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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

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Socioeconomic Impacts

  • f the Casino Industry

Presentation at Ohio State University March 22, 2013 Doug Walker, College of Charleston

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Presentation outline

  • Public perception about casinos
  • Benefits from legalized casinos
  • Costs of legalized casinos
  • Net effects of casinos
  • Summary of Ohio casino market
  • Conclusion

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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
  • ther 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
  • 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”

  • 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

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Economic benefits of casinos

  • Consumer welfare
  • Economic growth
  • Employment
  • Tax revenues

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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
  • Consumer surplus
  • Casino opponents have explicitly ignored consumer benefits
  • Variety benefits
  • Increased competition in the entertainment industry
  • Better quality/service
  • Lower prices

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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
  • 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

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Employment

  • AGA: 339,000 jobs created in 2011
  • paying $12.9 billion
  • Construction jobs and operating jobs
  • What matters is the net jobs created
  • 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
  • Casino jobs must be the best option for workers who take them

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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)
  • 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

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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

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

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Economic & social costs of casinos

  • Social costs in the literature
  • Gambling as an “unproductive” activity
  • Casinos and crime
  • “Cannibalization” of other industries
  • Money leaving the local economy

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Social costs in the literature

  • “Social costs” are the primary concern of casino opponents
  • Pathological (“disordered”) gamblers represent 0.4% to 2.0%
  • f the overall population
  • “Real” social costs include
  • 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

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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”
  • 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
  • n gambling policy

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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

  • 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

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Casinos and crime

  • Adolescents who indicate more problematic gambling

behaviors are more likely to…

  • Engage in criminal acts
  • Binge drink and use drugs
  • 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 = (CR + CT) / (PR + PT)

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“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
  • Negative impacts on other gambling industries:
  • Greyhound racing
  • Lottery
  • Positive impact on horse racing
  • Probably due to “racino” effect

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“Cannibalization”, cont.

  • More concern for effect on non-gambling businesses
  • Some substitutes, some complements
  • Effect on retail property values is positive
  • Detroit study
  • 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

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Money leaving the economy

  • “Leakage” from the economy
  • VLTs in South Carolina
  • Mutually beneficial transactions
  • Everyone should be self-sufficient?
  • The argument focuses on money as the only source of benefit

from casinos – and only if the money stays local

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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
  • >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

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Summary of Ohio casino market

  • Ohio casino law
  • Map of Ohio and competing casinos
  • Revenue data from 2012-13
  • Data sources
  • Likely impacts of casinos in Ohio

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Ohio casino law

  • Constitutional amendment passed November 2009 by 53% of

voters

  • Casinos to be located in specific locations (Cincinnati,

Cleveland, Columbus, and Toledo)

  • 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

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Ohio casino law, cont.

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Ohio and competing casinos

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$0 $10,000,000 $20,000,000 $30,000,000 $40,000,000 $50,000,000 $60,000,000 Monthly Revenue (AGR) Month

Ohio Casino Revenues

STATEWIDE Cleveland (Horseshoe) Toledo (Hollywood) Columbus (Hollywood) Cincinnati (Horseshoe)

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$0 $20,000,000 $40,000,000 $60,000,000 $80,000,000 $100,000,000 $120,000,000 $140,000,000 $160,000,000 $180,000,000 $200,000,000 1/2011 2/2011 3/2011 4/2011 5/2011 6/2011 7/2011 8/2011 9/2011 10/2011 11/2011 12/2011 1/2012 2/2012 3/2012 4/2012 5/2012 6/2012 7/2012 8/2012 9/2012 10/2012 11/2012 12/2012 1/2013 Monthly Revenue (AGR) Month

Ohio and Nearby Casino Revenues

Ohio Total Competition Total

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Cleveland

  • Horseshoe Casino Cleveland
  • Opened May 14, 2012
  • 2,100 machine games; 119 tables games (30 poker)
  • 4 competing casinos… 80 or more miles away
  • Presque Isle Downs & Casino (Erie, PA)
  • Mountaineer Casino, Racetrack & Resort (Chester, WV)
  • Wheeling Island Racetrack and Gaming Center (Wheeling, WV)
  • Rivers Casino (Pittsburgh, PA)

