Casino Gambling – Fool’s Gold

We’ve all read the studies: when Walmart comes to town, pre-existing businesses go down, because they can’t compete.  Sure, Walmarts create jobs; but at what expense?    Sure casinos create jobs, but if they do the kind of business that advocates are promising, people won’t have the money to spend on the other Massachusetts goods and services that depend on their purchases to survive.   Sure, building three mega casinos will create construction jobs, but does that make every development project a smart idea?

An August 2007 report by the Lottery Commission cited per-capita (every man, woman, child) spending on the Lottery at $831 in Somerville, where I live.  The statewide average is just a little lower.  Since there are about 2.3 residents per Somerville household, that means that the average household is spending about $1,900 on Lottery tickets ($36/week), or a little over 4% of the gross median income for the metro area ($46,315, equivalent to full time work at a $23/hour salary).  

How does that $1,900 compare with net income after taxes, housing costs, food costs, health insurance, car insurance, clothing, telephone, and other essentials?   Assuming federal and state taxes of about 25% of income, assuming a modest $1,300 per month on rent/mortgage/heat/utilities, assuming our frugal household of 2.3 people spends $15/person/day on food, and spends health and auto insurance, clothing, and telephone service for about $4,00/year…    The $1,900 for Lottery tickets is approximately 20% of their remaining (discretionary) income of $9,661.  

Of course, some people buy more Lottery tickets than others, and some people don’t play.  If half of all Somerville households play the Lottery, then the average household that’s buying Lottery tickets is spending nearly $3,800 per year ($73 /week).  And if national statistics hold true locally, then the households playing the Lottery are earning, on average, a lot less than the $46,315 median income.  

A household earning $42,000 and buying Lottery tickets at that same rate is spending nearly 30% of its discretionary income on this not-really-a-tax.  A household earning $36,000 and buying Lottery tickets at that same rate would be investing nearly 99% of its discretionary income on State Aid to Cities and Towns.  

How much do you want to bet that a heck of a lot of regular Lottery players don’t earn $36,000 a year?   And don’t have the “discretionary” income to throw away on scratch tickets?   When was the last time you thanked one of those nice Lottery players for helping to keep your taxes a little lower?

I said I wasn’t going to focus on the ethics of State-promoted gambling.  Sorry, I got carried away.

I’m interested in where the proponents think casino gambling revenues are going to come from (after the initial windfall from licensing)?

Consider the five possible sources:

(a) The revenue could be squeezed out of people who continue to buy Lottery tickets at their present-day pace —  but, based on the calculation above, how much additional household income could possibly be left over for casino gambling?

(b) The revenue could come from spending that replaces Lottery purchases — but then where’s the net gain for the State?

(c) The revenue could come from Massachusetts residents who now travel to out-of-state casinos to gamble — But, if that’s the case,  why do we think that out-of-state casinos are going to stand around and just lose their business to Massachusetts?   More likely, Massachusetts and neighboring states will be pressured into a bidding war — with each State’s casinos arguing that more of the proceeds of gambling should go to the winner, and less should be paid in taxes to the State…. which leaves the State with less revenue.

(d) The revenue could come from Massachusetts residents who discover their “inner gambler”, thanks to intense advertising by the newly licensed casinos — but then it will come at the expense of other sources of entertainment that these folks used to spend money on (restaurants, movies, shopping, etc.);

(e) The revenue could come from out-of-state residents who come to Massachusetts to gamble, when the Bay State becomes a gambling destination — but again, why would we expect other states to stand still and watch their recreational revenues get shifted to Mass.?

Instead of looking at whether casinos will create jobs or generate revenues, we’d be better served by an assessment about the NET revenues and the NET job growth, not in a vacuum, but in the context of similar decisions by other states.  

Sure, the gaming industry — and a Governor stymied by a Legislature that’s afraid of closing corporate tax loopholes and allowing local option taxes — has rosy predictions about casino revenues.  Sure those first year license fees look good right now.  But it’s a Faustian bargain, and the windfall revenues and tens of thousands of new jobs are just as illusory as the jackpot that the Lottery Commission wants you to chase down at the corner store.