Economic Impact of Regulation of Gambling

Economic Impact of Gambling

Along with "Wine, Women and Song," gambling was often considered a vice. Indeed, gambling has been a part of human civilization and culture since times immemorial. Gambling has paralleled human evolution. One can easily find instances of gambling in the Bible and other historical references. Gambling can be defined as staking ones material possession for profit. In a broader definition, gambling can also be considered a pact where material profit is the ulterior motive. In modern times, perhaps incorrectly, gambling can be taken to mean any risk. As in "I 'gambled' on him (or her) doing this (or that)." For the purpose of this work, let's consider gambling in the narrow definition. Staking material possessions for profit. There are consequences to gambling. It can take forms of mild amusement. Or it can be a pathological condition. Indeed, gambling can result in injury to physical and emotional self, harm to those surrounding one who is afflicted, breaking up of relationships, and even suicide or homicides. (DeBerry and Bell, 1997) One might consider that pathological gamblers might have an affliction that causes them to be genetically predisposed to being addicted to one "vice" or another. Some of the above are sociological impacts of gambling. This work is concerned with the economic cause and effect conditions associated gambling regulation -- that is the involvement of government affairs into gambling. Sociological ramifications will only be considered in that they actually have direct or indirect consequences on the economy at the local, state and national level. More importantly, they affect people on a personal level. The gist of the essay is that like issues such as abortion, race, euthanasia or the conservative/liberal political and philosophical divide, different groups of people who agree or disagree with the need for gambling revenues can cite personal statements and comprehensively complied statistics that gambling has either been good for (or to) them. There are just as many people who will completely decry gambling.

In 1997, more than $50 billion were spent on legal commercial gambling. This business employed more than 600,000 people. From 1976, where only four states allowed gambling, today 47 states including the District of Columbia offer some form of gambling. The gambling industry is associated with large sums of money, which might be one of the top five revenue sources for certain states. There are different types of gambling: casino gambling, pari-mutuel gambling as in horse racing or off track betting (OTB). In addition, there are several local smaller outfits. The example of the last would be a video poker machine at the back of a convenience store or a bar. Internet gambling is a more recent phenomenon. The gambling industry, recognizing that the word "gambling" has negative connotations, calls itself the gaming industry. They aver that their profit margins are strictly based on people amusing and entertaining themselves. The American Gaming Association, in their website (www.americangaming.org) reports that there are more than 433 land-based, river-based and race track casinos scattered throughout eleven states. The gaming associations claim that they bring huge revenues to the state in the order of several billion dollars. In addition, gaming also provides the states strapped for cash with much needed revenues from state taxes -- from a nationwide low of 6.25 in Nevada to a high of 35 per cent in the state of Illinois. (AmericanGaming.org, 2002) These huge sums of money did not include the numerous smaller casinos whose gross annual revenues were one million dollars or less. The association averred that most of these revenues have beneficial impact. Funds were diverted towards public education and local development. As one might expect, the gaming association is a very powerful lobby that want to introduce legalized gambling into every state. They believe that gaming sites bring in out of town revenues. They increase local businesses. More importantly, they provide a lot of jobs for the local population. Table 1 shows compiled statistics for a few states that have legal gambling. The information provided deals with revenue distribution in the form of jobs and compensation and tax revenues. The purpose of Table 1 is to summarize the Gaming Associations arguments with economic facts. That Gross Revenues are generated from gaming in states. Local employees earn better than a minimum wage. Most of the tax revenues go to support local programs from education, environmental programs, local programs, and tourism to senior citizen services. These services, the gaming association avers, are nothing if not beneficial to the places that the gambling places are set up. As noted economist John Kenneth Galbraith stated: "People are the common denominator of progress." From this standpoint, gambling impacts people positively. Certain segments of the industry, resorts, hotels and casinos provide good pay and benefits. These can then be translated into health care, training and education. Some have argued that the entertainment and amusement that comes from visiting a casino after a hard day's work is beneficial to individuals mired in a stressful modern economy.

