Virginia Tax On Racinos Among Lowest in U.S.

2017 State revenue on gambling operations. Click for larger view. Source: American Gaming Association Annual Report. Virginia should appear on future lists.

If Virginia is going to sell its soul, we should at least get the market price.

The Virginia Racing Commission is starting to publish monthly reports on the cash flow to Colonial Downs and to the government under the new state-granted monopoly to operate gambling dens.  Any relationship to horse racing in these establishments is just an elaborate ruse, although there is this interesting new word in the industry: Racinos.

The April, May and June reports, which you can find here, track the slow roll opening of the slot machine facilities in Vinton, Richmond and at the main racetrack site in New Kent County.  Only the June report picks up some of the operation at the facility just opened on Midlothian Turnpike in Richmond, the excitement captured by this Richmond Times-Dispatch account

By the end of June, the three facilities had collected about $174.4 million from bettors, most of it in June.  The real revenue pace won’t be visible until the Richmond operation has a full month and Hampton Roads joins in.  State policy and industry practice dictate at least 92 percent of the bet revenue returns in prizes, leaving 8 percent for the casino operator and its government partner to divide.  It’s the volume, the churn, that generates the big bucks.

Virginia takes far less in taxes than most of the other states who have made this deal with the devil, leaving Colonial Downs with potentially one of the highest profit rates in the country.  State law sets the tax rate at 1.25 percent of the gross bets, or “handle”, leaving 6.75 percent to the operator.  Of that, 60 percent is state (0.75 percent) and 40 percent local (0.50).  That’s an effective tax rate of 16 percent.  

The tax rate on the same machines in Maryland is between 50 and 62 percent.  In Delaware it is 58 percent.  In New York, 65 percent. In Florida, 35 percent.  In West Virginia, try 53.5 percent.  These figures come from a new document that Virginia state tax policy wonks need to add to their reading list, the American Gaming Association’s annual report.

It should be the first document examined by the Joint Legislative Audit and Review Commission as it studies Virginia’s full entry into this brave new world of financing government with casino gambling.  The General Assembly has voted for it once, but with a re-enactment clause requiring a second approval.   You won’t find much financial detail in the fiscal impact statement on the bill.

JLARC also needs to look closely at the license fees charged in other states and compare that to the tiny $1,000 per location Colonial Downs is paying.

Jeffrey Hooke

The low tax rate basically doubles or triples the value of the license Virginia has granted Colonial Downs, according to Jeffrey Hooke, an expert on this business who is also a lecturer at the Johns Hopkins University business school.  Hooke said that he tried to reach out to Virginia legislators to ask them why they were being so generous to this monopoly business, but nobody called him back.  To Bacon’s Rebellion he described this as “a terrible giveaway to extremely wealthy people.”

His quick estimate is that each of these machines generates $200 per day after prize payouts, and if operated 365 days, that’s $73,000 per year.  After giving the state and locality their cut, and paying its operating costs, the operator may be keeping a full 50 percent in profit.  The pre-tax profit on 3,000 such machines might be $110 million.

Virginia’s initial tax rate on these first three reports is a bit higher than 16 percent, because the operator did not hold the full 8 percent in those first three months.  Virginia and the relevant localities divided $2.1 million.  The state and local split on every $1 billion should be no less than $12.5 million.  In most of those other states it would be $40-50 million.  Virginia is leaving more than $30 million on the table for every $1 billion in bets.

A higher portion of the house’s share kept by government would not lower the winnings shared with players, Hooke said, adding that the data indicates the average player loses $70 per visit.  Hooke found Bacon’s Rebellion, not the other way around, and his first question was why would the General Assembly set such a ridiculously low value on its franchise?

Of course, the government skim is only part of the story, as these facilities will also generate real estate, sales and eventually state income taxes.  Fully operational the facilities will have a substantial (if not very high paid) workforce, and as part of the deal Colonial Downs is also re-starting real horse race operations at its New Kent facility.  The argument that absent this, Virginians would just spend their money in another state is valid.

But shouldn’t Virginia at least take the same share as those other states would?  In the case of the lottery, with its $2 billion plus in annual sales, all the “profits” benefit the government.   All the profits on wholesale liquor flow to the government through the Alcoholic Beverage Control Board.  Maybe Virginia wants to remain a low tax, casino-friendly venue, but at least consider what the other states are doing.

