The Seneca-run casinos in Western New York gave away $42 million in "loss leaders" in the nine months ending June 30, 2010, according to an independent analysis provided by one of the area's professors of hospitality and tourism management.
The combination of these giveaways and the Seneca Gaming Corporation's (SGC's) advantages of paying no taxes and operating under a different set of rules, regulations and laws, compared with all other competing hospitality entities, "pose a formidable threat to any and all other hospitality operations in WNY," according to Prof. Siegel. "The continued viability of that vibrant industry as an economic generator would be at stake if the Buffalo Creek Casino was ever completed."
Siegel's report was presented to the Common Council's Legislation Committee this afternoon by the Citizens for a Better Buffalo, a group of civic minded and concerned citizens formed to stop a casino from being built in downtown Buffalo.
"I have never encountered a competitive situation where one business entity has such a staggering competitive advantage over other entities," said Prof. Steve H. Siegel, who has taught and researched in this field for over 30 years.
"What the public hears from the media about the supposed economic impact of the proposed casino is a series of very large numbers......$200 million in revenue, 1,400 new jobs, etc. What we rarely hear about is the devastating negative economic impact that research shows occurs when a tax exempt casino is placed on what is claimed to be sovereign land within an urban setting," he said in his full report.
The report goes on to say, "The citizens of WNY need a true accounting of the millions of dollars from the operation of a casino that would leave the area and flow to Albany. They also need to be told that this proposed casino will actually cause a net loss of jobs which will continue to hemorrhage out of WNY each year that the casino would be in operation. Perhaps most importantly the SGC's own financial numbers as presented in its Securities and Exchange Commission filings clearly indicate that if a full-service casino is constructed anywhere within the City of Buffalo, the impact on the lodging, food and beverage and entertainment industries will be devastating."
Research shows that for every three video slot machines in any casino, that area will, within the second year of operation, lose two jobs in the local economy. The proposed casino in Buffalo would have between 1900 and 2200 slot machines, so if the project is built, we can expect to lose between 1200 to 1400 jobs each year. The larger the casino, the more slot machines it contains, the greater the job loss to the local economy (Source: Professor John Kindt- U of Illinois, 2001 - Analysis, Professor Steve Siegel - Niagara U., 2008).
Why? Because the average net revenue for every SGC video slot machines, during the 9 month period ending on June 30, 2010, was $53,863. Extrapolating this for a 12 month period it would be $71,800. Therefore every three video slot games will suck $215,400 in discretionary spending out of our economy that could have been spent at other area businesses such as the local dry cleaners or the butcher shop, the bowling alley or local food and beverage operations. Business owners respond to reduced volume by laying people off or cutting back hours of the existing employees in order to reduce costs.
The larger the casino, the more devastating the impact on the local unemployment situation. At the current projected size for the proposed casino, within two years the local economy will lose far more jobs than the SGC claims it will create and the area will continue to lose more jobs each subsequent year as more and more money is diverted from other businesses into the slot machines.
The City of Buffalo's estimates of the payback from Albany to Buffalo from the "drop" on "slots" is $5-7 million per year, about equivalent to the revenue budgeted from writing parking tickets ($5.5 million), according to the 2010-11 adopted budget for the City of Buffalo. A $5.5 million payback would make up a mere 1.2 percent of the city budget of over $451 million. Given the social and economic costs to the city and its citizens of the casino, this project is not cost effective according to the Citizens for a Better Buffalo.
The temporary casino has proven popular, despite its lack of amenities. The SGC reports that Buffalo Creek attracted 541,063 visits in 2009, up from 420,180 in 2008, and that it generated $9 million in exclusivity payments to New York State. As part of the Seneca compact with the State, the SGC pays 25 percent of slots revenue to the State in exchange for the exclusive right to operate casinos in Western New York. It can be estimated, then, that the Buffalo Creek Casino had roughly $36 million in slots revenue in 2009.
According to the SGC's report to the Securities and Exchange Commission (SEC), $4.6 billion in "slot handle" passed through the slot machines at the existing SGC casinos during the 9 month period ending June 30 2010. This extrapolates to $6 billion per year. "6 Billion dollars is wagered yearly on a product which costs little to create and therefore returns little economic value to the community, but much in the way of social problems," said Prof. Siegel in the full report.
The casinos operated five of their six "product lines" at a projected 9-month loss of over $50 million, yet the SGC, for the same period, showed "operating income" of $83 million. "Obviously the five products (food, beverage, lodging, entertainment and retail) are 'loss leaders' to get people into the casino, keep them there and get them to come back. These five products that the casinos merely give away form the backbone of the local hospitality economy.... restaurants located within a casino complex and subsidized by hundreds of millions of dollars of gaming revenues can easily undersell all restaurants in the area and effectively put them out of business," says Prof. Siegel's analysis of the SGC SEC filing.
The impact that this will have if the casino is ever opened in Buffalo would be to drive many hotels, restaurants and entertainment venues out of business because it is impossible to compete with an entity that gives away the product for free. There is no known business strategy for competing in this type of competitive environment.
The casino not only diverts large sums of discretionary spending away from other local businesses and into the casino, but to compound the "financial hit" to the local hospitality industry the casino then gives the gambler back promotional points which can only be redeemed in the casino - and were - to the tune of $42,743,000 worth of food, beverage, lodging, entertainment and retail sales.
Promotional Allowances (Player Points Redemption)
Specifically: (from SEC filing)
80% of guest room revenue was not realized - given away complimentary.
52% of food and beverage revenue was not realized - given away complimentary
73% of entertainment tickets issued and retail merchandise distributed was given away free
The SGC gave away an average of 653 hotel rooms per night, every night. This is more rooms given away per night than the total number of rooms that the Adams Mark and the Buffalo Hyatt SELLS on an average night. A large hotel, as planned for the Buffalo Creek site, would drain off a considerable amount of business from local upscale hotels. Given that hotels need to sell an average of approximately 55- 60% of their rooms each night to break-even, even a small perturbation in the competitive market structure can turn the property into a money losing operation.
A group of 23 plaintiffs, including Citizens Against Casino Gambling, had sued to stop the casino, arguing that the Senecas are not authorized to operate off-reservation casinos. In decisions issued July 8, 2009 and August 26, 2009, U.S. District Judge William Skretny ruled that the National Indian Gaming Commission had erred in allowing the casino and ordered the Commission to determine whether it should be shut down.
The case remains in litigation. In the meantime, the SGC opened a $6 million temporary casino at the Buffalo Creek site on July 3, 2007, with slot machines and a snack bar. On March 16, 2010, the SGC completed a $9 million expansion of the temporary casino, bringing the total of slot machines to 455.
Prof. Siegel calls the casino a "huge money sucking vacuum;" he concludes: "There exists hard data that should make it clear to our citizens and decision makers that not only won't the casino deliver on its inflated claims, but it would actually serve as a huge money sucking vacuum, redirecting hundreds of millions of dollars from local businesses and putting far more people out of work than it can ever hope to employ in the casino."
Prof. Steve H. Siegel teaches at the College of Hospitality and Tourism Management, Niagara University. Prof. Siegel's work is independent of his position at Niagara University and does not necessarily represent the views of Niagara University. He received no compensation for his report and is not a member of Citizens for a Better Buffalo.