Do Riverboat Casinos Act as Competitors? A Look at the St. Louis Market

Abstract

Using monthly data covering 1991 to 2003 for the five casinos located in the St. Louis, Missouri, metropolitan area, the authors examine how the return to gaming, as measured by the payout rate on electronic gaming devices, changes as new firms enter the market. The clear timing of the new entrants into the market and the availability of monthly data allow the authors to examine how competition has affected the payout rates. They find that new entrants into the market have clearly reduced the hold rate (increased the payout rate) on electronic gaming devices and increased the return to gamblers. Given that the tax revenue from riverboat gambling is based on adjusted gross revenue (total revenue less payout), the decrease in hold rates and, therefore, adjusted gross revenue has significant policy implications for local governments, the majority of which rely on a single casino for their local tax revenue.