Similar statistics were shown by a 1996 Arthur Anderson study. They found that in 1995, the gaming industry grossed $22-25 billion dollars and contributed $2.9 billion in direct taxes. They employed almost 300,000 people ($400,000 additional indirect jobs) and paid $7.3 billion in wages, which easily exceeded the national average. (Rogers, 1998). A commission on behalf of the gaming industry also found that, near gambling establishments, unemployment rate, welfare outlays, and unemployment insurance also declined. In New Jersey, in 1993, 95% of the casino's employees were (besides being paid higher wages for the same skill-sets) were earning pension benefits. This was in comparison to 45% of the private sector workforce, nationally.

Besides Casinos, Pari-Mutuel gaming in 43 states is associated with horse race betting -- on and off the tracks. There are 150 racecourses in the U.S.A. They generate revenues of more than $15 billion, annually. They also employ more nearly 120,000 employees (of which, 36000 work at OTBs).

With horseracing comes a domain-industry associated with breeding and nurturing of horses. This also employs a great number of people. The total revenues from the direct and indirect association with horse racing yield a gross of more than $35 billion. (Unknown, The Economic Impact of the Horse Industry in the United States, 1996)

One of the burgeoning facets of the gaming industry are Native American Casinos (Gorman, 2003). Native Americans were given their own land. These were considered as sovereign nations that were not subject to the laws that governed the rest of the United States. As a result, casinos can operate under specific tax shelters. Thus, gamblers and gamers can access casinos and gaming halls for less money, thereby increasing the popularity of these casinos. The Bureau of Indian Affairs (BIA) reports that 156 tribes are involved in gambling activities. The Indian Gaming Regulatory Act was set up to ensure that the revenues generated from casinos on Native American lands should be used exclusively to promote tribal governmental programs, general welfare of tribal people and their economic development. The largest Indian casino is at Foxwoods in Connecticut. It belongs to the Mashantucket Pequots tribes. It grosses more than $1 billion dollars annually. It was opened in 1991. Besides tax-exempt status, the Indian Casinos have two major selling points. One is that they hire mostly local (non-native) citizens. Less than 10% of casino employees are Native Americans. Also they agree to contribute hefty sums of money to the states with their sovereign nations are affiliated. As proponents and opponents of legalized gambling will aver, this has both positive and negative effects. With Native American casinos operating at full capacity (with respect to viable tribes still in existence) within the Indian lands. A lot of disenfranchised natives are finding reasons to go back to the lands of their ancestors. Facilities like good education privileges and state of the art medical programs hitherto unknown are fast becoming available to the tribesmen. Gorman, in her report avers that this has increased the number of native employed and decreased the percentage (by 14%) those under the poverty line. With the positive, of course, there are several negatives: Crime in the form of auto-thefts, larceny and other forms of violence has increased. So has the number of bankruptcies. Like everything else, these gambling casinos in Indian territories are fast approaching a saturation point. A likely warning is not to "place one bets" that these would be long-term economic solutions. The revenue coming in of course offers a quick fix.

State lotteries are also big businesses. They generate large revenues. But they do not impact employment statistics as the private gaming sector does. One often hears advertisement where unclaimed lottery winnings are turned over to the state educational funds. One of the recent phenomena is Internet gambling. Here any person with a credit card can gamble from the confines of his or her own home. This gambling also works on a tax-free basis. Revenues are not redistributed to the local governments.

Most of the studies that show the economic impact in a positive light, despite being conducted by respected accounting and statistics-oriented companies like Arthur Anderson and Deloitte and Touches, were commissioned by the gaming commission. The results, however representative, would be met by skepticism if not downright hostility. While the positive impacts on the economy are duly noted, indeed, many a problem has found a quick solution in a gaming establishment, a careful perusal of the hidden costs show that maybe the economic impact of gaming in the long run does not meet the expectations from the initial results and estimates -- in fact, some sources claim that the long terms consequences may be downright dismal. One of the problems is depreciation of property values. This is due to perceptions of the local citizenry of the kind of elements that might be attracted to places of gaming.

