Last month, I penned an OpEd outlining the likely economic impact the pandemic would have on the Lake economy. I noted that economic growth at the Lake was stagnate even before the pandemic. I advocated that for economic growth to return, creative destruction would need to be embraced and bold new projects undertaken. Hence, was my support for the proposed amphitheater project as a bold new idea. I promised in Part Two of my OpEd to outline five bold new projects to stimulate Lake area economic growth and take the Lake to next level and make it a “Worldwide Destination”.
But first some economics. Several respondents queried me about the term “creative destruction” asking for further clarification. Creative destruction is a concept in economics which since the 1950s has become widely accepted by most economists to describe economic innovation and the business cycle. It is credited to Austrian born economist Joseph Schumpeter that described creative destruction as the "process of industrial mutation that continuously revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one". The slide rule gives way to the handheld calculator that gives way to the smart phone, and so on. The term originally was based on Karl Marx’s writings. Marx incorrectly believed the process would mean the end of capitalism; however, there is now overwhelming data supporting the fact that creative destruction is a necessary component for any wealth creation.
In 1917, just before the end of World War One, Forbes published its first listing of the top 100 companies. In 1987, just seventy years later, more than 60 of those top 100 companies had ceased to exist. Today there are only a handful still in existence. How is it the top companies from a century ago failed to survive? The answer is they failed to accept “creative destruction” and continually reinvent themselves. They expected “continuity” where there was none. Free markets are cruel but effective.
A local example: The Osage Village Outlet Mall in Osage Beach is a glaring example of a business in decline. I do not know the vacancy rate; however, by inspection it is substantial. The conventional wisdom is that even before the pandemic “outlet malls” and malls in general were doomed as more and more products are purchased through electronic distribution channels such as Amazon and others. Yet many consumers still want to touch and feel that pair of jeans and perhaps try them on before making their purchase. The fact is some malls across the country are thriving, as they have reinvented themselves from generic shopping locales to “destinations” with the addition of restaurants, bars, spas, theaters, gyms and even ice rinks. Modern shoppers have come to favor “destination shopping” and place a high value on “the experience”. The “mall” concept, outlet and otherwise will survive, just in a morphed form.
Economics out of the way, I will now outline my five bold initiatives to take the Lake economy to next level and make it a “Worldwide Destination”. My initial goal is to briefly introduce the topics. At a later date, I will circle back and provide much greater detail, data and analysis.
#1 – Scheduled Commercial Air Service
The Lake is extremely remote and isolated by tourism standards. Stated differently, it is a difficult place to reach. Although located very near the US Mean Population Center, the Lake area is currently not served by scheduled commercial airline service. Moreover, there is no public transportation available. Therefore, the vast majority of visitors to Lake of the Ozarks arrive by automobile. Tourism experts generally define acceptable driving distance for a “getaway” tourist destination to be 250 miles or less. This puts Lake of the Ozarks out of normal driving distance for nearly the entire US population. Utilizing our theoretical “250 mile ring” around the Lake (which includes the St. Louis and Kansas City Metro areas), there is a population of perhaps 6 million, or less than two percent of the US Population. That is almost nobody, relatively speaking, and presents a great opportunity.
Moreover, a review of merchant sales and credit card data reveals more than half of the Lake’s visitors are from the St. Louis and Kansas City Metro Areas. An additional 40 percent are from one of the state’s other metro areas or one of eight, predominantly rural, neighboring states. Less than 10 percent of the Lake’s visitors are from outside those areas. So while a few come from afar, the vast majority do not make the trip due primarily to the lack of scheduled commercial airline service.
#2 – A World Class Convention Center
There are three main convention centers in Missouri. Kansas City (800,000 total square feet), St. Louis (500,000 total square feet) and Branson (220,000 total square feet). The smallest of the venues in Branson can accommodate major events and as many as 4,000 attendees. The largest Lake area property is Margaritaville Lake Resort (formerly Tan-Tar-A). That fine property includes a total for 670 guest rooms, 30 meeting rooms with just over 100,000 total square feet of meeting space. There are several smaller properties such as The Regalia Hotel & Conference Center with about 30,000 square feet of meeting space and just 99 guest rooms. Other full-service convention properties include The Lodge of Four Seasons, Inn at Grand Glaize, The Lodge at Port Arrowhead, Camden on the Lake and Old Kinderhook. These are all fine properties but only capable of supporting minor events and conferences due to their size. To put it in perspective, these seven properties combined have barely 250,000 total square feet – just slightly more than Branson’s single convention center.
For the Lake to attract major events, a convention center with at least 300,000 square feet (preferably a half a million square feet) would be required.
