NATIONAL GAMBLING IMPACT STUDY COMMISSION
N G I S C Chicago Meeting, May 20, 1998
MR. EARL GRINOLS, PROFESSOR OF ECONOMICS, UNIVERSITY OF ILLINOIS
CHAIRMAN JAMES: Mr. Grinols.
MR. GRINOLS: Instead of gambling, why don't we have a national symphony concert impact study commission? I'm going to use four slides.
I'll ask my question again. Instead of gambling, why not have a national symphony concert impact study commission? Both are entertainment, both compete for the same dollars, they both operate under the same laws of commerce. The answer of course is that for casinos we observe harmful side effects that are believed to exceed the benefits. Like the sale of a hazardous child's toy or tobacco for adults, an intrinsically flawed product damaged a percentage of its users and creates cost that non-users have to pay.
The right question therefore is what are the total social benefits and costs of casino gambling? Especially for a national commission, a national viewpoint is called for, not a narrow, partial or regional one.
The consumer benefit of having casinos in more locations is that consumers will not have to travel so far to gamble. My research indicates that $26 per year probably overstates the value of this benefit to the average person. Producer and government benefits are generated if casino profits and taxes rise more than profits and taxes in other sectors go down due to the casino introduction. Producer and government benefits total approximately $12 per person. So 26 plus 12 is $38, the upper bound in new benefits.
However, the additional costs associated with gambling expansion are greater that $110 per person and may be significantly higher, possibly as high as $340. Figure one shows that the cost benefits and casino revenues on a per person basis, so gambling fails a cost benefit test.
This is the reason for a national commission. When the benefits go to one place and larger costs go to another, national policy is the answer.
Rather than address social costs, regional gambling supporters prefer to discuss casinos narrowly as regional development. However, casinos are no different than other entertainment in this regard. In some cases they expand, in other cases they shrink and in most cases they probably negligibly effect the regional economic base.
As the Commission may be aware, virtually the same debate rages as to whether major league sports teams represent economic development. To expand the economic base any activity must bring more new dollars into the evaluated area than it causes to leave the area. The professional consensus is that sports teams do not appreciably represent economic development because they usually serve a market that is contiguous with the area being evaluated for development. This does not stop promoters from making development claims, however. If revenues do not come from the outside, more money for the sports sector means less money for other sectors, the cannibalization effects often referred to.
For sports teams building a stadium is often a public burden. Evaluating the economic benefits of bringing a sports team to town while omitting to include the public's cost of building the stadium would be unthinkable. Yet this comparable to the case for many studies of the regional impacts of casinos which do not discuss social cost. There are other ways that regional focus creates an unbalanced view of the economics of casinos.
Currently Minnesota, Wisconsin, Iowa, Missouri, Illinois, Michigan and Indiana all have casinos. For those who are not from the Midwest, that's the entire map of the Midwest. Based on different studies each believes that it experiences economic gains at the expense of its neighbors as a result of gambling. Nevada has seen boom times in the 1990's with the expansion of casinos in the rest of the nation. But unless Nevada's boom is fueled by foreigners, the rest of the country is losing to Nevada. I've also seen studies predicting that Ohio would gain from casinos, as would Pennsylvania, West Virginia and Virginia, not to mention studies for Hawaii and Florida.
As these studies continue to appear the reader can be excused if he asks where all the of the supposed gains are supposed to come from. Is everybody above average? One clue is the way these studies choose comparisons. The first state to introduce a casino assumes it will be taking from bordering states. Later states assume that they will take back from the first. Thus, all studies can show gains even when a consistent analysis would show that neither state gains but they both end up paying higher social costs afterwards.
It should not be the role of national policy to encourage or permit the sale of destructive products where the total cost to the nation exceeds the benefits to the winning region or regions.
Studies by gambling supporters of even regional effects are sometimes slanted. The press release by International Game Technology Company, for example, for a report it sponsored emphasized that, quote, "States and localities that permit casino gaming have improved their overall economic performance account to a nationwide study." For Illinois the study provided figure 2 in support of its conclusions that the "opening of a casino reduced the unemployment rate in that county in both the year it was opened and in the following year." The dark graph is unemployment in these counties before and the lower bar represents unemployment afterwards.
What the industry commissioned study failed to report is figure 3. For each casino county, figure 3 collects all counties from Illinois' 102 counties that have the same starting unemployment rate, within a tenth of a percentage point, and displays the equivalent performance data cited by the study. If the state had the same unemployment rate, it was also included for comparison. As shown, the performance of the casino county looks little different that the other counties over the same period. The counties that are casino counties I've underlined so that you can see where they fit into the distribution.
There are other reasons for caution in reading industry studies. To show employment gains, a sufficiently large share of gambling revenues must come from visitors outside the area. Even though more than three out of five gamblers would be Chicagoans, a prominent study of casinos in Chicago concluded that only 29 percent of revenues would come from Chicagoans. How do they do this? The study assumed that adults within 35 miles of Chicago would lose only about $65 a year, compared to $199 a year for comparable adults in Atlantic City and $106 for comparable adults in Las Vegas.
Now, here's the assumption made by the study for Chicago which needed little gambling by Chicago residents to reach its conclusion. The assumption therefore was outside the range of experience of the only two comparably large casinos in operation at the time. Interestingly, Mirage Hotel submitted a May, '93 study to the West Dundee riverboat project task force. West Dundee is a community near Chicago, and would want Chicagoans to gamble more to show gains for West Dundee. The report said that it appears that a conservative estimate of the annual per capita gain in revenue for persons residing within 15 miles would be $200. So there's what the Mirage Hotel assumed for the same people.
Studies with a regional objective can be suspect for yet other reasons. In a phone conversation with a researcher at an economic consulting firm hired by a casino company to produce an impact study, the researcher told me that the casino firm asked for a progress report on that study. When shown the results, the company indicated that the benefits didn't seem large enough and asked that they could be made larger. The consulting firm replied that they did not think they could make the benefits larger because they believed their original estimates were correct. The casino cancelled the study.
Partial regional focus, ignoring costs, convenient assumptions, selective reporting, selective assumptions. Having witnessed how regional studies have been conducted, I urge the national Commission to keep a national perspective and to retain a healthy skepticism of regional studies with an intentionally limited focus. Also when benefits are presented to you remember to ask about the cost. Thank you.
CHAIRMAN JAMES: Thank you, Mr. Grinols.