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Why Opening a Casino Is a Terrible Idea

• July 04, 2014 • 8:00 AM

(Photo: sophistechate/Flickr)

A number of smaller towns are opening up casinos in the hopes of emulating the success of Las Vegas and Atlantic City. As far as economic development goes, this is the worst idea.

The gambling industry knows what the people want. Last year Americans gambled away $119 billion, most of it at casinos. We were far ahead of the second place contender (China lost $76 billion) and it’s a staggeringly huge increase from $10.4 billion in 1982, when legalized gambling was almost entirely concentrated in Atlantic City, New Jersey, and Nevada.

The reason Americans lose such scary amounts of scratch every year—compared to $10.9 billion spent on movie tickets in 2013—is that the gambling industry knows what policymakers want, too. Tax increases of any kind are political poison, which leaves state governments scrambling for revenue. (The casino industry paid $8.6 billion in local and state taxes in 2013.) Meanwhile the industry promises distressed urban communities “Las Vegas-style casinos,” and an accompanying boomlet of economic development and jobs.

“This is the catalyst for Everett to get past the industrial age,” said Carlo DeMaria, the mayor of the working class Massachusetts municipality just north of Boston. “For years I’ve heard that taxes are too high and there’s no jobs for our children in Everett. Here’s your opportunity to change that.” Farther to the west in Springfield, another of the state’s struggling cities, a gambling executive extolled the “value of a casino resort as a unique economic development catalyst. We are confident that our urban revitalization project in Springfield … is a comeback story in progress with hard-working people eager to grow jobs and get back to work.”

Las Vegas and Atlantic City were unique because they dominated a market defined by scarcity. Their customers were mostly out-of-towners who would not have otherwise spent money in the region.

It is true that both Las Vegas and Atlantic City were able to do a lot with their effective monopolies on legal gaming, although not without social costs. The Indian Gaming Regulatory Act of 1988 also did some good in a unique context, chiefly due to the intensity of economic depression among tribal populations and the fact that much of the profits will theoretically be re-invested in those communities.

But no matter how often pundits and boosters use the term “Las Vegas-style casinos,” the fact is that most communities will never experience the kind of economic boost given to Clark County or South Jersey. Las Vegas and Atlantic City were unique because they dominated a market defined by scarcity. Their customers were mostly out-of-towners who would not have otherwise spent money in the region. Tens of thousands of unionized working class jobs were sustained by a steady flow of tourist and convention dollars, cushioning both regions from capital flight and the low-wage economy.

Even if other markets could emulate these successes, they came with a price. More casinos also mean more problem gamblers, some research suggests, with all the costly social ills that accompany them. There is very strong evidence that proximity to casinos increases the incidence of problem gambling. University of Las Vegas research in 1999 found that 6.6 percent of Clark County residents admitted to having a gambling problem, which is far higher than anywhere else in the country, while a fifth reported that a family member struggled with the addiction. Suicide, divorce, bankruptcy, and crime rates are all unusually high, as Sam Skolnik describes in his book, High Stakes: The Rising Cost of America’s Gambling Addiction. The chapter on Vegas is subtitled “Problem Gambling Capital of the World” and notes that a preeminent gambling researcher thinks the annual social costs for Clark County could be up to $900 million.

In any case, there is only one Las Vegas. As more and more states legalize various forms of gaming, the market becomes more diffuse and more competitive. Notice how Pennsylvania positioned most of its casinos near its borders to attract out-of-state dollars, especially in the southeast, closest to Atlantic City. (In 2012, Pennsylvania’s annual gross casino revenue topped New Jersey’s for the first time, while Atlantic City’s profits fell 35 percent in 2013.) Most casinos do not attract very many tourists and certainly not the national conference trade that Las Vegas enjoys. Simply building hotels and putting on some concerts isn’t going to turn, say, Springfield into a comparable resort draw.

There is a macroeconomic difference for local economies between “destination gambling,” where tourists and conventioneers flock to a glammed up locale, and “convenience gambling,” which mostly caters to locals who won’t be spending the night. A 2006 report from the Boston Federal Reserve argues “whether a casino will benefit or harm a local economy hinges on whether the casino is likely to attract tourists to the region. … Casinos that cater to a local market may have no net ancillary economic impacts.”

Convenience gambling drains money from a city as residents spend less at other locally owned businesses. Blow $40 bucks for dinner and some drinks at the neighborhood bar, and it goes right back into the local economy. Spend it at a slot machine, and the profits go to a multinational corporation whose shareholders probably don’t even live in state. A recent report by the National Association of Realtors on the proposed Springfield casino notes decreased levels of retail spending in areas hosting a casino dominated by locals. (It’s not great for the housing market either: “The impact on home values appears to be unambiguously negative … in the vicinity of the casino.”)

Las Vegas enjoys regularly warm weather, entrenched cultural cache, and a concentration of casino-hotel-conference center complexes with other entertainments in attendance. Springfield does not have any of those advantages. The northeastern casino market is already saturated, with competition in Connecticut, Rhode Island, New York, Maine, and soon elsewhere in Massachusetts too. The odds are that a casino in Springfield (or Everett) will mostly cater to locals.

That’s what’s happened elsewhere. A 2010 Philadelphia Federal Reserve survey of the literature on casinos and economic development reports that 80 percent of the Detroit industry’s customers came from the Detroit metropolitan area, 80 percent of Wisconsin gamblers were cheeseheads, 84 percent of Illinois riverboat-casino gamblers were state residents, and so were 75 percent of Missouri’s gamers. Compare that to Atlantic City and Las Vegas in 1995, when less than 15 percent of their patrons were from in-state.

There is little evidence that legalized gambling will do anything for a state’s economic development, other than provide a regressive non-tax form of revenue. “Our results indicate that the casino industry does not have an impact on economic growth at the state level,” a study in the American Journal of Economics and Sociology concludes. However, the Philly Fed survey describes an unusually detailed study in Wisconsin which found that Indian casinos basically brought no new economic development to the state, but did represent an economic transfer from other parts of the state to the casino-hosting municipalities.

Springfield could use a steady stream of economic support from other, wealthier parts of the state. But under current circumstances, a casino is unlikely to provide it. (There will be two other Massachusetts casinos, including one in the Boston area.) Instead, easily accessible legal gaming is likely to simply cannibalize the area’s already tight consumer spending, harming other, more productive economic sectors and undermining any job growth gaming might bring. It’s hard to think of a worse form of economic development.

Jake Blumgart

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