#3 – A National Sporting Center
Sports are a national pastime. The US Sporting Industry generates 80 billion dollars annually. Amateur youth sports generate 20 billion dollars alone. A major amateur sports complex would attract visitors to the Lake year around. Ballparks National in Mack’s Creek has been attracting baseball/softball players since it opened just a couple months ago, and that is only baseball fields. As a bold example, in 1990 The National Sports Center (NSC) opened in Blaine, Minnesota (a suburb of Minneapolis). With an appropriation from the state of just 15 million dollars, the 600-acre multi-sport complex includes a soccer stadium, over 50 full-sized soccer fields, a golf course, a velodrome, a meeting and convention facility, and an eight-sheet ice rink. The Schwan Super Rink is the largest ice arena in the world. The National Sports Center has hosted numerous National and World Championship events in soccer, hockey, figure skating, short track speedskating, broomball, rugby, ultimate and lacrosse. The facility welcomes over 3.8 million visitors annually. Although funded initially from public sources, subsequently all the public money has been repaid and the facility operates completely independently as a non-profit with no ongoing public subsidy. The economic impact of the NSC to Minneapolis and the State of Minnesota over the past three decades is in the tens of billions. Perhaps the Lake area could start with something slightly less ambitious, but bold is bold. Since 1990, the price level has just about doubled (convenient math for an economist), and the inflation experienced in the construction industry has been higher than average. Therefore, the original 15 million would cost as much as 40 million in today’s dollars. But that is chump change when one considers the long-term return to the Lake area economy.
#4 – Legalized Gaming
The US Casino Gaming Industry represents $261 billion annually and supports more than 1.8 million jobs. The 465 commercial casinos in the US generated nearly $42 billion (2018) and directly employed more than 360,000 people generating $17 billion in wages. The industry also generated almost $10 billion in direct gaming taxes.
Presently, there are 13 riverboat gaming casinos in Missouri. The state industry employs nearly 10,000 people with an annual payroll of $320 million. Industry annual revenue in the state exceeds $1.5 billion and generates nearly a half billion in direct gaming tax revenue.
Using industry models to scale a facility size based on the Lake’s demographics, a single casino/hotel would bring at least $100 million in new net revenue to the Lake economy and generate $25 million in additional tax revenue. The multi-year construction project would be between $150-$200 million. The construction phase would generate as many as 700 direct jobs (mostly local) with an equal number of permanent jobs (almost all local) once operations commence. The majority of the jobs created would be year-round full time with benefits. We also estimate half that many indirect jobs. Such a facility would likely be the Lake’s largest employer.
Of the estimated $25 million in new tax revenue, approximately $5 million would be retained locally. Missouri’s gaming tax is among the highest in the nation; and therefore, the state generates nearly half a billion in revenue. It is the state’s fifth largest revenue source. The 13 Missouri casinos as a group generate more tax revenue for the state than the other 156,000 businesses combined.
It is simply inconceivable that the State’s primary tourist and entertainment destinations are precluded from the gaming industry, yet some of the smallest, most rural destinations are not. It is simply a matter of economic fairness.
Writer’s Note: In the interest of full disclosure, I am a member of and spokesman for Osage River Gaming, an investor group whose primary goal is to bring gaming (i.e. casinos) to the Lake. Last year, working with State Representative Rocky Miller and others, House Joint Resolution 87 (an amendment to the State constitution to include the Osage River to the permissible gaming locations) was making its way through the Missouri Legislature. Passage seemed within reach until the Pandemic hit and all non-essential bills were pulled. HJR 87 died along with many other bills in the legislature. However, a follow-up bill to HJR 87 is currently in the process of development.
#5 – Centralized Economic Development
Ideally, the Lake area political/municipal subdivisions should merge into a single entity. The associated savings such a consolidation would generate could be substantial. The savings should be redirected to economic development efforts previously discussed and others. Understanding the inherently extreme political difficulties of this proposition, it is not likely to occur (although not unprecedented and successful elsewhere). However, at the very least, the economic development functions (planning, zoning, licensing, etc.) should be merged and placed under the leadership of a single leader. Under such a structure, a single entity would streamline the economic development process and eliminate the rivalry and petty bickering that occurs between the local municipalities today. I understand how bold this initiative is; however, under the current structure economic growth will stagnate.
Summary: It is to be assumed there will be some opponents to the initiatives outlined above. Some may even be opposed to economic growth in general. They may say, “Why can’t we just leave the lake as it is?” Remember the first Forbes list? Many of the casualties from that list chose this strategy. Some business owners may fear new competition; Others may fear bigger wakes and rougher water. The list of objections is too long to document here. I have acquaintances who remain opposed to the massive highway improvements that occurred in the Lake area during the last dozen or so years. Another remains opposed to Bagnell Dam itself citing “environmental concerns”.
Hence, my comments are not directed at what is certainly a small but often very vocal group of naysayers. My data, analysis and comments are directed at the vast majority of rational Lake area citizens and taxpayers who understand economic growth is an essential component for new and better jobs, overall prosperity and rising living standards. For the Lake area to grow and prosper, these five bold initiatives (which are by no means a comprehensive list) may require some creative destruction to reinvent the Lake area to become a worldwide destination, but the alternative and current trend of zero or little growth is not nearly as promising.