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The following report is from a June 1996 article in the Encarta Yearbook.
By Robert Goodman
Since 1990 legalized casino gambling has spread across America with lightning speed. Before 1990 the only places in the United States where people could legally bet in a casino were in the state of Nevada and, beginning in 1978, in Atlantic City, New Jersey. Today, more than half a century after the first casino opened in Las Vegas, Nevada, gambling at slot machines, blackjack tables, and roulette wheels has become widely available in many parts of the United States.
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According to casino industry sources, the yearly revenues from all casinos nearly doubled from 1988 to 1994—from $8 billion to more than $15 billion. By 1994 about half of all casino visits were made to casinos that were not in Nevada or Atlantic City.
Some social scientists trace the roots of the casino explosion to 1963, when New Hampshire created the first modern state lottery. Including New Hampshire, 37 states and the District of Columbia have introduced lotteries. Lawmakers who favored them argued that lotteries would reduce taxes and provide fresh revenues for public programs.
Other benefits have also been ascribed to legalized gambling. Legislators, Native American tribal leaders, and casino company operators claim legalized gambling not only increases public revenues but also creates new jobs, reverses decades of economic distress, and jump-starts failing city economies by bringing more people into depressed urban and rural areas.
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But is it true that casinos can serve as magic bullets for troubled economies, or are they symptomatic of the inability of political and business leaders to find real answers to such problems? The basis of the pro-gambling argument is that legalized gambling has brought new jobs and a new form of economic development to many depressed communities. Many Native American tribes, for example, have used gambling revenues to increase their members' incomes and to build schools, housing, and clinics. The argument against legalized gambling contends that the social and economic problems created by legalized gambling outweigh the benefits. There is little doubt that as the gaming industry expands this debate will continue.
State lotteries are the most common form of legal gambling available in the United States. Public and private lotteries have existed in the United States, off and on, since earliest colonial times. Jamestown, America's first English settlement, was financed in part by lottery tickets sold in England. As private lottery companies grew in number, so did instances of corruption—such as lottery operators sharing money with phony winners and paying off politicians in return for exclusive licenses. As a result of these scandals, every state but Louisiana had outlawed lotteries by the late 1800s.
In 1893 the Congress of the United States passed a law prohibiting all private lotteries. The company that ran the Louisiana lottery moved to Honduras, in Central America, and sold tickets to Americans by mail. The next year, Congress pulled the final curtain, banning the import of lottery material. It was not until New Hampshire created a state lottery in 1963—as a way to avoid using a state income tax—that another legal lottery operated in the United States.
The recent spread of casino gambling began in 1985 in Montana, when that state created minicasinos by allowing taverns to have up to 20 video poker machines in exchange for a percentage of the revenues. Four years later, South Dakota legislators gave their state lottery permission to operate similar machines in bars. In this case, the tavern owners received a percentage of the revenues from the lottery agency. By 1995 Louisiana, New York, Massachusetts, and Oregon had also effectively transformed thousands of taverns and convenience stores into minicasinos through the use of keno and video poker machines. By 1996 Montana had about 34 video poker machines for every adult in the state.
In 1989, four years after Montana inaugurated minicasinos, Iowa legalized the nation's first modern casino riverboats. Promising that the boats would be more like low-key tourist attractions rather than like Las Vegas gambling venues, state legislators limited bets to $5. Then lawmakers in Illinois, Mississippi, and Louisiana also legalized riverboats in the early 1990s, but without betting limits; the Iowa restriction was soon lifted.
Some form of casino gambling is now available in 23 states, ranging from video poker and keno machines in neighborhood bars and convenience stores, to the Native American-owned Foxwoods Casino in Connecticut, which has become the highest-grossing casino in the United States. Former industrial cities in Illinois and Iowa are now centers of riverboat gambling; old Colorado and South Dakota mining communities have become virtual casino towns. More casino space was built in just 2 years in Mississippi than in 16 years in Atlantic City.
