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 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 other 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% of 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 on 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 Wal
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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
Mo
nth
ly R
eve
nu
e (
AG
R)
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
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Mo
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AG
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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) Wal
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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
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Mo
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AG
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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) Wal
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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
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Mo
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AG
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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
Mo
nth
ly R
eve
nu
e (
AG
R)
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
Mo
nth
ly R
eve
nu
e (
AG
R)
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 [email protected] 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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