A Losing Bet

Prior to 1978 when New Jersey sent Atlantic City in as an East Coast haven for casino gambling, there were none in the U.S. outside of Nevada.  Today 20 states have commercial casinos totaling about 450 facilities, and attaining revenue of $34.11 billion in 2006 according to the American Gaming Association trade group. Besides even this huge social change, 30 states allow gaming of some sort by Native American tribes. Only two remaining states, Hawaii and Utah have no legalized gambling. 

How did this happen so quickly? Politicians found a “winning hand” politically. They could create new jobs and generate oodles of new revenue all without a dreaded tax or fee increase on their constituents. Gambling is marketed as a voluntary activity (at least for those who don’t develop an addiction) and many of the dollars are contributed by tourists who don’t even live or work in their jurisdictions. States can then use revenues to shore up their otherwise flagging budgets by funding public education, infrastructure, aid to localities, etc.. Some states like North and South Carolina cloyingly even call their state-run sweepstakes the “Education Lottery” to telegraph the idea that players are contributing to children’s K-12 education (or not, if they refuse to purchase tickets!).

According to a study by the Rockefeller Institute in 2007 Nevada was still the state with the most dependence on legalized gambling, accounting for nearly 14% of non-federal revenue. But any state allowing private or Indian casino operators within their boundaries collect anywhere from 20 to 50 percent of the proceeds according to a 2010 article in the Christian Science Monitor. [1]

The moral case against gambling has probably been in existence since the first lost bet. Many religious and ethical traditions point to the danger, non-productive activity, illicitness, and unwholesome associations gambling can engender. From a public policy standpoint, as opposed to personal opposition, gambling doesn’t create wealth but simply transfers it. The government should act as a guardian of the public good, especially since so many gamblers are from a low socio-economic status with the most to lose if betting becomes a regular or problem activity. Those with household incomes below $10,000 bet nearly three times on lotteries as do those with incomes below $50,000 (Deseret News). Additionally problem gamblers are much more likely to get divorced or attempt suicide.

Perhaps the greatest sign that a gambler’s mentality has taken hold of American society, with the explosive growth of casinos and other forms of legalized gambling, may be the risky and speculative investing that occurred in the run-up to the financial crisis of the last several years. It also may be more than a passing coincidence that Nevada residents had the highest rate of home foreclosures after the housing market bubble burst. Did citizens who were more likely to be exposed to the gambling industry than any other state take too many “bets” that their home prices would keep rising indefinitely? 

What about increased crime as a concomitant effect of adding a casino to a community? A study by Earl L. Grinols and David B. Mustard in The Review of Economics and Statistics in 2006 suggests that the factors that tend to raise crime, such as problem or pathological gambling leading to illegal activity, are felt over a later and longer period as the casinos develop and establish a customer base. Their examination of counties with casinos projected that about 8% of crime in those localities was directly attributable to the casinos themselves.

The $34 billion dollars in revenue amassed by the casino industry is not well distributed. According to Hoovers the top fifty players in the industry control 60% of the total market. The top 50 casino operators that establish hotels as part of their facilities control 90% of the complete market. The major firms like MGM can use their profits to bludgeon opponents. A recent MGM victory in a public referendum about building a casino in Springfield, MA was aided by a campaign in which roughly a million dollars was allocated by the company, as opposed to probably no more than a couple thousand dollars spent by the local grass-roots opposition group. [2] Not surprisingly, the huge disparity in advertising led to a referendum victory in a cash-strapped city. 

The profitability of the industry also means that lobbying and influence over politicians can seem inevitable. In Florida as far back as the 1990s, the then Speaker of the Florida Legislature Bo Johnson went to federal prison for tax evasion. Johnson’s largest single source of unreported income was a six-figure illegal donation from Bally’s Inc. The Sunshine State had another high office holder, Attorney General Jennifer Carroll, resign in March after being questioned by the Feds for connections with an illegal gambling operation. Meanwhile in Pennsylvania in 2011, a grand jury investigated the Gaming Control Board after numerous allegations of rampant corruption. The grand jury could not recommend criminal charges since the Commonwealth’s politicians who created the board did not attach criminal offenses to violating the Gambling Act. 

Another concern about casinos involves the bringing in of large companies that can devour locally established businesses, and can control entertainment options. Politicians tend to favor this process, however, for the very reason that the outside companies are big, bringing in big tax revenue (unless they’ve cut taxes as a further enticement), providing a big numbers of jobs (even if poorly skilled and poorly paid), and allowing for big projections of visitors who will spend money, but may be too unfamiliar with the area to venture out past the casino resorts and utilize local lodging, dining, and entertainment options. All of these actions work against “Main Street” while pandering to “Wall Street”. 

Lamenting continuous attempts by gambling interests to expand gaming options in his home county in West Virginia through a referendum, Mark T. Mitchell summed it up in Front Porch RepublicDemocracy is replaced by cronyism. Corporatism triumphs over small business.  Local self-government is constrained by laws intended to favor a few. The voices of the people are muted by the special interests who have found a way to rig the system and, as a result, hit the jackpot.” [3]
There are signs that all is not well in Casino-land though. Earlier this month the Mississippi Gaming Commission (MGC) reported that revenues from the state’s 30 casinos were projected to drop to a 15-year low. The MGC’s executive director Allen Godfrey lamented that “(p)eople are more cautious with their money now….” Worse still might be the situation in Connecticut. There the state’s two Native American casinos combined for a nearly 14% decline in revenues from the previous fiscal year. That revenue of $296.3 million is a problem considering that the state passed a budget with anticipated receipts of $335-$345 million. Undoubtedly Connecticut will now have to trim already strapped state services based on starry-eyed projections of a cash-cow.
Just this week a USA Today headline asked “Does the country have too many casinos?” with the report suggesting that many areas have achieved a saturation point with state aid packages, tax relief, and other emergency measures to prop up the golden goose the politicians have become dependent on. The Rockefeller study also questioned the growing reliance on gambling revenue since, even before market saturation, the growth of gambling revenues generally did not match the growth in expense of the programs and initiatives that were being funded. The Deseret News wrote in September that only two of the thirteen states that have joined the casino crowd in the past decade have met the revenue they projected from expanded gambling. [4]
The promise of expanded gambling as an economic cure-all is a false one. The moral hazards of making gambling more ubiquitous, the generally poor pay and benefits offered by casino syndicates characteristic of a service industry, and the corresponding loss of social capital held by local concerns who lose out when money is redistributed to large companies without roots or local knowledge in the community, all make acquiescence to the seductiveness of gambling a losing bet.

Kirk G. Morrison

Kirk is the National Committee Chairman of the American Solidarity Party.

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