By 1995 more than 70 casinos were operating on Native American reservations, due in large part to tribal powers confirmed by Congress in the Indian Gaming Regulatory Act of 1988. In total, the tribes were estimated to be collecting more than $3 billion in yearly revenues from their gambling operations. In Arizona, 16 tribes offered everything from slot machines and keno to off-track betting and dog racing; Minnesota and Wisconsin each had 11 tribes operating casinos; South Dakota and Washington state each had 9.
According to data in International Gaming & Wagering Business (a gambling industry trade magazine), Americans lost more than $40 billion in legal wagering in 1994—a nearly 400 percent increase since 1982. By 1994 Americans were losing nearly double the amount of money on legal gambling than they were spending on sporting events, live entertainment, and theme parks combined. About 45 percent of the losses resulted from casino-style gambling, 35 percent resulted from state lotteries, and 10 percent resulted from pari-mutuel betting. (Pari-mutuel is a system of betting whereby the winners divide the total amount bet, after deducting management expenses, in proportion to the sums they have wagered individually.) The remaining 10 percent was lost in legal gambling on sports events, card rooms, bingo, and charitable gaming events.
The rapid spread of gambling has not been the result of any broad-based popular movement. The last statewide vote to approve high stakes, unlimited casino gambling took place 20 years ago when New Jersey voters narrowly approved such gambling for Atlantic City. Unlike the movement to end Prohibition (a period from 1920 to 1933 during which the sale and manufacture of alcoholic beverages was made illegal in the United States), there is no popular movement in favor of increasing access to gambling.
The arguments in favor of legalized gambling are based mainly on the assumption that casinos and lotteries can produce benefits for their communities. Many public officials have voted in favor of casinos in the hope of reviving depressed local economies. They welcome their new gambling ventures with a fanfare they once reserved for the opening of manufacturing plants. In the last decade, politicians have touted casinos as a substitute for the devastated steel industry of Gary, Indiana; a counterbalance to auto industry losses in Detroit; and a replacement for vanishing jobs in Connecticut's defense industry. In Iowa, lawmakers said riverboats would revive cities devastated by declines in the farm-machinery industry, and in New Bedford, Massachusetts, a casino was being proposed in 1996 to provide jobs for out-of-work people in the fishing industry. The mayors of Chicago, Philadelphia, and New York are eager to add casinos to their cities in the hope of creating jobs and public revenues.
Lotteries have also been promoted as beneficial, with many states using their lottery revenues to help pay for education. In 1995 state lotteries produced more than $11 billion in revenues. In many states these revenues become part of the state's general fund, but in nearly half of the states with lotteries, lottery revenues are specifically earmarked for education purposes. In 1995 about $5.4 billion of all lottery revenues were used for education programs.
In 1995 Frank Fahrenkopf, Jr., president of the American Gaming Association, the chief trade association of the casino industry, told the United States Senate Governmental Affairs Committee: “Our industry is bringing economic opportunity to hundreds of communities across the country. The tax revenues we generate ($1.4 billion from casino gaming alone in 1994) are helping to build schools and roads, and to provide for other civic needs.”
Gaiashkibos, president of the National Congress of American Indians, told a congressional subcommittee in early 1991, “The window of opportunity which opened the way for gaming has given us the competitive edge and opened the door for other economic ventures as well ... Gaming is all that many tribes have today that can work.”
Critics of legalized gambling, however, argue that in most communities the elaborate economic promises made by gambling promoters are rarely realized. The hopes of casino proponents are based largely on the economic success of Las Vegas, which legalized casinos in the early 1930s. But Las Vegas for decades had a virtual national monopoly on casino gambling, and its casinos developed in a desert area, where there were few already existing local businesses. The city was able to develop by drawing huge numbers of tourists who came and not only wagered their dollars but also spent their money on hotels, restaurants, entertainment, and gifts.
