1. Expanded Gambling in Georgia: Social and Economic Impacts to Consider Public Hearing Comments Atlanta, GA 10 December 2015 Douglas M. Walker, Ph.D. Professor of Economics College of Charleston Charleston, SC, USA

2. About me Professional Background College of Charleston (2007-present) Georgia College (1998-2007) Research on socio-economic impacts of gambling 2 books More than 50 journal articles and book chapters Consultant for state government agencies, including Florida Legislature Maryland State Lottery and Gaming Control Agency Massachusetts Gaming Commission Missouri Office of the Attorney General …and various research agencies and industry groups 2

3. Interest in Georgia Georgia resident for 9 years GA casino expansion would represent large expansion in SE, and could affect politics in South Carolina Interesting perspectives, outdated research cited during Savannah meeting in Nov. 3

4. 1 Economic perspective on gambling Everyone has a perspective, or bias… Economics focuses on voluntary, mutually beneficial transactions Consumers are sovereign and rational ‘Gambling’ is putting something of value at risk on the outcome of an uncertain event Enjoyable and entertaining to some people, not to others Since the expected value of all casino bets, lotteries, etc., is negative, gambling must provide entertainment value Psychologists generally view the issues from the perspective of minimizing potential harms from expanded gambling… 4

5. Disordered gambling Research suggests that 0.4 – 2.0% of the adult population has a gambling disorder Not ‘rational’ – inability to control behavior Suffer financial stress, problems with family, friends, career ‘Social costs’ are attributed to pathological gamblers Common view that ‘vice’ goods with potential for addiction should be regulated Gov’t role to protect vulnerable populations Gambling is viewed differently from ice cream, shoes, etc. 5

6. 2 Economic benefits Measurable benefits include: Tax revenues Employment & wages Economic growth/development Less-measurable benefits: Consumer benefits More entertainment firms competing => lower prices Higher quality ‘entertainment’ options Increased variety ‘Counterfactual’ is important What industry might have otherwise expanded? 6

7. Tax revenues Taxes are technically transfers of wealth Tax revenues are the primary reason for legalization in the U.S. Tax rates on GGR range from 6% to over 60% CT tribal casinos pay 25% slot revenues to state DE tax on VLT revenue 62% ME taxes 16% table games, 39-46% on slots MD slots taxed at 67%; 20% on table games PA slots taxed at 55% Then casinos pay income taxes… Lower tax rates are likely to encourage larger capital investment 7

8. Tax revenues, cont. 2011 study showed slightly negative effect of casino revenues on state tax revenues But effect is positive when tourism and economic growth effects are considered – indirect tax revenues attributable to casinos States tax GGR at much higher rates (25-30% avg) than sales taxes (6% avg) 1-to-1 substitution in spending => casinos increase tax revenues Lottery ‘tax’ is about 30% Lottery and casinos will raise more tax revenue than either alone 8

9. Market saturation? Is the NE market ‘saturated’? Closure of 4 of 12 Atlantic City casinos Should a particular state care about regional saturation? Are casino companies willing to build more? A great market test of a saturated market Regulations may need to consider potential future competition Discussion of lower tax rates in DE, IN Other regulatory changes to help stabilize industry 9

10. Casino revenues in NE states 10

11. Casino taxes paid in NE states 11

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13. Casino taxes & politics Taxes from gambling (casinos + lotteries) represent < 5% of revenue in most states Gov’t allows industry to exist, enforces monopoly ‘Defensive legalization’ Why not keep $ at home? Gambling taxes are ‘voluntary’ ‘regressivity’ question is interesting Fiscal stress relief Avoid cutting spending or raising other taxes 13

14. Employment & wages Do casinos create new jobs or ‘cannibalize’ jobs in other industries? County-level analysis shows a positive employment effect and minor wage effect from casinos Positive impacts concentrated in entertainment & hospitality sectors Effect size depends on county size 14

15. Casinos and economic growth Some markets clearly see significant economic growth due to casinos Las Vegas Macao Mississippi Gulf Coast Intuition: increased economic activity is the source of economic growth Impacts in other markets not as obvious 15

16. Consumer benefits Rarely discussed in political debate over casinos Benefits mentioned earlier Lower prices More variety Higher quality Tourism: new option for potential tourists Entertainment isn’t tangible, but it benefits consumers Baseball game tickets Critics: gambling is a ‘sterile transfer of money’ 16

17. 3 Economic costs ‘Industry cannibalization’ Evidence that casinos harm lottery sales Relationship to other industries: ‘market competition’ Little evidence of an overall negative impact on other industries Results could be market-specific Additional infrastructure requirements Regulations/taxes typically require casinos to pay for 17

18. Net (measurable) economic impact Considering just the economic benefits Tax revenues Employment & wage effects Consumer benefits And economic costs Inter-industry competition Gambling industries Non-gambling industries Infrastructure costs Very likely to be positive 18

19. 4 Social costs of gambling Social costs are mostly attributed to pathological gamblers Income lost from missed work Crime Corruption of public officials Divorce caused by gambling Bankruptcy Most ‘costs’ defy monetary measurement But they’ve been estimated at $10,000 Critics claim: Cost:Benefit ratio is 3:1 But policymakers need data to help inform decisions… 19

20. Comorbidity Most pathological gamblers have other disorders Petry, Stinson, and Grant (2005, p. 569) find: 74.2% have alcohol use disorders 38.1% have drug use disorders 41.3% have anxiety disorders 28.5% have obsessive-compulsive personality disorder How can ‘social costs of gambling’ be measured when most pathological gamblers have multiple disorders? Most social cost studies ignore this issue Result is an exaggeration of the social costs attributable to gambling. 20

21. 5 Casinos and crime Key concern about casinos is the potential link to crime Pathological gamblers are more likely to commit crimes Casinos attract potential victims with cash and potential criminals Evidence is mixed, and appears to be dependent upon how ‘crime rate’ is measured Include or exclude ‘visitors’? Reno studies showed areas near casinos are safer 21

22. 6 Other concerns Other important concerns defy measurement in cost-benefit analyses Citizens may have concerns about gambling changing the culture NIMBY Moral concerns about gambling Should the state condone casino gambling? What about lottery gambling? Beer with > 5% ? Individual freedom and the role of government in restricting industry? These are real considerations that often get ignored in the face of seemingly precise and authoritative data 22

23. Summary of research Good data, ability to measure economic benefits Employment Wages Tax revenues Difficult to measure consumer benefits Economic costs (e.g., industry cannibalization) are more difficult, but still measurable Social costs are very difficult to measure Research should focus on types of harms and their prevalence – not estimating social costs in $ 23

24. Contact Information Doug Walker Professor of Economics College of Charleston 5 Liberty St., Rm. 427 Charleston, SC 29401 Tel: (843) 953-8192 Email:dougwalker2@gmail.com Web:walkerd.people.cofc.edu casinonomics.net Casinonomics (2013) 24