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$0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 $40,000,000 1/2011 2/2011 3/2011 4/2011 5/2011 6/2011 7/2011 8/2011 9/2011 10/2011 11/2011 12/2011 1/2012 2/2012 3/2012 4/2012 5/2012 6/2012 7/2012 8/2012 9/2012 10/2012 11/2012 12/2012 1/2013 Monthly Revenue (AGR) Month

Cleveland, Erie, and Pittsburgh Casino Revenues

Cleveland (Horseshoe) Erie (Presque Isle) Pittsburgh (Rivers)

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Toledo

  • Hollywood Casino
  • Opened May 29, 2012
  • 2,000 machines; 80 tables (20 poker)
  • 4 competing casinos… 55 miles away
  • Caesars Windsor (Canada)
  • MGM Grand (Detroit, MI)
  • Motor City (Detroit, MI)
  • Greektown (Detroit, MI)

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$0 $20,000,000 $40,000,000 $60,000,000 $80,000,000 $100,000,000 $120,000,000 $140,000,000 $160,000,000 1/2011 2/2011 3/2011 4/2011 5/2011 6/2011 7/2011 8/2011 9/2011 10/2011 11/2011 12/2011 1/2012 2/2012 3/2012 4/2012 5/2012 6/2012 7/2012 8/2012 9/2012 10/2012 11/2012 12/2012 1/2013 2/2013 Monthly Revenue (AGR) Month

Toledo and Detroit Casino Revenues

Toledo (Hollywood) Detroit (MGM Grand) Detroit (Motor City) Detroit (Greektown) Detroit (Total)

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Columbus

  • Hollywood Casino
  • Opened October 8, 2012
  • 3,000 machines; 100 tables (30 poker)
  • Nearby racino…
  • Scioto Downs (Columbus)
  • 2,125 machines, from June 1, 2012

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$0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 Monthly Revenue (AGR) Month

Columbus Casino Revenues

Hollywood Columbus Scioto Downs (Racino) Columbus $- $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 Monthly Revenue (AGR) Month

Total Market Revenues (Columbus)

Hollywood Columbus Scioto Downs (Racino) Columbus Columbus Total

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Cincinnati

  • Horseshoe Casino
  • Opened March 4, 2013;
  • February (1 day) AGR of $227,752
  • 2,000 machines; 118 tables (31 poker)
  • 3 competing casinos… 18-33 miles away
  • Hollywood Casino (Lawrenceburg, IN)
  • Rising Star Casino Resort (Rising Sun, IN)
  • Belterra Casino Resort & Spa (Florence, IN)

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Data sources

  • Casino location, machine & table count: casinocity.com
  • Monthly casino revenues:
  • Ohio Casino Control Commission
  • Pennsylvania Gaming Control Board
  • Michigan Gaming Control Board
  • West Virginia Lottery (no data provided)
  • Information on Ohio tax rates and Constitutional amendment:

Ohio Casino Control Commission 2012 Inaugural Annual Report

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Likely impacts of casinos in Ohio

  • Ohio is best described as a case of “defensive legalization”
  • Keeping taxes at home may be the largest measurable benefit
  • Casinos will not generate much tourism
  • Job creation in large cities likely to be relatively minor
  • Other benefits as described above
  • Positive employment/wage effects
  • Consumer benefits
  • Other tax benefits (mainly political)
  • Social costs may increase, but gambling was already widely

available

  • Not much research on how proximity affects prevalence of

gambling problems

  • Too early for a good analysis of actual impacts

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Conclusion

  • Overall, I think the benefits of casinos outweigh the costs
  • Producing specific monetary estimates on costs and benefits is of

questionable value

  • Online casinos will fundamentally change the industry during

the next decade

  • December 2011 Justice Department memo on the Wire Act
  • The industry provides great research opportunities for

economists

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Contact information

Doug Walker Professor of Economics College of Charleston WalkerD@cofc.edu walkerd.people.cofc.edu (843) 953-8192

  • Dept. of Economics & Finance

College of Charleston 5 Liberty St. Charleston, SC 29401

Springer, May 2013 304 pages. $79.99 ISBN 978-1-4614-7122-6

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