The strongest arguments for the benefits of casinos apply to places that, like Nevada in the 1930s, have almost no existing businesses. Such areas include the many Native American reservations that now have casinos, and places such as Tunica, Mississippi, which before the arrival of casino gambling had the highest per capita unemployment in the country.
Critics of legalized gambling acknowledge that, in the case of communities like these, the introduction of a casino—or indeed of any economic enterprise—can have a short-term positive economic impact, because there are almost no preexisting local businesses to be negatively affected. But the economic benefit for communities such as Tunica, or for many Native American reservations, will only exist until other nearby communities, other Native American tribes, or other states begin to offer competing gambling venues.
Cities and towns entering the gambling market now find a radically different situation from that of 1930s Las Vegas, opponents of legalized gambling argue. Instead of having a monopoly on gambling, these communities become just one more place in an increasingly crowded gambling market. Instead of attracting people from out-of-state, as Las Vegas does, the people pouring money into their slot machines are primarily local residents. The gambling industry refers to these gamblers as “convenience gamblers” and “day trippers,” who typically come from within an 80-km (50-mi) radius of the casino. Instead of bringing new dollars to the local economy, convenience casinos siphon large amounts of consumer spending away from other local businesses such as restaurants and motion-picture theaters.
A number of studies conducted in Illinois since 1992—including those by the Illinois Economic and Fiscal Commission, a state government research group; the Chicago Better Government Association, a privately funded research organization; and Professor Earl Grinols, an economist at the University of Illinois at Champaign—have thrown doubt on the benefits of legalized gambling. These studies indicated that although the riverboats in that state have vastly increased gambling revenues to the casino owners and the state, most of the gambling was being done by local residents and there has been little or no benefit to other businesses. Rather, the studies found that many businesses have reported losses.
Leading casino operators, such as Steve Wynn, chief executive officer (CEO) of Mirage casinos in Las Vegas, and Donald Trump, the U.S. real estate developer and owner of several Atlantic City casinos, have recognized how gambling affects other businesses. “There is no reason on earth for any of you to expect for more than one second,” Wynn told a Bridgeport, Connecticut, audience of local business owners in 1992, “that just because there are people here [in his proposed casino], they're going to run into your store, or restaurant, or bar.” When a host of casinos were proposed for Florida several years ago, Trump told the Miami Herald,”People will spend a tremendous amount of money at the casinos ... Money that they would normally spend on buying a refrigerator or a new car.”
Gambling's critics say that lotteries, too, have their downside. Although lottery revenues have brought some relief to financially strapped education programs, these funds are often used simply to replace, rather than supplement, existing public funds for education. In 1991 Bill Honig, California's public school superintendent, complained that lottery revenues earmarked for education made it difficult to raise additional education funds from the public. “The public is more reluctant to pass education bond issues because they think we're floating in lottery money,” Honig said. Tying education budgets to lotteries also created an erratic source of money. In one three-year period in California, between 1988 and 1991, lottery revenues declined from about $1 billion to $500 million.
Educators also complain that while public officials tout the benefits to a state's education program of playing the lottery, the actual amount of lottery funds educators receive is quite modest. The Idaho and Montana state lotteries, for example, have promoted the lotteries as important sources of education funds, but according to critics, officials have failed to note how small a percentage of the total education budgets the lotteries provided.
“We'll get only $7 million to $8 million from the lottery this year,” said Montana Education Association research director Tom Bilodeau in 1993, “which is no more than 1 percent of the total $800-million budget for K through 12 education in the state. Yet the way it's portrayed as such an important benefit to education undermines our ability to convince local voters of the need for additional levies or state legislators of the need for more funds.”
Critics of legalized gambling also argue that one of the biggest negative side effects of the gambling industry is the cost of dealing with an increased population of problem gamblers. The costs of problem gambling can outstrip any of gambling's economic benefits, many of these critics claim.
