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Cannibalizing casinos an example of how not to grow jobs and revenue

Online gaming in Pennsylvania, currently under consideration in Harrisburg, will cannibalize traditional gaming.

Most of us have seen economic cannibals in action at local shopping malls and cities, where new Starbucks and Gap stores are built too quickly and too close together to their existing stores. Thus, the new stores don't gain sales from new customers but instead shift sales from the old store to the new one. The inevitable fix to cannibalization is, generally, to close underperforming stores.

Online gaming in Pennsylvania, currently under consideration in Harrisburg, may cannibalize traditional gaming. Extensive brick-and-mortar cannibalization already happened in New Jersey years back and recent reports suggest land-based casino floors saw a decrease in take in April, 2017 compared with April, 2016.  Some data suggest that visit-trips to Atlantic City itself are declining.  Today, take a short trip down the Atlantic City Expressway to see what happens when a new wealth of brick-and-mortar casinos appear within a two-hours' drive.  The resort is suffering and the landscape is riddled with abandoned buildings and sunk costs that will likely never be recovered.

Many newer brick-and-mortar casino resorts have relied on mixed complementary product offerings to help grow their revenues beyond gambling. The Sands in Bethlehem features top-flight entertainment and music performances as does Valley Forge Casino. Valley Forge also helps grow revenues in the community given its close proximity to the King of Prussia Mall and the newly constructed King of Prussia Town Center. Gamblers visit the casino as the primary destination, but then support jobs and business in the surrounding, complementary areas. Investing in public-transit projects has the potential to even further boost revenues (while lowering carbon emissions and congestion) in these local areas, as has been proposed in King of Prussia.

Pennsylvania is now considering a tax on online fantasy sports, with its different target market, but that has no real effect on revenues at the brick-and-mortar casino locations because fantasy sports has offerings that are uniquely different, popular, and will help boost state coffers. Taking advantage of this revenue stream makes sense. Computer tablet gaming and standard online gambling, however, are indeed redundant offerings that will likely shift revenues from one gambling location to another and will not focus much on growing revenues or attracting new gamers to Pennsylvania businesses.

While online gaming development certainly creates jobs, as the industry argues, those jobs may not necessarily be localized to Pennsylvania. Additionally, online jobs provide little benefit to local economies. With the ubiquity and affordability of devices to access online gaming, gamers find themselves with the ability to engage in risky behaviors with ever greater ease. This leads to the state becoming far too dependent on potentially regressive and dangerous behaviors as revenue generators.

What has received considerably less attention in this current debate is that the answer to more revenue is not really about potentially addictive behaviors or going to the same revenue well time after time. That well will run dry sooner rather than later. The answer to more revenue is to focus on more personal income and investment growth.

Pennsylvania needs help in terms of creating jobs within the state. While recent gains in the energy industry have been helpful, it is not enough to sustain our state economy. The commonwealth needs to learn from Philadelphia's mistakes. Taxing regressive behaviors or "sins" doesn't work to fund new projects. The city's "soda tax," which the city projects will bring in little more than half the revenue anticipated, is Exhibit A.

What does work, time and time again, is investment in capital, people, and infrastructure that make the prospect of starting and growing a business attractive. High-income tax rates and a myriad of bureaucratic regulations do not grow jobs. It hinders them. The commonwealth needs to keep its eyes on growth in the long term and not the pie-in-the-sky-band aid measures it keeps relying on year after year.

Let's stop with the mistaken allure of casino revenue and get to work on development measures that really help Pennsylvania citizens gain lasting employment and long-term returns on capital investments.

Jeffrey S. Podoshen is an associate professor of marketing at Franklin and Marshall College.