulting firm McKinsey & Company found that Detroit could lose as much as $30 million in gaming tax money once Ohio’s four casinos are operational.

“Some casinos try to stay competitive by branching out like Las Vegas does and offering non-gambling-related activities like concerts,” said Cheung. “But the Midwestern states are not a hotbed of nightlife, so there is a limited amount of diversification that you can do.”

Exactly who is visiting the casino is difficult to determine, as Rock Gaming doesn’t maintain demographic records of its customers. Given the equal distribution of the casinos to all four corners of the state, it follows that many of the customers at the Horseshoe will come from Northeast Ohio. But it remains to be seen whether Cleveland is enough of a destination for people to come to from out of state, especially if these visitors have casinos in their home states.

In an August editorial in the Plain Dealer, Brent Larkin insists that it is not, and that the people who will be losing money at the casino are the exact people whom the casino is supposedly benefiting.

“For now, it seems reasonable to suggest that the casino’s net annual take from gamblers will be about $300 million,” Larkin writes. “Make no mistake where all this gaming money is coming from. Almost all of that $300 million or more each year in losses at the downtown casino will originate in the pockets of Northeast Ohio residents.”

On a recent Monday evening, Sarah Wilcox, a bank teller, and her niece Robin, an employee at a stockbroking firm, were visiting from Mansfield on a girls’ night out. Both had been to the Horseshoe several times before but insisted that, for them, gambling is a casual, harmless pastime. They favor the slots, particularly Wheel of Fortune. Sarah had just returned from a tour of Midwest casinos with her husband, visiting gaming establishments throughout Illinois, Indiana, Missouri, Iowa and West Virginia.

“We didn’t make it rich, but we did okay,” Wilcox said. “This place is great because it’s not too far away. For big trips we used to have to go all the way to Vegas.”


Social Concerns

For some, the economic consequences of the casino take a backseat to social concerns such as crime and gambling addiction. While the constitutional amendment included some provisions for these issues, city and casino officials have made their own efforts to address them.

According to Marinucci, crime in the general casino area has declined over the past year.

“There was a lot of concern about the casino attracting more panhandlers or petty crime, but we’ve seen none of that. … The fact that there are more people out and about, especially on Lower Euclid where the casino is located, provides a stronger sense of security out on the streets.”

The Horseshoe has a robust security operation that includes private security personnel, agents from the Bureau of Criminal Investigations and both uniformed and undercover Cleveland Police officers. In addition, there is a surveillance system in and around the casino of over 1,000 cameras.

Yet, as Howell pointed out, “There are a lot of factors that go into declining crime rates. On a broad scale, violent crime has been declining in general [throughout the U.S.]. In the area around the casino you’re going to have a lot more cops around plus casino security. There may be a minimal effect on crime reduction, but I would assume that it would only be in the several block radius around the casino.”

The other strategy in addressing potential social consequences is ensuring that there are sufficient funds for problem gamblers. The amendment mandates that 2 percent of the 33 percent tax that the casinos pay for revenues is directly allocated to resources for those coping with addiction.

Marinucci acknowledged the existence of problem gaming but feels confident that the state will provide for those in need of help:

“People in the social service realm will tell you that 5 percent of the people visiting a casino fall into the category of at-risk gamers and a subgroup of that will become addictive gamers. Having said that, I also believe that gaming is an entertainment option that many people do choose to embrace. … Overall, we’re very comfortable that there are programs in place to help those with addiction related issues, and the casino is essentially attracting individuals who would game irrespective of the casino so, yeah, we’re hoping they make the decision to come to Cleveland.”

For now, only these four casinos have been legalized, though the first “racino,” or horse racing track that allows for slot machines, opened in Columbus in May, and more race tracks are expected to apply for gaming licenses in the coming months.

In the next few years, however, the gaming industry will expand in Cleveland as phase two of the Horseshoe gets underway. The existing casino has only 2,100 slots of the 5,000 that were allotted to Cleveland by the constitutional amendment, so a second casino built by Rock Gaming will be connected underground to the original Horseshoe. An $85 million site has already been purchased on the southern side of the Tower City complex facing the Cuyahoga River.

As midnight approaches, Prospect and Superior avenues begin to empty out, except for people waiting for the bus, hopeful customers walking into the casino and the gamers smoking cigarettes outside on the curb. A busker playing Muddy Waters on his saxophone is heckled by a group of young men in suits yelling, “Play ‘Freebird!’” Two blocks away from Tower City, where the shadows of Quicken Loans Arena take over, the streets grow silent.

The Horseshoe Cincinnati will open its doors next spring.