Psychological counselors and researchers define problem gamblers as people who are unable to properly control their gambling behavior. These gamblers will typically continue to lose more money in the hope of winning back their losses and getting ahead. In order to continue gambling, problem gamblers typically borrow lots of money that they don't pay back. They often fail to pay their taxes, utility bills, and other debts as well. As a result, many of them go bankrupt.
In 1990 the Council on Compulsive Gambling of New Jersey reported that compulsive gamblers in that state carried an average debt of $40,000. In 1995 the Minneapolis Star-Tribune reported that personal bankruptcies in Minnesota increased by about 20 percent following the introduction of casinos in the early 1990s.
Problem gamblers also often turn to criminal activities, such as passing bad checks, filing false insurance claims, embezzling money, dealing drugs, and simply stealing, in order to keep up their habit. Their criminal activities not only result in money lost by their victims, but also taxpayers must bear new costs for police, court, and jail expenses. In 1994, according to a U.S. News & World Report computer analysis, crime rates in towns with casinos rose nearly 6 percent, while they fell 2 percent in the rest of the country.
The United States Gambling Study, which was conducted at the University of Massachusetts at Amherst from 1992 to 1994, surveyed the economic impacts of the expansion of gambling in the late 1980s and early 1990s and estimated the combined yearly costs, by state, of problem gamblers. According to the study the average cost, per state, was $13,200 for each problem gambler. The study also found as many as 9.3 million adults and 1.3 million teenagers with some form of problem-gambling behavior. Depending on the state, surveys in 1995 indicated that between 1.5 percent and 7 percent of the adult population were problem gamblers. The state with the 7 percent problem-gambling rate was Louisiana, where, since 1991, lawmakers have introduced casinos and electronic gambling machines at racetracks, bars, restaurants, and truck stops.
Although many Native American tribes have benefited economically from their casinos, they have also had to contend with problem gambling among their members. In 1995 Professor Don Cozzetto, director of graduate programs at the University of North Dakota's political science department, described problem-gambling rates in the Native American population as 2 or 3 times higher than those among the white population.
Even small increases in a state's problem-gambling population translate into enormous costs for other state residents, according to gambling's opponents. For example, if problem gambling increased by only 1 percent in the adult population of a sparsely populated state such as Iowa, the combined private and public costs, based on the estimates of the United States Gambling Study, would rise roughly $145 million yearly. The same 1 percent increase in a more populous state such as California would result in $1.5 billion in added costs. A 1995 Wisconsin Policy Research Institute report concluded that the introduction of casinos in Wisconsin had created problem gambling costs of at least $160 million a year.
Gambling proponents argue that problem gambling is unaffected by the availability of legal gambling opportunities—that is, they say that people will bet illegally on sports and other games in states without casinos. Gambling opponents, however, cite recent reports showing that states that have had legalized gambling for longer periods of time tend to have more problem gamblers. In Iowa, for example, a 1995 Department of Human Services report found that problem gambling had more than tripled since riverboat casinos were introduced—from 1.7 percent of the adult population in 1989 to 5.4 percent in 1995.
But even more disturbing than these economic costs is the impact on problem gamblers themselves, opponents of legalized gambling say. Durand F. Jacobs, a professor of psychiatry at California's Loma Linda University, found that most of the people who commit crimes to support their compulsive gambling had no previous criminal records. “More often than not,” Jacobs reported, “they had better-than-average school and work adjustment and above-average levels of attainment in education and employment.” In 1994 Jeffrey Bloomberg, a South Dakota state's attorney, told a congressional committee, “We have seen individuals who, prior to their exposure to gambling, had no criminal history, who were not junkies or alcoholics, many of whom had good jobs, who became hooked on slot machines and, after losing all their assets and running all credit resources to their maximum, began committing some type of crime to support their addiction.”
