Global Economic Issues
Spring 2010
J Shogren


Lecture 11.  Global Economics & You, Part III: Gaming and Casino Economics


The question:

Gaming:   Real Economic Growth or Just Wealth Transfers?


Are casinos profitable?  Yes.  For example, the Empress riverboat in Joliet, Ill. paid out $87 million in dividends to nine key shareholders in its first 18 months. 

Do they generate taxes?  Yes.   For example, Illinois casinos produced a total of $285 million in state and local tax revenue in 1995, according to the state Gaming Board's annual report.   

Do Casinos create Economic Growth?   No, not at a national or global level. 

Gambling transfers dollars from one pocket to another without creating a tangible product.  

Key difference--gambling as recreation vs. gambling as a way to "acquire money"

 


Overview

Commercial casino gaming has come a long way since the first casino opened its doors in Nevada in 1931.

Today, there are more than 500+ commercial casinos operating in 11 states.

 

The industry generates an additional 500,000 indirect jobs. It contributed over $3 billion in gaming tax revenues to the states and cities where casinos operated, and increasing.

This tax contribution is even greater when property taxes, corporate income taxes, local use taxes and payroll taxes paid by individual casino employees are taken into account.

 

About 300+ Native American casinos in 27 states, employing more than 150,000 people.

In 1988, Congress passed the Indian Gaming Regulatory Act, which recognized "the right of Indian tribes in the United States to establish gambling and gaming facilities on their reservations as long as the states in which they are located have some form of legalized gambling".


Financial Impact

Employees earned more than $9.8 billion in wages in 1999.

In 1999, 30 percent of U.S. households gambled at a casino, making an average of 5.4 trips to a casino during the year.

Households in the West accounted for 29 percent of casino visits in 1999, followed by households in the North Central region with 27 percent.

The South accounted for 24 percent of household visits, and the Northeast accounted for 20 percent.

In the three largest markets alone—Las Vegas, Atlantic City and the numerous communities in Mississippi where casinos operate—visitor figures topped 107 million in 1999.


GAMING REVENUE: CURRENT YEAR DATA

YEAR         TOTAL COMMERCIAL CASINO         TOTAL GAMING
1999               $22.2                                                   $58.2
2000               $24.3                                                   $61.4
2001               $25.7                                                   $63.3
2002               $26.5                                                   $68.6
2003               $27.02                                                 $72.9
2004               $28.93                                                 $78.8
2005               $30.29                                                 $84.4
2006               $32.42                                                 $90.9
2007               $34.13                                                 $92.3
2008               $32.54                                                   N/A

 

               

In comparison, the world's largest business--Exxon Mobil--generates about $310 billion in total revenue (2009)



But whether casinos are good for local and state economies is another matter. The rub: The money has to come from somewhere. Of course it comes from the customers, who lose at the slot machines and craps tables, but where are the customers from?

·       If most gamblers are tourists, the local economy can be a net winner. New dollars are brought into the region by outsiders who visit and lose.

·       If most gamblers are local, the region itself stands to lose. People in the region literally have less money than they did before - less to spend or invest at other places; less in their bank accounts and lines of credit.


Areas that win

·        Overseas countries understand casino economics. Monaco and South Korea use casinos strictly as tourist traps: their own citizens are forbidden to gamble in them.

·        Nevada and Mississippi are recognized as net economic winners. Each is a low-population state that draws most of its gamblers from out of state - an estimated 80%-90% in Nevada and about 2/3 in Mississippi, according to widely-cited figures.

·        Pennsylvania is not a low-population state. With 12 million people, they offer a big home market.  The luck would probably be more like that of Illinois, another state of 12 million.


Areas that lose

·       Illinois has 10 riverboat casino licenses (some with more than one boat), mostly in mid-sized cities like Aurora, Joliet and Peoria

                "We have unintentionally created a strip mine through the heart of Illinois"--Illinois resident

·        One year after the boats opened in one town, only 3 of 25 merchants surveyed in downtown Aurora said they had profited from casino traffic - one was a fast-food outlet. 

                Others complained of sales drops and staff cuts.

·        Businesses blame the casinos, and most new ones were "struggling because gamblers rarely leave the roulette wheels."

 The casinos' own figures showed 70% of the gamblers were from nearby and just 1% to 2% were from out of state.

·        The Illinois Economic and Fiscal Commission looked at the data onhotel bookings and sales tax receipts in the state's casino areas, searching for evidence of spinoff benefits.