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8 responses to “Virginia Tax On Racinos Among Lowest in U.S.

  1. Pingback: Virginia Tax On Racinos Among Lowest in US - Bacon's Rebellion - Latest Jackpots News and Information

  2. “To Bacon’s Rebellion he described this as “a terrible giveaway to extremely wealthy people.”

    Yes, just another way for the crony rich, working in corrupt cahoots with corrupt state government, to create yet more privileged monopolies that feed like vampires on their addicted and foolish fellow citizens, draining wealth from their pockets while jump starting rafts of other bad habits, so as to buy votes, steal money, and build ever more dependency within ever larger numbers of Americans. What a craven, sick society we’ve made for ourselves and our children.

    • No libertarian instincts today, Reed? I suspect few if any legislators actually asked questions about how other states taxed this stuff, and frankly it’s as much a franchise fee as a tax, a partnership percentage. I doubt the lobbyists were spreading this data around. Now that it is set so low on a “racino” it may be hard to raise, but the question is still open for other facilities. Some states do have lower rate for table games, but not 16 percent.

  3. Personally, I dislike gaming and agree it often rips people off who can least afford it. True, I am bad at it, although I had a friend once who could go to Nassau and win so much he paid for the trip and made a few extra thousand.

  4. More on sleazebag government partnership casinos found in Bristol’s Newest Savior: a Proposed Casino and Resort Posted January 10, 2019 by Jim Bacon:

    Reed Fawell 3rd | January 11, 2019 at 11:30 am | Reply

    Your comment is dead on the money. Gambling Casinos in poor isolated areas are absolutely the reverse of economic development. They introduce into a poor and depressed region, a game that is intentionally rigged, and elaborately designed and camouflaged, to drain people of their own money by preying on the weaknesses and addictions of those people. They also draw within their vortex a host of bad habits, social pathologies and plagues, including criminal activities. Thus gambling casinos built in such areas poison the place, magnify the dependency and hopelessness of the people there and further depress the entire region and its future, often beyond repair. These sorts of facilities are grossly immoral.

    Reed Fawell 3rd | January 12, 2019 at 9:59 am | Reply

    For more details, here is a very much shortened version of an article published in The Guardian Newspaper titled: Slot Machines: a lose lose situation, by Tom Vanderbilt June 8, 2013

    “Once seen as a harmless diversion, hi-tech slot machines now bring in more money than casinos – and their players become addicted three times faster than other gamblers. We investigate how the industry keeps us hooke. The first thing you notice on entering the vast hall of the casino is the sound: …It all percolates and pulsates in a gently propulsive fashion, as if to convey a sense of progress even as it relaxes…

    In her book Addiction By Design: Machine Gambling In Las Vegas, Natasha Dow Schüll, an anthropologist at the Massachusetts Institute of Technology, writes that in the late 1990s the “prescient audio director” at Silicon Gaming decided that every one of the sounds made by its slot machines – a number that now exceeds some 400 discrete noises – would be issued in what she terms “the universally pleasant tone of C’… The sonic strategy is at one with an overall ethos that Schüll terms “smoothing the ride”, a holistic mantra running through the casino experience …”all of it is in the service of maintaining the flow.”

    … “Gambling, as I see it, is an irrational behaviour that is impulsive.” …She arrived during one of the city’s periodic building booms, including a particular surge in what are known as “locals’ casinos” – not the flashy, themed spectacles of the Strip, but more low-key, less mazy centres for “convenience gambling”, as the industry calls it, where residents comprise up to 90% of the haul and machine games such as video poker dominate. She didn’t need academic research to gauge this latter trend. “I was staying with my boyfriend’s grandmother, who lived right across the street from the Gold Coast, a locals’ casino. We noticed that she got up every night at 2am, and she would be gone until about 10am. We figured out that she was going and playing video at the Gold Coast.”

    While Schüll’s research began with casino architecture, it is the rise of these machine games – and their carefully calibrated machine-user interfaces that, she says, enable, if not exactly seek, addictive behaviour – that became her ultimate focus. “I’m not playing to win,” one Vegas resident told her. She was playing, Schüll says, “to keep playing – to stay in that machine zone where nothing else matters”.