Problem-gambling rates are now highest among the poor and men from minority groups, but the growth of legal gambling is creating greater opportunities for women and young people to gamble. Some researchers call gambling the fastest-growing teenage addiction. According to Howard J. Shaffer, director of the Harvard University Medical School's Center for Addiction Studies, “Young people are the only constituency who has experienced gambling that is both state sponsored and culturally approved for their entire lifetime.” In studies he conducted, Shaffer found that by their senior year, nearly 90 percent of Massachusetts high school students had bought lottery tickets illegally. Another study cited by Shaffer found that two-thirds of a random sample of students at an Atlantic City high school had gambled illegally at the city's casinos. Every month nearly 30,000 underage people are either prevented from entering or are ejected from Atlantic City casinos.
The gambling industry has responded to allegations of problem gambling and to calls for curbing such behavior in several ways. While contesting the extent of the problem, the industry has shown a willingness to post warnings about the dangers of compulsive gambling and to fund research about the problem. As recently as 1994, Michael Rose, CEO of the Promus Companies, one of the country's largest casino operators, told the American Legislative Exchange Forum, a national conference of conservative political leaders, that in the new casino markets, “the actual social impacts are minimal.” The following year, however, the American Gaming Association stated it had addressed the problem by establishing a foundation to research treatment methods, to hold conferences and seminars, and to fund toll-free telephone hot lines for people to call when they get in trouble because of their gambling. Generally speaking, however, experts say that the industry does not feel it should have to pay for the treatment of gambling addiction.
The gaming industry has emerged as a powerful political lobby willing to fight hard to stay in business. For example, in the early 1990s Atlantic City's casino owners faced competition from new casinos elsewhere. These casino owners convinced state public officials to repeal a ban on 24-hour gambling and to lift limits on the number of slot machines allowed in Atlantic City's casinos—regulations that had been aimed at reducing compulsive gambling—in order to help them compete with the new casinos.
In 1996 a popular movement in Louisiana began calling for a statewide vote on the elimination of all casino-style gambling. This group was formed in the wake of political scandals connected with the gambling industry and the dramatic increase in problem gambling in that state. Gambling proponents responded by raising the specter of job and revenue losses. “If we start taking these jobs away, these revenues away,” warned state Senator Francis Heitmeier, “Louisiana will go back into a recession.”
In some states the gambling industry has attracted leading political figures to its lobbying efforts. Illinois is a good example of this phenomenon. At one time, former Governor Jim Thompson, former Senate President Philip Rock, former House Majority Leader James McPike, former Chicago Mayor Eugene Sawyer, and a number of former state legislators were registered lobbyists for the gambling industry.
According to gambling's critics, the gaming industry's lobbying efforts have caused many state governments to shift from being regulators of gambling to promoters of gambling. Governments spend millions on gambling advertisements and are introducing highly addictive forms of gambling, such as slot machines. By 1996 states were spending a total of nearly $400 million a year advertising their lotteries compared with $50 million a year to promote their small manufacturing enterprises—traditionally some of the country's biggest job creators.
The lobbying successes registered by the industry may, however, be in jeopardy. In 1994, despite unprecedented lobbying money spent by the gambling industry, not a single statewide casino referendum passed. In Florida, where casino companies spent more than $16 million promoting casinos, 62 percent of the voters opposed a measure that would have legalized casino gambling. In 1995 Connecticut legislators turned down a proposal for a casino in Bridgeport. A leading gambling trade magazine described the results of the industry's expansion attempts in 1995 as “a bloodbath for the gaming industry.”
One of today's strongest grass-roots movements to end legalized gambling is in Louisiana. In 1995 a statewide poll in Louisiana indicated that nearly two-thirds of voters were more likely to support a candidate who would cut back on gambling than one who favored it.
A few years ago gambling industry leaders were predicting a spectacular future. “By the year 2000,” said Phil Satre, president of Harrah's Casinos, “ninety-five percent of all Americans will most likely live in a state with legal casino entertainment.” But as the impacts of casinos became more widely known, many communities began rallying against them. The National Coalition Against Legalized Gambling, founded in 1994 and led by Vietnam veteran and Methodist minister Tom Grey, brought together a wide spectrum of grass-roots opposition groups.
