Doug Walker

My name is Doug Walker. I'm a Professor of Economics at the College of Charleston, and most of my research has been on the economic and social impacts of gambling.

There's both economic and social benefits and costs that can be identified. Some of them are easier to measure than others, but among the benefits--that at least most politicians are looking for--would be tax revenues, jobs that are created from building the casinos and operating them. Those are the two primary political and economic benefits.

For the customers, though, there's also the benefit that, if they enjoy gambling, then that's an activity--it's a new option for them that they might not have had before in the area. So it's also a benefit to the customers.

Pennsylvania, for example, has one of the highest tax rates on slot machine revenue in the country and, among states, has the highest revenue from casinos. 00:01:00In a state like that, you have relatively high tax rates on slots, somewhat lower rates on table game revenues. What I think it allows the politicians to do is it enables them to either spend more, or it requires them to bring in less tax revenue from other sources, given they're going to keep spending constant, for example. So it might release some fiscal pressure on them. That's, I think, about the short-term and long-term effect of it.

It's different in terms of different states the degree to which gambling or casinos helps the state budget. Of course, Pennsylvania also spends a lot of money, so bringing in a billion or two billion dollars is helpful, but it may not make a huge difference. Whereas in a smaller state, a small amount of revenue might make a bigger difference for them.

I would think of casinos as a form of entertainment, and so when a new casino opens in an area it's going to represent a new option that consumers have. And, of course, that is competition for existing firms that are wanting consumer spending. I look at it like any other business where it just represents more competition. And, of course, you're going to see some people in favor of that--probably consumers because it gives them another option of how to spend their money. But then also existing businesses don't like competition.

You've seen King Street here where there's lots of restaurants and bars. That's great for people who live here and tourists who visit when a new restaurant or bar opens because it gives them more options. It also puts pressure on the existing firms to provide better quality products and lower prices. But, of course, the existing firms would prefer not to have a new competitor.

There is in theory at least some degree of cannibalization of other types of businesses, but if you look at employment data at the county level where casinos exist, you see overall employment rising. From the purely economic perspective, it doesn't probably really matter if there's more employment, it means that the economy is growing. Now whether people in the county or in the jurisdiction enjoy having more resources dedicated or provide gambling services -- for malls or movie theaters or whatever, that's a different question. Studies have shown and data suggests that there's an increase in employment overall, not a decrease. In general that cannibalization effect isn't something that's really a problem unless you just don't like the idea of gambling.

Depending on the states included and the time or the years that you study, sometimes you get positive results, sometimes you don't. My interpretation of that is that, at least initially, there's some type of novelty effect in the short run where it's a new casino or hotel or other entertainment and restaurants that people from the area and maybe from outside the area are going to come visit. Eventually that novelty effect maybe wears off a little bit, and so over time the casino and whatever else is a part of it kind of becomes a part of the local economy. Those impacts that you see early on maybe start to go away. Now it may still be the case that there's more economic activity in the local economy as a result but compared to before the casino is open when you saw 00:05:00this jump in spending in the area, that then just becomes part of the economy. You don't notice that impact as much in the longer term.

Most of those costs are attributable to problem or pathological gamblers, and now they're called disordered gamblers. Disorder gamblers, pathological gamblers--the terminologies changed over time. These are people who--a small percentage of the population may be 1 to 3%--who gamble to an extent that it disrupts their lives in a significant way. Either their relationships or their career. They develop problems as a result of it. One of the major problems, of course, is financial because it's a gambling. Those people who develop problems will sometimes engage in crimes to get money, or they may embezzle from their 00:06:00employer. Most of the social costs that you see mentioned are the result of those that particular group of people.

I think the researchers have done a pretty good job at discussing the different types of problems that might arise, either again certain types of criminal activity or loss of productivity on the job for people who are focused on gambling instead of working or divorce or bankruptcy--things like that. What I think the research has been less good at and is probably not possible to do really well is to put a monetary value on that. So there are some empirical estimates of the social cost of gambling on a per pathological gambler per year basis that run anywhere from $9,000 to $20,000 a year, and some way out there estimates that are up at like $50,000 a year. The problem with them all is that they're usually based on a lot of arbitrary assumptions.

There's no doubt that there's a social cost attributable to problem gambling that's associated with casino gambling, but trying to put a monetary value on that is problematic. I've argued against doing that, but politicians like there to be just a clear-cut number of, 'Okay, we may get a billion dollars in tax revenue, but the social costs are two billion dollars.' That's numbers that people like to cite, but they're not very reliable, I would argue.

A lot of states have lotteries; I think it's 45 or 46. One of the concerns is always if you introduce casinos, is it going to cannibalize lottery ticket sales? You have the same question regarding horse racing or dog racing or now maybe sports betting, since it's a potentially legal at the state level. There's 00:08:00been a lot of studies that looked at how different gambling industries are related, and there's not a consistent negative relationship between those.

I think there is pretty good research that suggests that lotteries and casinos compete with each other, and I did a study with some co-authors that looked at Maryland. We found that especially closer to casinos, lottery sales decrease. But it wasn't a really significant amount, and it definitely wasn't enough so that the overall tax revenue still went up, even though you introduced two types of games that compete with each other. There is going to be some competition probably among different types of gambling, but because they're taxed-- the different forms are usually taxed at such high rates, the overall tax revenue is still probably going to go up when you do that.

It matters probably also to some degree what's existing in neighboring states. 00:09:00If you're surrounded by other states that have a particular form of gambling and you don't, then it probably makes sense-- if your main concern is tax revenue-- to go ahead and legalize it because your people are leaving anyway to do that type of gambling.

Casino gambling is probably the most common case where that exist. Lotteries are so common now; no one's crossing state borders to buy that. I doubt many people travel too far to place sports bets or bet on horses and things like that. I don't know if that's a big issue overall anymore. It might have been early on when lottery wasn't as common and casinos weren't as common, but now since they're so widespread that issue's probably decreased in terms of its importance.