NATIONAL GAMBLING IMPACT STUDY COMMISSION

CHAIRMAN JAMES: Mr. Eadington.

MR. EADINGTON: Thank you, Madam Chairman. Besides my prepared testimony, there are three issues I would like to address to the Commission. These are the nature of cost benefit studies as they relate to casinos and casino style gambling. The second is morality issues as they relate to gambling and public policy, and the third point is how well riverboat casinos fulfill their broad mission as legal permitted enterprises. Let me start with the cost benefit discussions.

Much discussion is centered around the benefits and cost associated with the casinos and casino style gambling. The underlying reality is that for the most part, the economic impacts from the development of casinos tend to be positive, are highly measurable and easily observable. Whereas, social impacts tend generally to be negative. They tend to be qualitative, elusive and very hard to measure.

With regard to economic impacts, it is very important to distinguish between direct impacts that are readily observable, such as jobs created, total revenues generated, taxes paid by gaming enterprises versus the overall net impacts for the jurisdictions of interest. Generally speaking, destination resort casinos have greater net impacts than do urban or suburban casinos primarily because they are exporting gaming and entertainment services to residents of other jurisdictions. Whereas, urban casinos or casinos that cater to a local market provide primarily gaming services for people who live within that region and therefore, create substantially greater shifting of spending patterns within those particular markets.

With regard to social costs and social impacts, one must realize it is very difficult to measure social costs associated with gambling for a number of reasons that have been highlighted in the hearings so far. First, problem gambling is largely an invisible phenomenon. It's a very difficult one to measure, and it's certainly very difficult to measure the costs associated with it.

Secondly, until very recently, there was virtually no research that was done on this topic, especially from a public policy perspective. Another factor that certainly is important on the social impact issue is that causality is very difficult to establish, especially with problem gambling and links between the presence of permitted gambling and crime. After participating as a social science researcher and observing this issue over a number of years, I would like to read a quote from William Miller and Martin Schwartz's article "Casino Gambling and Street Crime," which I think summarizes my view on much of the social science research that has been done on social impacts and gambling. They say, "Although a great deal has been written on the subject, so much of the writing on all sides is bombast and blather, that it is difficult to discern any strong facts."

We also have in social impact issues conceptual problems as to what is appropriately a social cost versus what is a private cost. This issue comes up especially on issues of gambling deaths, on questions of lost productivity and certainly in the issue of what is the appropriate comparison if we have permitted casino gambling versus prohibited casino gambling. Certainly the baseline should not be zero, rather what is the alternative situation we would deal with as a society.

All of the above considerations notwithstanding, this does not stop some researchers from plowing forward in estimating with apparent precision the social costs associated with casino style gambling in various jurisdictions throughout the country, leading to results, whose sensational value has headline grabbers, that far exceed their usefulness for policy makers trying to understand the alternative implications of their decisions.

As research, this kind of analysis is either academically naive or academically dishonest. In either event, it is clearly poor scholarship. As examples of such information I would just cite the following claims that have been widely discussed in national newspapers as well as in research journals. These claims, I would say, are lacking in substantial empirical basis.

The claim, for example, that for every job created in the casino industry, three are lost elsewhere in the economy; the claim that 40 percent of all white collar crime is attributable to compulsive gambling; the claim that the cost to society from compulsive gambling is between $15,000 to $35,000 per year per compulsive gambler. If these claims were true, then we would be seeing very obviously major public sector manifestations of these costs, as we have seen a substantial increase in gambling.

Furthermore, if we are to look at other societies, for example Australia, where the per capita expenditure on gambling is substantially greater than it is in the United States, we would expect to find societies that were bordering on a dysfunctional state because of the overwhelming costs to society and to the public sector that gambling would have brought about. The fact is we do not see these manifestations, and as a result these issues have to be put into question.

What these issues do is I think redirect our attention from what are important dimensions. The social cost dimensions surrounding gambling are quite important, but to make claims such as the ones I mentioned, strain credibility and do not contribute to the role of public policy makers trying to answer what I think is the most important question surrounding gambling which is to strive toward an appropriate balance of the appropriate presence of gambling in society at large.

With regard to morality issues, I would like to point out that gambling is one of those activities where people tend to be highly judgmental, either enjoy the activity and feel it's appropriate for themselves and everybody else, or they think people who gamble are foolish or stupid and because of that they need to be protected from themselves. In either event, there's a wide tendency in gambling policy to discount the consumer's role in public policy formation.

