Urban Location and the Success of Casinos in Five States: A Data Envelopment Analysis Approach

Coping with mounting budget shortfalls over the last three decades or so, many states in the US have legalized casino gambling/gaming in an effort to boost tax revenues. Four mid-western (Illinois, Indiana, Iowa, and Missouri) and two southern (Louisiana and Mississippi) states adopted legalized gaming in the form of riverboat casinos due to legal restrictions originally against land-based casinos. Following changes in state laws, land-based casinos and racinos (a combination of a casino and a race track) have since appeared in these states, although riverboat casinos still compose the majority of the establishments in most of these states. Although the scholarly literature is replete with articles on whether casinos make a difference in state tax revenues or cause an increase in crime, bankruptcies or other negative externalities, few if any have been written about the efficiency and effectiveness of casino operations and what external factors (location, size of market, etc.) are important to casino success. With so many states relying on casino revenues and others recently enacting or trying to permit casino gaming, it would be desirable to know those factors which influence casino success. This paper finds that urban location, urban size, income, and climate variables appear to influence casino efficiency and effectiveness. Tax dollars often hinge on the type of casino permitted and related location decisions. Hence, such decisions have public policy implications, and this article is perhaps the first to pinpoint factors that determine casino success.