    I have intercepted Schüll, on her way to teach a doctoral seminar at Columbia University, to walk me through Resorts World casino in Queens, New York. … I enter the casino driveway, ascend the multistorey car park and a few short steps later am on the floor. This is where “flow” begins. In the words of Bill Friedman, a legendary Las Vegas casino designer interviewed by Schüll, “Driving from the street into the property should be effortless.” … and Like most casinos in Vegas, it is large, its geography blurred (paramedics told Schüll it took them longer to reach victims inside casinos than it took them to get to the casino itself). The space is rather like a city, with gridded blocks of machines occasionally opening into wide, circular “plazas”, in the centre of which are slot machines ringed around columns.

    In these spaces, the ceilings are slightly recessed, mirroring a circular pattern in the rug. “Your mind sort of drops imaginary lines down,” Schüll says, “and you have a sense that you’re being protected. It helps differentiate the space, rather than having it feel like one giant warehouse.”

    Resorts World is, in essence, a locals’ casino. Its slot machines average more than $370 a day in revenue each, more than twice the take of Vegas machines. While there are some vague gestures towards New York City theming (odd, as the casino is already in the city), this is not a haunt for high-rolling “action” gamblers, as the industry calls them – live games are still illegal in New York. This, rather, is a sanctuary for “escape” gamblers, the kind who are more interested, Schüll says, in spending time on a machine than in getting big wins. “Some people want to be bled slowly,” an executive of the so-called “Costco model” of gambling says. And while there’s a Sex And The City slot machine, there are more rolling walkers than Manolos in view among the crowd, which tilts older – and, this being Queens, Asian.

    As we pause before a video poker machine, I see how deeply this “smoothing the ride” idea goes. Slipping in a $20 bill, I press the large “deal” button. But it’s not one hand of poker I’m playing – it’s 10. Some machines go up to 100. “You’ll see screens with these tiny decks,” Schüll says. “It’s parsing what was formerly a volatile risk – you either won or you lost.” And, indeed, in those 10 hands, a winning hand of two pairs shows up. “It’s insurance,” she says of the multiple decks. “Disappointment insurance.” Your overall stake may be slowly sliding away, but there’s always the hint of the win, somewhere. “Positive reinforcement hides loss,” a game designer told Schüll. “As the market is saturated with casinos, you don’t want to burn your market out,” Schüll says. “You want to keep them coming back. And to get most of their money, you need to let them have most of it back for a longer time.”

    “… By the late 1990s, Schüll notes, machine games were generating twice as much revenue as all “live games” combined; by 2003, an estimated 85% of the industry’s revenue came from machines (in the UK, revenues from so-called fixed-odds betting machines now exceed casino revenues). Schüll says that the machines, whose “old lady” image left them untouched by associations with vice, were the perfect vehicle for gambling’s expansion from a Vegas novelty to part of the fabric of everyday life everywhere (decades of experience with video games, and screens in general, didn’t hurt either, she adds).

    The games themselves were undergoing an evolutionary change … most of them targeted around breaking down those moments of inertia – just as decades of Taylorist efficiency had done on the assembly-line floor. The lever was dispensed with … Stools were added, then increasingly ergonomic chairs. Reels could be spun by pressing a button (thus doubling, Schüll says, the average number of games that could be played per hour, from 300 to 600). “Embedded bill acceptors” eliminated the need to fumble for coins, speeding up play another 15% and increasing the amount played by 30%. “Ticket in/ticket out” systems got rid of the need to dispense coins as winnings; as one slot floor manager told Schüll, “People didn’t want to wait to be paid off, because even if it took just three minutes, to them it felt like 20 minutes.” There was a curious paradox at work here: as the games got faster, players stayed on longer …

    The whole point, Schüll says, is “smoothing the ride”, allowing the casino more effectively to manage its risk (by holding out an infinitesimal mathematical hope to the player that they might “strike it big”), while keeping the player engaged by dangling “near misses” that will not, statistically, actually occur as much as our eyes might believe they would. The goal is to entice them to play close to “extinction”, the rather unfortunate industry term for a player who’s gone broke. To further the actuarial vibe, frequent players are assigned a “predicted lifetime value” by the casino modellers, a phrase that reminds us that in the gaming industry, the “product” is the person sitting at the machine.