I think one of the attitudes that dominated public policy in this country for the last ten years is if gamblers are foolish enough to spend so much money on gambling, we should try to exploit that particular preference and generate tax revenues or other economic benefits for other beneficiaries in society at large. This has probably been a weak foundation for a lot of public policy that we have seen.

Gambling challenges us on the issue of should people be responsible for themselves or should they be protected from themselves. This is really one of the fundamentals that gambling poses. I think one of the observations that we can make in America, and for that matter in most parts of the world, is that as societies have become more affluent and more educated, they have tended to become more responsible for themselves. Gambling is a by-product of societies which have experienced a higher degree of affluence, a higher degree of self-defined ethical standards. And because of that, the patterns that we see in the United States we can see in most parts of the industrialized world at essentially the same period of time. That notwithstanding, gambling remains a morally complicated issue.

There is more than just economic considerations that should enter into the discussion of what is the appropriate role of gambling in the society at large. Communities need to come to some decision on that appropriate presence. Now, with regard to riverboat gambling and especially the issues of riverboat jurisdictions that mandate sailing, I would cite this as a very good example, especially in comparison to legislation dealing with casino style gambling throughout the world as terribly unfocused.

Riverboat gambling is a good example of symbolic regulation. It presents itself as, quote, "safer than comparable land-based casino style gambling," but from my studies I can find no evidence that this indeed is the case. Riverboat gambling came into existence probably because it was more politically palatable than other forms, or comparable forms, of land based gambling and once the states of Iowa and Illinois had passed legislation other states followed in a copycat manner.

Riverboat gambling is an example of regulation by inconvenience. It inconveniences the customers who have virtually no interest in being on a boat, let alone a boat that is sailing. It inconveniences operators whose primary purpose is to offer gaming opportunities to their customers, not to operate boats. It inconveniences local political jurisdictions who have to prepare for the potentiality of disaster and safety and rescue types of issues. Recent incidents that have occurred on the Mississippi River in the states of Missouri and Iowa point out some of the dilemmas that we confront by having symbolic policy that has no real impact, that mandates sailing of boats or mandates that boats compete with barges and other commercial traffic on waterways within the United States.

I think one needs to note the parallels that exist between putting customers of riverboat casinos in safety jeopardy with some of the complicated issues we deal with in the United States in debates concerning needle exchange programs for drug addicts or sex education issues in school. In one sense we are debating issues of principle in trying to create a symbolic protection versus questions of public safety.

If you have bad legislation, which I would put riverboat legislation into that category, there is ongoing pressure for rationalization. We have seen this in, for example, the state of Iowa which after five years decided to remove mandatory sailing and remove some of the wagering limits that had been placed upon their gaming operations. We have seen pressure in states such as Missouri or Louisiana to move away from mandated sailing.

I think there's a natural tendency for industries to try to rationalize, especially when the purpose of the regulation doesn't seem to have any empirical impact. Poor legislation, as is the riverboat legislation in Illinois, also tends to be politically unstable. I think you have seen this in the state of Illinois where not only the mandated sailing but also the limitations on the number of gambling stations created a situation of excess profit within the industry which created ongoing pressure at the legislative level to change the tax structure to capture a greater portion of the economic rents for the benefit of the government.

I would like to offer some conclusions with regard to my various remarks. First, with regard to research regarding the social and economic impacts of gambling, we have a long way to go to fully understand the implications of what has been presented. I think it's very important that we distinguish between the economic and social impacts of different types of gambling, different types of casino style gambling, noting in particular that destination resort casinos will have very different benefits and costs to their jurisdictions than will urban or suburban casinos.

Urban casinos will have very different impacts than the proliferation of slot machines outside of casinos, as with slot operations that can be found in states such as South Carolina or Montana or South Dakota or Oregon. And given the trends that are occurring, especially in the area of Internet gambling and the potential for interactive gambling at home via television, I think we are going to be confronting some more challenging issues on what are the overall impacts of these forms of gambling.

The real challenge we have is to move towards a more appropriate balance of the appropriate presence of gambling in society at large. And as we establish this policy we should try to keep in mind the consumer rather than the other revenue sharers or potential rent seekers in trying to establish a basis for good policy toward gambling. We should look at strategies that have real effects in mitigating social impacts, negative social impacts rather than strictly symbolic regulation as the riverboat industry so aptly characterizes. Thank you.

CHAIRMAN JAMES: Thank you very much.