"When we tried to look at secondary impact on the economies, it was not there," Commission director William Hall said. "Our study is consistent with the notion that economic development can't be demonstrated."

·        As for jobs, 14 Illinois boats had a total of nearly 15000 licensed employees in 1995.  

        But they don't seem to have created much net job growth.

1.  Most Illinois gamblers were local, with 61% from within 35 miles of the casinos. Altogether, 83% are from in-state - the reverse of the in-state/out-of-state ratio that has fueled an economic boom in Nevada

2.  In terms of dollar flow, Illinois casinos produce net economic losses both for local areas and the state as a whole. Total local losses per year: $239 million - even counting tax revenues as gains. Even allowing for the "recapture" of money that would have flowed to casinos in nearby states, had the Illinois casinos not been there

3.  Comparing money put into local economies by casinos to money taken out by them.

4.  Money put in: the local share of gaming taxes, local wages and benefits paid to casino employees, local purchases by the casino, any casino profits retained locally, and money spent by out-of-town casino patrons at other local businesses

5.  Money taken out consisted of just one flow: dollars lost in the casino by local people.


Where did the lost money go? 

     Where it always goes--Into out-of-town casino purchases, taxes and other overhead - and into profits for out-of-town casino owners.

·   In Peoria, the Par-A-Dice riverboat casino produced a net loss of $28.5 million out of local circulation.

·   In New Orleans, four riverboats put about $133.7 million into the local economy and took out $250.4 million, for a net loss of "$116.7 million shifted from other spending.

·    Tunica County, Mississippi--cited as an economic success story for casinos. This small rural area, for years so poor it was called "America's Ethiopia," is now a center for tourist-based casino gambling. The Atlantic Monthly visited Tunica County, reporting in January 1996:

"Although with eight casinos the county of 8,300 people now has more jobs than residents, most of those jobs, particularly the better-paying ones, have gone to people from outside the county. And whereas boosters claim that the casinos have dramatically reduced unemployment, in fact the average unemployment rate for October of 1994 through September of 1995 was 14.5 percent - only slightly lower than the average rate of 15.1 percent for 1991, the year before the first casino opened."

Poorly educated people in Tunica County often "lack the math skills not only to be dealers but, according to the casinos, even to make change," while others lack the social skills needed to work in food service.

Existing businesses and households are net losers

Conclusion: If we want to get our most disadvantaged citizens involved in the state's economy, underlying structural factors need to be addressed.

Simply opening casinos won't solve the problem.

Unlike investments in Education, Gaming is primarily a "transfer of wealth" not the "creation of wealth"


Other caveats on casinos and jobs:

Many casino areas claim unemployment has gone down in recent years, but hard to separate from the overall US economy.

Many casino jobs are argued to be "not the kinds of jobs we need."    

Many are in food service, hospitality and custodial work - job categories that have a shortage of good applicants, not a shortage of openings.

For most places, the notion that casinos will bring legions of curious visitors who stay overnight, shop at the stores and visit other local sites is not true.


Three main problems:

1) Most places overestimate the amount of tourism they eventually get.

2) Casinos draw people away from other local attractions.  

Restaurants within a 40-mile radius of casinos offering food service have been hit the hardest. 

Their sales have dropped anywhere from 20 to 50 percent.

3) Casino regulars tend not to visit other establishments. They are usually "focused gamblers" rather than "cultural shoppers."


 Georgia’s Hope Scholarship

The Hope Scholarship (Helping Outstanding Pupils Educationally) is an educational programs funded by the Georgia state lottery (more than $5 billion to date) .

UPSIDE

The HOPE Scholarship provides former Georgia high school students (which attend any Georgia public college, university, or technical school) with tuition, mandatory fees, and a book allowance. 

The main requirements for first-year college students are being a resident of Georgia, and maintaining at least a “B” average in core-curriculum classes.  

The scholarships are renewable annually as long as students “maintain a 3.0 cumulative grade point average for all coursework attempted (not just coursework completed)” and make “satisfactory academic progress”. 

Second chance opportunities are available for those who fall below a 3.0 cumulative grade average and are able to increase their overall GPA above 3.0 at the end of the following year.

DOWNSIDE

Some teachers feel “immense amount of pressure” to give grades which certain students may not have earned. 

BUT if that was true then GPAs would be increasing due to grade inflation whereas SAT scores would not. 

Data suggest that for each quartile of students, SAT scores have been rising.