TD Fall Investing GuideTD Fall Investing Guide
Sat, 06 Apr 2013 14:15:00 GMT | By Deirdre McMurdy, MSN Money

The argument against a Toronto casino

The economics of a Toronto casino don’t make a compelling case.


Deirdre McMurdy

As a general rule, it’s considered good practice to review all sides of an issues — especially the tricky ones — before forming a point of view.

When it comes to the current proposal to locate a new mega-casino complex in downtown Toronto, it’s really hard to contemplate anything other than a flat out rejection of the idea.

Even if you set aside the considerable moral and social baggage attached to gambling and addiction, it’s hard to buy the economic merits of the whole pitch. And that’s because there are so many loose ends and so many unanswered — or inadequately answered — questions.

As far back as 2006, a study done by the Federal Reserve Bank of Boston found: “in most cases, large casinos in highly populated areas … have little secondary economic impact.”

Since then, urban casinos have hardly been booming over the 20 years since Ontario’s first casino opened in Windsor.

The Ontario Lotto and Gaming Corporation (OLG) earned about $1.9 billion for Ontario last year. In the past four years, total revenues have grown at an annual average of 2.1 per cent and revenues from casinos have actually dropped 4.2 per cent over that same period. OLG operating costs are up about 11 per cent in the same period.

On the other side of the ledger, it’s estimated that the OLG needs to spend at least $1 billion to freshen several of its shabbier venues — even though the real growth in the gambling business is online and casinos across the U.S. are shutting down. (OLG has plans to roll out an online gambling site this fall.)

Advocates of a Toronto casino argue it will create up to 12,000 full-time jobs (paying $50,ooo a year) as well as shorter-term construction jobs. They also claim that theatres, hotels and restaurants will benefit from the arrival of new tourists to the city, creating an important spin-off benefit.

With respect to municipal benefits, Toronto’s hopes for a special deal that would award the city a premium fee for “hosting” a casino were recently quashed by the province. Premier Kathleen Wynne has declared the same hosting fees must be paid to all municipalities with casinos, a line that will further trim OLG’s revenues if the Toronto casino proceeds.

Then there’s the fact that when accounting firm Ernst & Young analyzed the casino proposal on behalf of the city of Toronto last year, it cautiously noted that its report is based on unaudited financial data and information and any benefits were subject to a wide range of variables — most of which were beyond the control of Toronto.

Probably the single most damning review of the Toronto casino project comes from the Martin Prosperity Institute. It methodically examined — and disputed — the alleged benefits from a city casino.

For example, when it comes to job creation, the Institute notes that casinos rely heavily on slot machines (which require few employees) and typically hire part-time workers who earn about $25,000 annually. Furthermore, if the new Toronto casino pushes out already established gambling in the region, net jobs are lost, not gained.

As for hospitality sector jobs, the fact that casinos are typically self-contained and rely on the economics of capturing and holding people on-site doesn’t bode well for any spinoff benefits.

Many in Toronto — especially Mayor Rob Ford — have been eager to tap into casino-generated fees which, they argue, will be used to pay for all manner of municipal upgrades. The Institute argues, however, that it’s unsound strategy because it ties financing for a major long-term project to a variable revenue source.

But there’s also the issue of perception to consider. Toronto is now the fourth largest North American city and it takes great pride in its status as a multicultural, world-class metropolis and financial centre. But cities of such stature don’t have urban casinos. They all have their financial challenges, but they don't rely on gambling as an economic development strategy.

Over the past decades, Toronto has grown up. It shouldn’t still be wrestling with what it wants to be. Or the spurious economic arguments of casino-boosters.

Scroll upScroll down

Recently recommended stories