When voting is allowed, some Native American tribes have also opposed casinos. In 1994 the Seneca tribe in New York State rejected casinos 62 percent to 38 percent. That same year, the Navajo tribe, the second largest Native American tribe in the United States, voted 55 percent to 45 percent against operating casinos—even after it was estimated that casinos could generate several thousand jobs and up to $30 million a year in revenues within seven years.
The federal government is promising to scrutinize more closely the actual impacts of gambling expansion. United States Senators Paul Simon (Democrat, Illinois) and Richard Lugar (Republican, Indiana) and Representative Frank Wolf (Republican, Virginia) recently introduced bills in Congress to create a national commission to study the economic and social effects of gambling proliferation. Both President Bill Clinton and Republican presidential candidate Robert Dole have endorsed the idea. In March 1996 the U.S. House of Representatives passed a version of the bill by a voice vote. In a letter to Senator Simon, Clinton wrote, “Too often, public officials view gambling as a quick and easy way to raise revenues, without focusing on gambling's hidden social, economic, and political costs.” The American Gaming Association mounted a vigorous campaign to defeat these bills.
Some critics of legalized gambling argue that there are alternatives to gambling in its current form. One method would be to update a 300-year-old English lottery in which some lucky players won prizes and the rest were repaid, with interest, after ten years. A modernized version could sell lottery tickets with the chance to win prizes. Nonwinners would be repaid all of their original ticket cost, plus interest, after five years. The state would use lottery revenues and the money it made investing those revenues to pay winners, repay players, and make loans to local businesses that agree to create new jobs.
Some observers have called for the federal government to play a role in limiting the mutually destructive competition between the states over gambling. Many state politicians, even those opposed to expansion, have found themselves favoring gambling simply as a defensive measure to keep local residents from spending their money in neighboring states or at nearby Native American reservations.
Other observers have suggested that spending limits on lobbying and promotional campaigns for legalizing gambling could help create a more rational public debate on this issue. These observers note that the gambling industry's enormous financial resources enable it to vastly outspend its opposition, a significant advantage in a political debate. Even after voters have rejected their original plans, gambling operators often return again and again with new proposals and more promotional money.
Ultimately, lawmakers and the public must ask some fundamental policy questions about the relationship between government and gambling. Should government be in the business of promoting enterprises that are potentially addictive, increase crime, and drain money from local businesses struggling to survive? Will economic development policies that promote casino gambling lead the nation to a more secure future?
Robert Goodman is the Lemelson Professor of Environmental Design and Planning at Hampshire College, Amherst, Massachusetts, and author of The Luck Business (The Free Press, 1995). He directed the United States Gambling Study, completed at the University of Massachusetts at Amherst in 1994, and is the Executive Director of the United States Gambling Research Institute in Northampton, Massachusetts.
1995 National Gaming Survey, (GTech Corporation, 1995)
“America's Gambling Fever,” Joseph P. Shapiro, U.S. News & World Report, January 15, 1996.
The Luck Business: The Devastating Consequences and Broken Promises of America's Gambling Explosion, Robert Goodman (The Free Press, 1995)
“The False Promise of Development by Casino,” Peter Passell, New York Times, June 12, 1994.
Selling Hope: State Lotteries in America, Charles T. Clotfelter and Philip J. Cook (Harvard University Press, 1989)
Temples of Chance: How America Inc. Bought Out Murder Inc. to Win Control of the Casino Business, David Johnston (Doubleday, 1992)
The Atlantic City Gamble, George Sternlieb and James W. Hughes (Harvard University Press, 1983)
Source: Encarta Yearbook, June 1996.
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Gambling, Pathological; Gambling; Horse Racing
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