Later On

A blog written for those whose interests more or less match mine.

The downside of casino gambling

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The NY Times Magazine has an excellent article on the downside of casino gambling—and it’s a big downside. From the article:

… If a state wants to get involved in a business, why does it have to pick a vice like gambling? Why can’t it run, say, a chain of ice-cream parlors? The answer is that collecting huge fees or taxes requires huge profits. Huge profits require monopolies (or oligopolies). Yet no mainstream politician today defends monopoly on economic grounds. Someone who proposed shuttering every Ben & Jerry’s in Massachusetts in order to make way for a state ice-cream scheme would be dismissed as unhinged. The only grounds for setting up a gambling monopoly are moral ones. Patrick’s vision of billions in betting revenues relies on the folk wisdom that gambling is too dangerous and corrupting to be left to the free market.

Measures to spread gambling generally involve dressing up regulation as deregulation. A referendum on the ballot in Maryland this fall, championed by Martin O’Malley, the Democratic governor, will ask voters to amend the state Constitution to permit 15,000 slot machines. But, in fact, thanks to a loophole in the “charitable gambling” laws meant to facilitate raffles and bingo, there already are thousands of gambling machines in barrooms across Maryland. Oddly, the state senate is moving ahead on a bill to ban these machines — even as the state prepares the referendum to “legalize” gambling.

Casinos are marketed to voters the same way they are marketed to patrons — by accentuating moments of exhilaration and playing down the way the business is designed to take in more money than it pays out. The image of the gambler that casinos want to convey is of someone wild, free, savvy, like a rogue in a cologne ad or a John Ford movie. He knows when to hold ’em, knows when to fold ’em. This image is meant not only to flatter the gambler but also to legitimize the casino. Mister Free Spirit wouldn’t play a rigged game.

There is a catch, though.

The most important segment of gamblers is not free. And those gamblers are important because they are not free. Compulsive and problem gamblers make up only 2.4 percent of gamblers, according to the National Gambling Impact Study Commission, but they account for a third of receipts, or more. A 1995 Minnesota study found that 1 percent of patrons made half the wagers. Where you have saturation gambling, as in Las Vegas, about two-thirds of residents at least try it — and 2.4 percent of that two-thirds is a ton of problem gamblers. It translates into rises in suicide, embezzlement and bankruptcy that have real social costs.

Nonpathological gambling has its costs, too. Introduce casinos in Massachusetts, and you will indeed recapture some of the hundreds of millions of dollars that Bay Staters drop in the resorts of Connecticut. But you will also capture a lot of money that people would have spent in local restaurants and movie theaters. The infrastructure required for gambling — from road building to hiring new police — is costly as well. Once you make those adjustments, the economic upside of gambling evaporates. The economist Earl Grinols estimates the ratio of gambling costs to gambling benefits at higher than three to one. Voters sense this. The rule of thumb, according to Grinols, is that pro-gambling interests lose referendum battles whenever they do not outspend their opponents by at least 75 to 1.

Gambling appears a less glamorous habit when the country is digging its way out of mortgage and credit-card debt. In mid-March, the Colorado Division of Gaming announced that revenues at local gambling resorts were down 10 percent. The next day, Moody’s Investors Service reported that casino revenues in January dropped 17 percent in Illinois, 10 percent in Atlantic City and 8 percent in Indiana. Maybe Massachusetts knows something these places don’t. But you don’t have to live in the Athens of America to see that our economy is one in which those who know when to fold ’em are foldin’ ’em.

Written by LeisureGuy

14 April 2008 at 9:34 am

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