    We pause in front of a Cleopatra slot machine, a popular “five-reel” multi-line machine designed by industry giant IGT, replete with a panoply of ankhs, asps and other orientalist symbology. There are five reels, which of course are not really reels, and no “legacy lever”. Winning is not merely a matter of lining up a few sets of cherries; rather, as laid out by a tangled diagram resembling the London tube map, there seem to be an infinite array of ways to win – the so-called “Australian model” of machine gambling. It is, strictly, a “penny slot”, meaning the $20 bill I slide into the machine translates into 2,000 credits. Don’t let the name fool you – penny slots generate upwards of 50% of all profits, and no one plays a penny; instead, you bet in chunks of 50 or 100 credits, or “bet max”. This is one of the many subtle behaviour manipulations that are going on here; what’s the harm when you’re betting a penny? (In fact, Schüll says, players end up spending more on the small-denomination machines.) As my money is accepted, a husky female voice intones: “May my luck be upon you.” I press a button, the reels spin. As they come to a stop, a rising crescendo of sound alerts me that I have won – though it takes me a minute to realize where, amid all the permutations. Even before the LED counter has finished ticking off my winnings, I can press “bet max” again to interrupt the process. As a representative of Bally, the gaming company, observed: “A gaming machine is a very fast, money-eating device. The play should take no longer than three and a half seconds per game.”

    Schüll compares it to psychologist Mihaly Csikszentmihalyi’s famous concept of “flow,” that engrossed state in which time seems to vanish. Flow, the theory goes, requires a number of preconditions: a clearly defined goal; quick feedback on whether or not the goal has been attained; and a sense of operational control over the activity. All of this is present here, and what it adds up to, Schüll says, is a greater propensity for gambling addiction. She quotes studies noting that machine gamblers – even those who had previously played other games without problems – became addicted three to four times more quickly than others (one psychologist compares it to crack cocaine) …”

    For this entire Guardian article please see:
    https://www.theguardian.com/society/2013/jun/08/slot-machine-lose-lose-situation

    Acbar | January 12, 2019 at 10:19 am | Reply

    You’ve put your finger on it. A slot machine is intended to be as addictive as tobacco, as drugs, as alcohol. And the cost? “In the gaming industry, the “product” is the person sitting at the machine.” Not just the person, but the moral fiber of the person: his/her ability to resist the emotional pull of what he knows rationally cannot succeed, will devastate him, will harm his family, will degrade him in the eyes of his peers. So, we invite this corrupting influence into the community to save it?

    Reed Fawell 3rd | January 12, 2019 at 10:53 am | Reply

    Acbar – I wonder too how much money is involved in the lobbying effort to get these sorts of “Gambling Casino’s” legalized in the Commonwealth of Virginia. And how all this money going into this lobbying effort is, in its own way, playing on an addiction of Virginia’s political elected elite?

    Dick Hall-Sizemore | January 12, 2019 at 6:55 pm |

    Eight lobbyists have registered for the Bristol operation. Louis Lucas has been trying for years to get a casino in Portsmouth. This year four lobbyists are registered to represent Portsmouth and/or Castle Hill Gaming. I have no idea how much money is involved.

    Steve Haner | January 12, 2019 at 6:56 pm |

    $550K donated to far, per Blue Virginia. $200K to the Speaker’s fund alone. Guess which committee it will go to. My bet- Rules, which the Speaker chairs.

    Reed Fawell 3rd | January 13, 2019 at 11:35 am | Reply

    Dick and Steve – thank you for that valuable information, namely:

    “Eight lobbyists have registered for the Bristol operation … This year four lobbyists are registered to represent Portsmouth and/or Castle Hill Gaming.” And ” $550K donated to far, per Blue Virginia. $200K to the Speaker’s fund alone. Guess which committee it will go to. My bet- Rules, which the Speaker chairs.”

    And, thank you Acbar, for this powerful statement:

    “In the gaming industry, the “product” is the person sitting at the machine.” Not just the person, but the moral fiber of the person: his/her ability to resist the emotional pull of what he knows rationally cannot succeed, will devastate him, will harm his family, will degrade him in the eyes of his peers. So, we invite this corrupting influence into the community to save it?”

