Socioeconomic Impacts of the Casino Industry Presentation at Ohio State University March 22, 2013 Doug Walker, College of Charleston
Presentation outline • Public perception about casinos • Benefits from legalized casinos • Costs of legalized casinos • Net effects of casinos Walker, Impacts of Casinos • Summary of Ohio casino market • Conclusion 2
Public perception about casinos • According to a survey cited (and paid for?) by the AGA… • >60% of Americans view casinos as… • “acceptable for themselves or others” • very important or somewhat important to the overall travel industry • “excellent, very good or good value for the money” compared to Walker, Impacts of Casinos other entertainment options. • Casinos seem to be popular among consumers… • At the end of 2011, there were 939 commercial, tribal, and racetrack casinos operating in 38 states. • Commercial casino revenue in 2011 was $35.6 billion • Mass. group trying to reverse casino legalization • Moral concerns about casinos and gambling 3 • Many states have anti-casino organizations
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Economists’ perception about casinos • In a 2009 survey, professional economists were asked about this statement: “A casino typically generates more benefits to society than costs” Walker, Impacts of Casinos • 17.1% agreed • 30.2% were neutral • 52.8% disagreed • Few academics (or economists) focus on the casino industry or gambling generally • Lotteries have received the most attention 7
Economic benefits of casinos • Consumer welfare • Economic growth • Employment • Tax revenues Walker, Impacts of Casinos 8
Consumer welfare • Perhaps the greatest benefits from legalized casinos • Consumer transactions, including transactions at a casino are mutually beneficial and voluntary • Consumer sovereignty; freedom of choice Walker, Impacts of Casinos • Consumer surplus • Casino opponents have explicitly ignored consumer benefits • Variety benefits • Increased competition in the entertainment industry • Better quality/service • Lower prices 9
Economic growth • State-level analyses between casino revenues and economic growth • Data from 1991-2010 • Casinos had a positive impact in the wake of Hurricane Katrina Walker, Impacts of Casinos • No other studies examine state-level effect of casinos • Anecdotal explanations are common: restaurant/factory dichotomy • Casinos simply represent economic activity that had been banned by government • Positive regional effect may be at the expense of other regions 10
Employment • AGA: 339,000 jobs created in 2011 • paying $12.9 billion • Construction jobs and operating jobs • What matters is the net jobs created Walker, Impacts of Casinos • Cotti (2008) provides the most comprehensive study • County-level for all US counties, through 1996 • Employment and wages mildly increase in counties with casinos and neighboring counties • This effect is inversely related to county population • Labor market effect similar to that of any other industry expansion • More competition for workers 11 • Casino jobs must be the best option for workers who take them
Tax revenues • Commercial casinos paid $8 billion in taxes in 2011 • Casino taxes on AGR range from 7% in NV to 55% in PA (Ohio is 33%) • Casino taxes are trivial to most states • For 2004, gambling taxes represented: • 10.4% of total state tax receipts in Nevada (casinos) Walker, Impacts of Casinos • 1% in Ohio (lottery) • 4.8% in Indiana (casinos and lottery) • 6.3% in West Virginia (lottery) • Comprehensive study of gambling on state revenues finds… • Effect of casinos is slightly negative • However, effects of per capita income and hotel employees are positive • There may be a net positive tax impact considering growth and tourism 12
Tax revenues, cont. • Casinos are often sold on how the tax revenues will be spent • Education (often used to sell the lottery) • “County Fund” and “Student Fund” make up 85% of the expenditures from Ohio casino taxes • However, this earmarking does not mean that overall Walker, Impacts of Casinos expenditures in these areas increase • There are potentially large political benefits from legalizing casinos • Not having to raise other taxes • Not having to cut spending 13
Economic & social costs of casinos • Social costs in the literature • Gambling as an “unproductive” activity • Casinos and crime • “Cannibalization” of other industries Walker, Impacts of Casinos • Money leaving the local economy 14
