Editorial: Don’t Gamble On Casinos Until Lawmakers Prove It’s A Win

Earl Grinols, a distinguished professor of economics at Baylor University and author of Gambling in America: Costs and Benefits, penned an op-ed in today’s Daily News urging New York State residents to shoot down casino expansion in the state when it comes to voters in November, saying a better cost-benefit study needs to be done.

We agree. The existing proposal remains far too vague, the benefits far too uncertain, and a new proposal can be brought before voters once our legislators have done proper due diligence on our behalf.

Yesterday we reported that lawmakers and Cuomo struck a deal to place four casinos upstate and three with locations to be determined seven years later. While word originally got around that the later three would be in the New York City area, the text of the bill ultimately wiped out any mention of New York City while establishing the seven year moratorium. After that seven years, three could still come to our neck of the woods – with Coney Island being a proposed site – and legislators have decided to keep all options open.

According to Grinols, siting is an important factor in determining the cost and benefit of a casino to the local economy, and to put a bill before voters without that included will be asking voters to make their decision blindly.

“This is bad government, because gambling has questionable economic benefits and serious known costs,” Grinols writes.

Moreover, Grinols said, it’s very hard to find a location where the benefits outweigh the costs.

Studies demonstrate that for a gambling operation to increase economic activity, money must be drawn in from outside a region, and a sizable proportion of its revenues must represent new demand. Economists know that a lucrative casino does not guarantee economic development, which is the increase in well-being of the existing residents of an area.

To assess whether economic development will result from a casino, we need answers to many questions: Will locals in each area own their casino? How will the profits and revenues be used? How many pathological gamblers will be produced, and what will be done to grapple with those afflicted by this condition?

At the moment, the only question of those that has been answered is the first: No, locals will not own their casino. International mega-corporations like the Malaysia-based Genting Group will. Other than that, all we have are glaring question marks.

One thing is for sure, though. An individual’s gambling problem becomes the problem of every taxpayer.

In fact, as a general rule, the social costs of gambling exceed its social benefits by a factor of 3 to 1, and each pathological gambler is associated with annual social costs on the order of $13,000.

A study of Iowa in 1989, before that state introduced casinos, found that 1.7% of the population suffered from problem gambling (0.1% were pathological gamblers). The comparable numbers for Nevada, measured in a 2000-01 study, are 6.4% (3.5% pathological). New York and most of the country would probably lie between these numbers depending on gambling availability and demographic factors.

Already, legislators including our own Assemblyman Steven Cymbrowitz are pushing to allocate potential casino revenue to programs for gambling addiction.

But will casino revenue be enough to cover the cost of addiction programs, and will we still have enough left over to “spur economic development” or invest in education?

Under the current proposal, 39 percent of slot revenues and approximately 10 percent of table revenue will go to the state. Assuming that $13,000 cost is spot on, and not actually more expensive as everything in New York seems to be, for an individual problem gambler to be covering his own social costs while at the casino, he’d have to lose nearly $34,000 a year at the slot machines, or $130,000 at the tables.

Of course, that’s not likely. And, sure, his costs will be subsidized by the other losers at the slots and tables. But the question is how many of the people at the casino will be problem gamblers? And are there enough “healthy” gamblers to sufficiently subsidize their problems as well as leave enough revenue for other spending?

Under the current proposal, which rushes to place four casinos upstate and three at yet-to-be-determined sites (which should be a scary proposition, especially considering pro-gambling lobbyists doled out $2 million to lawmakers to ensure such ambiguity), no one can answer that question.

Which is why every voter should say “No” when casino expansion is on the ballot this November. Our legislators can always go back to the table and do their due diligence on our behalf, and offer us a more detailed referendum. Casinos can always come later.

But if we roll the dice on casinos too soon, our gamble will be irreversible.