NATIONAL GAMBLING IMPACT STUDY COMMISSION

REUVEN BRENNER

MR. BRENNER: Thank you, very much. I'll also give you a brief background. My initial interest in this was that when I was very young and naive, I had my theory of history and the University of Chicago at that time invited me and I wrote two books, one called History of the Human Gamble and the second, Betting on Ideas. Which today I would never have dared to write. And it is then that the subject of gambling a little bit as a side issue interested me.

Then since I was frequently asked to write about it, about ten years ago I put it together and Cambridge University published it called: Gambling and Speculation. Later it was translated to French and it came out in other countries as well.

I have not worked on the subject for the last ten years, I work now in business, in finance. But still the book is being reviewed here in The Boston Globe, in the London Times and The Wall Street Journal, and I guess I owe the invitation to that. People have sent me over the last ten years the material that was published and I would say all that I have said more or less confirms what at that stage I found on various aspects of gambling.

So, let me briefly just tell you what, at the time, what were the questions that I was interested in. The book really examines the history, the regulatory environment around the world, not only in the U.S. but in the U.K., Sweden, France, Norway and the findings were pretty similar. So here are the questions so that that can help you later if you want to ask me anything specific.

One, who plays in casinos, bingo, lotteries, are these the same or different people? Why some lotteries fail and others succeed? Is it true that the poorer are spending a greater fraction of their incomes on lotteries than the richer? Are gamblers overestimating the chance of winning? What do the winners do with the money? Why has gambling been so frequently condemned and prohibited? What happened when it was prohibited? Who were the winners and the losers? Why was there confusion between gambling, insurance and speculation? How were casinos financed?

Now here, since the title of the session here is Who Wins, Who Loses, I shall focus on that question. And I just gave you the list so that if you want to ask me anything much broader, then, I shall try to answer to the best of my knowledge.

So when we ask the question, Who Wins, Who Loses?, the question is relative to what? You must have a benchmark in mind when you ask who are the winners and losers. Now, frequently the discussion is that winning and losing relatively to prohibition, and I shall address that question. Then winning and losing relatively to a situation when lotteries would be completely private or privately run, that's another alternative.

I find that frequently people when they do the research, they pay too much attention to words and not to content, and I give you an example. In many states, the revenues from lotteries go directly into the general fund, whereas, in other places, they are designated for hospitals, culture, education. And I know that studies have done, is it true that when you introduce lottery, spending on education or culture has increased?

Now I find that that line of research not convincing, not interesting and indeed, they didn't get any results and for the very simple reason because if you look really at the sequence of events, the moment revenues from lotteries are designated for particular purposes, then you consider there is a similar decrease in the general funds allocated to those same things. So it is not true that the fact that you designate something for a particular purpose, that the total spending for that purpose will increase. So, that's one thing.

The second, it is true that tax revenues from gambling have been around, I think, between, the average is about 3.5 percent in 36 states here in the United States. So it is true that if the government was spending the same amount of money as before, and lotteries or gambling was prohibited, then you may think that spending, you have to raise that three percent from something else or you had to diminish your expenditures. So, in that sense, it is correct that if this industry was prohibited, then that government had to either diminish expenditures or raise taxes and that would pose a problem.

However, let me add in parenthesis that this issue of linking gambling with culture and education or hospitals, has a long history. For example, the Vatican since the middle ages had a lottery and it was that lottery that financed the Vatican Museum.

The link between casinos and culture is more interesting. I don't know how many of you are aware of the fact that opera houses have been private in Italy until the beginning of the 19th Century and they were profitable. Now, the reason they were profitable were that the Opera houses had casinos attached to them and if you look, for example at Stendalt's Biography of Rossini, the classical composer, you will find a difference in his contract, and that really he became rich not as a composer, although he was one of the best known at the time, but because he received a certain percentage of the revenues from the table.

Now, the reason that that financial arrangement was interrupted, and by the way, really the revenues of these entertainment complexes financed all the R&D in that industry, the commission of new ballets and operas. The reason that an end was put to this arrangement was that after a revolution started in Belgium, against Napoleon, and the opera house, the rulers were afraid it was the most popular form of entertainment and so that people go to the casino rather than to the opera only, so they closed down the casinos.

Now, once the casinos are closed down, then opera houses had to be subsidized by the state. Now, this may sound surprising why an entertainment venture cannot be on its own, but think for a moment about movie theaters today, about 40 percent of their revenues don't come from movie tickets but from soft drinks and popcorn. So, suppose that the government decided that that's bad for our health and closed them down, the counters, then movie theaters would go, half of them would probably go bankrupt, and then the government would go into subsidizing those entertainment ventures.

So, in fact, a remnant of this arrangement survives in Monte Carlo, where the opera and the casino belong to the family. And it survives also in many of the French cities, if you go to De Ville and Avignon, the casino is the center of the city, where you have both gambling and culture. In a way places that have prohibited casinos, the government, in a way, is taking a little bit over this role of allowing lotteries, allowing casinos and then saying that the tax money coming from the gambling industry will go to culture. So, it's almost like recombining in a kind of indirect way old, very private and much more successful arrangements, I would say.

Now, let me go back to the question of winners and losers, and here I would say we have to look at four categories for what we mean by winners and losers? So, let's look at the players, the taxpayers, the producers and the employees in the lottery business and producers and employees in other businesses. So, when we look at players, first, since I mentioned that lotteries are here to stay, I shall not mention the alternative is prohibition. Why the players are gaining relatively to a situation when the games are prohibited. But I shall compare to the situation where lotteries or the gambling industry generally is more competitive. The moment lotteries have more competition, they pay out more in prize money. For example, in a place where it is a monopoly and people don't have access to other lotteries, then like every monopoly, it pays out less in prize money. For example, when lotteries just started, the prizes paid out were about 40 or 50 percent. The moment the competition intensified, then they pay out in prize money about 70 percent. So, obviously the players benefit if there is more competition because they get more prize money back.

Now to speak, just to mention the magnitude of the numbers, it doesn't matter whether you look at the U.S., Sweden, France, Norwa

In England, the amount is only $135 dollars, half the world-wide average, and one of the reasons is, and maybe some of you were told already, that the government granted monopoly to Camelot and they are not managing it very well, that's why Branson is trying to get to manage it better and to distribute more in money prizes and offer a greater range of lotteries. So the players would benefit if there was more competition.