    Combine these statements to the central message of the Guardian newspaper article titled “Slot Machines: a lose lose situation.” The message there is that while today’s science and technology can be used to enable and empower people to thrive and achieve their dreams, today’s science and technology, including artificial intelligence, also can be used to exploit the weaknesses and vulnerabilities within people to dis-empower people, destroy their dreams, and the futures of their families.

    A prime example of this awesome and terrifying power of science and technology, including artificial intelligence, is the gaming industry. How it has built into today’s gambling casinos, particularly its gaming machines, the means to attack vulnerable peoples’ greatest weaknesses. How it intentionally designs and builds these machines to drain these vulnerable people of their money and health, destroying their futures, and those who depend on them – wives, kids, elderly parents – and their communities, too.

    Like the Guardian article said:

    “You’ll see screens with these tiny decks,” Schüll says. “It’s parsing what was formerly a volatile risk – you either won or you lost.” And, indeed, in those 10 hands, a winning hand of two pairs shows up. “It’s insurance,” she says of the multiple decks. “Disappointment insurance.” Your overall stake may be slowly sliding away, but there’s always the hint of the win, somewhere. “Positive reinforcement hides loss,” a game designer told Schüll. “As the market is saturated with casinos, you don’t want to burn your market out,” Schüll says. “You want to keep them coming back. And to get most of their money, you need to let them have most of it back for a longer time …”

    The whole point, Schüll says, is “smoothing the ride,” allowing the casino to more effectively manage its risk (by holding out an infinitesimal mathematical hope to the player that they might “strike it big”), while keeping the player engaged by dangling “near misses” that will not, statistically, actually occur as much as our eyes might believe they would. The goal is to entice them to play close to “extinction”, the rather unfortunate industry term for a player who’s gone broke. To further the actuarial vibe, frequent players are assigned a “predicted lifetime value” by the casino modellers, a phrase that reminds us that in the gaming industry, the “product” is the person sitting at the machine.

    … As a representative of Bally, the gaming company, observed: “A gaming machine is a very fast, money-eating device. The play should take no longer than three and a half seconds per game.”

    Schüll compares it to psychologist Mihaly Csikszentmihalyi’s famous concept of “flow,” that engrossed state in which time seems to vanish. Flow, the theory goes, requires a number of preconditions: a clearly defined goal; quick feedback on whether or not the goal has been attained; and a sense of operational control over the activity. All of this is present here, and what it adds up to, Schüll says, is a greater propensity for gambling addiction. She quotes studies noting that machine gamblers – even those who had previously played other games without problems – became addicted three to four times more quickly than others (one psychologist compares it to crack cocaine) …”

    One cannot imagine that Kirk Cox, a man who devoted the first half of his professional life to educating kids, and man’s whose stated mission as Speaker of the Virginia house of delegates is:

    “Kirk works tirelessly to make Virginia the best place to live, work, and raise a family through his leadership on a wide variety of issues important to his constituents. A champion of quality public education, improved veteran services, support for citizens with disabilities, increased economic development opportunities, and job creation, Kirk has successfully advanced many legislative initiatives in recent sessions,”

    One cannot imagine that such a man as Kirk Cox, in his capacity as the second most powerful man in public office in Virginia, would not vigorously oppose the legalization of such gaming machines and casinos in Virginia.

    Nor can one imagine that Kirk Cox would support such a bill because of the $550K said to have been donated so far to Virginia politicians by its industry supporters, including, per Blue Virginia, a $200K donation to the Speaker’s fund alone.

    • Wow! Love your description, Reed, of gambling promoters as “privileged monopolies that feed like vampires on their addicted and foolish fellow citizens.”

  5. Why is this hard? As one of only four states where unlimited campaign contributions to state legislators are allowed. As one of the states with the weakest disclosure requirements as to how those campaign contributions are spent … what would you expect the result to be?

    Virginia also has the second lowest state tax on cigarettes. Talk about supporting companies that “feed like vampires on their addicted and foolish fellow citizens.’ But, of course, Altria is based in the Richmond area so the Richmond elite give Altria a pass.

    If you want to improve Virginia – don’t vote on gaming, cigarette taxes, gun control or marijuana reform this November. Vote on the limitation of money in state politics. That’s the real problem in the Old Dominion.

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