Social costs in the literature • “Social costs” are the primary concern of casino opponents • Pathological (“disordered”) gamblers represent 0.4% to 2.0% of the overall population • “Real” social costs include Walker, Impacts of Casinos • Criminal justice costs (arrests, trials, incarceration) • Therapy costs • Other negative effects that are not social costs include • Lost work hours and reduced productivity • Bad debts • Money/goods stolen • Welfare spending 15
Social costs, cont. • Estimates of social costs average $10,000 per disordered gambler per year • Include effects that are not “social costs” • Fail to define “social cost” Walker, Impacts of Casinos • Mostly arbitrary • Estimate placing the cost:benefit ratio of casinos at 3:1 is fiction • Focus should be on types of harms related to gambling • However, politicians like to have data to support their position on gambling policy 16
Gambling as an “unproductive” activity • Casino opponents argue that gambling is just money switching hands, with no value created • Grinols, Kindt , and Thompson quote Samuelson’s principles textbook (1971) to argue that professional gambling is unproductive Walker, Impacts of Casinos • Claim that gambling is a DUP activity when “pursued beyond the limits of recreation” • Gambling provides entertainment for players and audience • Poker is frequently televised 17
Casinos and crime • Adolescents who indicate more problematic gambling behaviors are more likely to… • Engage in criminal acts • Binge drink and use drugs Walker, Impacts of Casinos • Hire prostitutes • Mixed evidence on link between casinos and crime rates • Studies focus on FBI Index I crimes (assault, auto theft, larceny, burglary, rape, murder) • Crime rate is: crimes/population at risk • But many studies exclude tourists from “population at risk” Crime rate = (C R + C T ) / (P R + P T ) 18
“Cannibalization” of other industries • Existing businesses have legitimate concerns about competing with casinos • But the introduction of casinos is like competition from any other new business • Government artificially restricts the number of casinos Walker, Impacts of Casinos • Negative impacts on other gambling industries: • Greyhound racing • Lottery • Positive impact on horse racing • Probably due to “racino” effect 19
“Cannibalization”, cont. • More concern for effect on non-gambling businesses • Some substitutes, some complements • Effect on retail property values is positive • Detroit study Walker, Impacts of Casinos • Only study to examine urban casino impact • Finds a complementary effect on nearby businesses • “general freestanding,” “restaurants” and “service stations” main categories with positive impact • Larger impact within a 5-mile radius of casinos • No good evidence to support a substitution or cannibalization effect 20
Money leaving the economy • “Leakage” from the economy • VLTs in South Carolina • Mutually beneficial transactions • Everyone should be self-sufficient? Walker, Impacts of Casinos • The argument focuses on money as the only source of benefit from casinos – and only if the money stays local 21
Net effects of casinos • Net (or marginal) impacts are relevant • Benefits should include consumer benefits (variety, CS) • Social costs are more difficult to measure than benefits • Comorbidity is the main problem with measuring social costs Walker, Impacts of Casinos • >70% of disordered gamblers have other problem behaviors • Alcohol use, drug use, compulsive shopping, etc. • Benefits probably outweigh the costs, even if casinos do not attract tourists 22
Summary of Ohio casino market • Ohio casino law • Map of Ohio and competing casinos • Revenue data from 2012-13 • Data sources Walker, Impacts of Casinos • Likely impacts of casinos in Ohio 23
Ohio casino law • Constitutional amendment passed November 2009 by 53% of voters • Casinos to be located in specific locations (Cincinnati, Cleveland, Columbus, and Toledo) Walker, Impacts of Casinos • Casinos pay a 33% tax on adjusted gross revenues (AGR) • AGR is net revenue, or money received minus prizes paid on winning customer bets • $50 million license fee per casino • Casinos required to make a capital investment of $250 million 24
Ohio casino law, cont. 25 Walker, Impacts of Casinos
Ohio and competing casinos Walker, Impacts of Casinos 26
Ohio Casino Revenues $60,000,000 $50,000,000 Monthly Revenue (AGR) $40,000,000 STATEWIDE Walker, Impacts of Casinos $30,000,000 Cleveland (Horseshoe) Toledo (Hollywood) Columbus (Hollywood) $20,000,000 Cincinnati (Horseshoe) $10,000,000 $0 Month 27
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