socioeconomic impacts of the casino industrywalkerd.people.cofc.edu/pubs/2013/osu...

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

Wal

ker,

Imp

acts

of

Cas

ino

s

2

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

Wal

ker,

Imp

acts

of

Cas

ino

s

3

Wal

ker,

Imp

acts

of

Cas

ino

s

4

Wal

ker,

Imp

acts

of

Cas

ino

s

5

Wal

ker,

Imp

acts

of

Cas

ino

s

6

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

Wal

ker,

Imp

acts

of

Cas

ino

s

7

Economic benefits of casinos

• Consumer welfare

• Economic growth

• Employment

• Tax revenues

Wal

ker,

Imp

acts

of

Cas

ino

s

8

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

Wal

ker,

Imp

acts

of

Cas

ino

s

9

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

Wal

ker,

Imp

acts

of

Cas

ino

s

10

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

Wal

ker,

Imp

acts

of

Cas

ino

s

11

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

Wal

ker,

Imp

acts

of

Cas

ino

s

12

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

Wal

ker,

Imp

acts

of

Cas

ino

s

13

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

Wal

ker,

Imp

acts

of

Cas

ino

s

14

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

Wal

ker,

Imp

acts

of

Cas

ino

s

15

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

Wal

ker,

Imp

acts

of

Cas

ino

s

16

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

ker,

Imp

acts

of

Cas

ino

s

17

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)

Wal

ker,

Imp

acts

of

Cas

ino

s

18

“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

Wal

ker,

Imp

acts

of

Cas

ino

s

19

“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

Wal

ker,

Imp

acts

of

Cas

ino

s

20

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

Wal

ker,

Imp

acts

of

Cas

ino

s

21

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

Wal

ker,

Imp

acts

of

Cas

ino

s

22

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

Wal

ker,

Imp

acts

of

Cas

ino

s

23

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

Wal

ker,

Imp

acts

of

Cas

ino

s

24

Ohio casino law, cont.

Wal

ker,

Imp

acts

of

Cas

ino

s

25

Ohio and competing casinos

Wal

ker,

Imp

acts

of

Cas

ino

s

26

$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)

Wal

ker,

Imp

acts

of

Cas

ino

s

27

$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

1/2

01

1

2/2

01

1

3/2

01

1

4/2

01

1

5/2

01

1

6/2

01

1

7/2

01

1

8/2

01

1

9/2

01

1

10

/20

11

11

/20

11

12

/20

11

1/2

01

2

2/2

01

2

3/2

01

2

4/2

01

2

5/2

01

2

6/2

01

2

7/2

01

2

8/2

01

2

9/2

01

2

10

/20

12

11

/20

12

12

/20

12

1/2

01

3

Mo

nth

ly R

eve

nu

e (

AG

R)

Month

Ohio and Nearby Casino Revenues

Ohio Total

Competition Total

Wal

ker,

Imp

acts

of

Cas

ino

s

28

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

ker,

Imp

acts

of

Cas

ino

s

29

$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

1/2

01

1

2/2

01

1

3/2

01

1

4/2

01

1

5/2

01

1

6/2

01

1

7/2

01

1

8/2

01

1

9/2

01

1

10

/20

11

11

/20

11

12

/20

11

1/2

01

2

2/2

01

2

3/2

01

2

4/2

01

2

5/2

01

2

6/2

01

2

7/2

01

2

8/2

01

2

9/2

01

2

10

/20

12

11

/20

12

12

/20

12

1/2

01

3

Mo

nth

ly R

eve

nu

e (

AG

R)

Month

Cleveland, Erie, and Pittsburgh Casino Revenues

Cleveland (Horseshoe)

Erie (Presque Isle)

Pittsburgh (Rivers)

Wal

ker,

Imp

acts

of

Cas

ino

s

30

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

ker,

Imp

acts

of

Cas

ino

s

31

$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

1/2

01

1

2/2

01

1

3/2

01

1

4/2

01

1

5/2

01

1

6/2

01

1

7/2

01

1

8/2

01

1

9/2

01

1

10

/20

11

11

/20

11

12

/20

11

1/2

01

2

2/2

01

2

3/2

01

2

4/2

01

2

5/2

01

2

6/2

01

2

7/2

01

2

8/2

01

2

9/2

01

2

10

/20

12

11

/20

12

12

/20

12

1/2

01

3

2/2

01

3

Mo

nth

ly R

eve

nu

e (

AG

R)

Month

Toledo and Detroit Casino Revenues

Toledo (Hollywood)

Detroit (MGM Grand)

Detroit (Motor City)

Detroit (Greektown)

Detroit (Total)

Wal

ker,

Imp

acts

of

Cas

ino

s

32

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

Wal

ker,

Imp

acts

of

Cas

ino

s

33

$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

Wal

ker,

Imp

acts

of

Cas

ino

s

34

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)

Wal

ker,

Imp

acts

of

Cas

ino

s

35

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

Wal

ker,

Imp

acts

of

Cas

ino

s

36

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

Wal

ker,

Imp

acts

of

Cas

ino

s

37

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

Wal

ker,

Imp

acts

of

Cas

ino

s

38

Contact information Doug Walker Professor of Economics College of Charleston WalkerD@cofc.edu 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

Wal

ker,

Imp

acts

of

Cas

ino

s

39