Ronald Reno has shown through surveys and interviews that the promise of increased tourism positively affecting local businesses has not been brought to fruition. In parts of Minnesota, Iowa (Reno, 1997)

Reports have typically decried the need to have gambling in local areas. They affirm that most of the population would typically not vote for gambling in their areas. That it is the politicians fueled by the gaming lobby that pushes for gaming establishments with the canard that "if we don't do, it our neighbors will." While Table 1 showed the huge sums of money that are become state revenues, the economic costs borne by the individual and the local government that provides remedial services is quite immense. These costs are hidden. For instance, a pathological gambler's pursuits will wreak devastation on those near him. It is estimated that the state and local government spends approximately 13,000 dollars per gambler in services like Gambler's anonymous. The Wisconsin Policy research conservatively estimated that it cost the state of Wisconsin 160 million dollars per year for social programs that catered to those affected by problems related to gambling.

Another point to be noted is that gambling, like the state lotteries are more palatable to the poor and disenfranchised, who hope to get out of their poverty ridden status in one fell swoop. As a result, blacks often fall prey to legalized gambling interests of the state -- whether state-sponsored or commercial. In 1994, more than $350 were spent by the state in advertising their products. The California state lottery, three years previously, was the largest purchaser of advertising in Los Angeles. Interestingly, state lotteries also attracted players by using psychological tactics. The State of Massachusetts entertained to its citizens the notion that if they desisted from playing regularly, they might miss out on the one-day their lucky numbers were called out. A combination of poverty, a proclivity to obtaining "quick money" and the State's involvement makes for potentially dangerous consequences. States also played upon the tendency of the players not to blame the government. (Goodman, 1995)

Crime is one of the major social negatives of gambling; and, the economic consequences are enormous. Gamblers and the gambling environs are more susceptible to violent crime, juvenile crime, drug and alcohol related crime, child abuse and organized crime. In fact even associations as insulated as the Indian Casinos are becoming hotbeds of criminal activities. The conservative opinion writer Rich Lowry writing in the National Review Online edition writes that, to acquire rights to build a casino a tribe must have at least 30 members. (Lowry, 2003) Many criminal organizations like the mafia have set up casinos in the name of tribes which were dwindling numbers, and whose tribesmen did not have the financial resources or capabilities to build casino infrastructure. Thus these casinos will serve as a "launderable" front for organized crime families.

A survey of 400 Gamblers Anonymous members indicated that 57 per cent admitted to stealing to finance their gambling. Collectively they stole $30 million dollars -- average 135,000 per individual. Some crimes included employee theft and credit card fraud. With gamblers, the problem extends to children. People addicted to gambling have been known to abandon their children to roam freely through casinos where the activities are generally restricted to adults. Or the children are seated besides their parents and view the entire process. (Jones, 1998) Each time a gambler involved in a crime, approximately $1,000 of police time is used. The entire legal process, superficially costs the state or the local government $10,000. (NORC, 1999)

Tables 2 and 3 show the direct and indirect (respectively) economic costs from gambling. The indirect economic costs come from social factors. The source for these tables is the National Opinion Research Center based at the University of Chicago, the Lewin Group and Gemini Research. Table 2 shows the economic problems associated with gambling ranging from unemployment benefits, to welfare, household incomes and the status of their solvency. The people polled ranged from those who did not gamble at all to those who were pathological gamblers. This "misery index" is clearly exacerbated in the case of the pathological is high for all the cases considered. Table 3 shows the result of one years and a lifetime's cause and effect relationship from non-gamblers to pathological gamblers. (NORC, 1999) The cases considered were poor emotional and physical health, the effect on loved ones and dependents, and criminal behavior. Once again pathological gamblers had a higher propensity towards all the negatives.