Northwest Indiana's casinos spent their first decade consistently growing their gaming operations as they became a billion-dollar industry along the south shore of Lake Michigan.
Gaming revenue at Northwest Indiana casinos peaked in 2007 — the mid-point of their 20-year history in the Region — with gaming revenue of nearly $1.3 billion. The casinos have spent their second decade trying to arrest a downward trend brought about by recession, increased competition and changing entertainment tastes.
And the decline has flattened out recently. Fiscal year 2017, which ended June 30, recorded a decline of 3 percent from fiscal 2016, to about $938.5 million. The previous year's decline was less than 1 percent.
The first three quarters of 2017 were similar, with a year-over-year decline of just over 1 percent. Four of the first nine months showed increases.
The 28 percent drop in the casinos' win — the money gambled at their slot machines and table games that they keep — has been matched by a 27 percent decline in employment over the last 20 years, according to fiscal year reports published by the Indiana Gaming Commission. The Region's casinos — which also include hotels, restaurants, entertainment and convention venues — employed 6,950 in the 2007 report, 5,043 in the 2017 edition.
The downturn came with the economic recession. Ups and downs in the general economy can have a significant impact on gaming, something industry analyst Ed Feigenbaum calls "perhaps the most discretionary of all acivities."
Feigenbaum, publisher of the Indiana Gaming Insight newsletter, said he sees warning signs in the economy.
"I think that in general things are looking up," he said of casinos' recent performance, "but this may also be the calm before the storm."
The generalized decline in gaming has been attributed to structural causes as well: competition from new casinos and new entertainment options, including online and phone-based gaming; the changing recreational tastes of younger people and competition from electronic gambling devices at liquor-licensed establishments in Illinois.
The casino response
Casinos combat these trends in a variety of ways. They add new amenities, particularly food offerings like The Eatery at Horseshoe in Hammond, and the Stadium sports bar at Ameristar in East Chicago. Electronic games, still commonly known as slot machines are upgraded, and new rooms are added for higher-money table games or ones increasing in popularity, like baccarat.
Statistics casinos provide to the Indiana Gaming Commission consistently show the amount of money gambled per casino patron has been rising, indicating some of the customers casinos have lost were the lower-level players in terms of money. Many of those, it's assumed, have shifted to the Illinois restaurants, bars and other businesses with slot machines.
Casinos in other parts of the country are also experimenting with games that allow more interaction among players, and that rely to some extent on skill, to attract younger players.
"You're going to see more interactive, participatory-type of games," Fiegenbaum predicted.
The legislative response
State government made an effort in the 2017 General Assembly to aid casinos.
Beginning July 1, 2018, the current $3-per-patron admission tax will be replaced with more wagering tax. Instead of the flat admissions tax, casinos will pay a rate equal to the ratio of their admissions to wagering revenue, with a maximum rate of 4 percent for the tax's first year, then 3.5 percent after that.
By linking the tax to wagering, the change will immediately mean lower taxes for some casinos, particularly Blue Chip in Michigan City, where the admissions tax has equated to more than the pending caps.
The new law also granted casinos a longtime wish regarding state income taxes — a phasing out of what they call the "add back." For federal tax purposes, casinos have always been able to reduce their income by the amount they pay in wagering and admissions taxes, but the state has always required them to add that amount back into their income for state tax purposes.
The state agreed that amounted to double-taxation, and the add-back will be phased out over eight years.
All of this has been happening as the Pokagon Band of Potawatomi Indians approaches completion of its new Four Winds South Bend casino. The casino will feature 1,800 slot machines, four restaurants, three bars and other amenities. Its opening is planned for early 2018.
"That will have a very definite impact on Blue Chip Casino in Michigan City," Feigenbaum said, "and a somewhat lesser, but tangible, effect on Horseshoe, Ameristar and Majestic Star."
During a second-quarter conference call with investors in July, the Blue Chip-parent Boyd Gaming President and CEO Keith Smith said the company is preparing for the new competition, touting Blue Chips rising earnings in recent quarters.
"South Bend is a market for us and we'll be prepared to fight it out and see what happens," Smith said. "We don't have any predictions as to what's going to happen, but we're certainly aware of it, certainly paying attention to it, certainly preparing for it."