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Casino Junkies
By Richard C. Morais
The latest gambling wave has a silent partner: Governments throughout the country are hooked.
It's Valentine's Day at Caesars in Atlantic City. Every room in the hotel is taken. In the casino, bells ring; gamblers are three-deep at the craps table and roaring. Earth, Wind and Fire, the hit big band of the 1970s, is blaring its horns and the crowd is going wild.
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America is back to betting. It hadn't paused very long. Sept. 11 may have dented air travel to spots like Las Vegas, but neither that nor the economic downturn could stop the U.S. gambling industry (lotteries, casinos, bingo, pari-mutuel tracks) from posting a 5% increase in revenues last year, to an estimated $64 billion, even after a decade of explosive growth. According to Christiansen Capital Advisors LLC in Limerick, Me., Americans today lose more gambling than they spend on movie tickets, theme parks, spectator sports and videogames combined. Merrill Lynch figures illegal betting is a similar amount again.
Simon Holliday, partner at Britain's Global Betting & Gaming Consultants, says the U.S. was the world's fastest-growing gambling market in the last decade, even though it had plenty of competition for that honor worldwide. Global Betting estimates $900 billion was spent on legal wagers worldwide last year, leaving the industry with a $270 billion take, or gross revenues, after payouts. By the latter score, legal gambling is almost as big a business as steel.
This isn't just a phenomenon of relaxed social strictures. There's a reason governments around the world are embracing this vice: to tax it. And few nations are traveling quicker down this path than the U.S. Windfall: American government received $27 billion in "gambling privilege taxes" in 2000, calculates Christiansen Capital, a 45% increase since 1997. Two-thirds was from state-sponsored lotteries. Gambling now generates far more public revenues than either tobacco or alcohol.
America has been down this road before. The 1612-15 Jamestown, Va. settlement was financed with English lottery money, as were colonial churches, roads, prisons and hospitals. By 1795 the likes of Harvard, Yale and Princeton drew on some 2,000 authorized lotteries.
But 19th-century Reformist disgust at gambling dens and lottery corruption brought decades in which legal betting in the U.S. was confined mostly to a few horse or dog tracks and an occasional church bingo night.
Then in 1964 a lottery reappeared in tax-starved New Hampshire; most other states would follow in the 1980s. Corporatization of the isolated Nevada casinos (legalized in the Great Depression) began in the late 1960s. New Jersey followed on the Boardwalk in 1976, but the wholesale rout of gambling prohibition is traceable to two recent phenomena: Indian reservations getting a federal go-ahead in 1988 and the early 1990s recession inviting a revenue fix. In a decade billions of dollars were spent on new betting palaces in the U.S., and 48 out of 50 states again offer legal betting.
Consider South Dakota. After Wild Bill Hickock was shot in the back in 1876 while playing poker in Deadwood Gulch, the cards he was holding--two pairs, aces and eights--became known as "the dead man's hand." Today casinos are back in Deadwood. The handle is small, but not so for the video lottery terminals in gas stations, bars and convenience stores, off of which South Dakota skims 50%. The state's general fund gets 12% of its money from video lotteries.
Video lotteries are the "crack cocaine" of gambling, says the Illinois-based Reverend Tom Grey, a Methodist who is spokesman for the National Coalition Against Legalized Gambling. Seven years after they were legalized, South Dakota has 8,000 of them, one for every 94 people in the state. Attempts to ban them are defeated at the ballot box for fear of tax increases.
Powerful lobbies and prodigious levels of campaign donations have gathered around gaming. If some of the influence is illicit, it wouldn't be the first time. Louisiana's Serpent became the most famous post-Civil War state lottery, drawing action across the Union. But the Serpent eventually ensnared 23 Louisiana senators in fraud and profit-skimming charges. The same state saw Governor Edwin Edwards convicted on casino-related bid-rigging counts (still on appeal) nearly a century later.
But in today's big-business gambling world most influence-peddling is of a legal variety. In the current two-year election cycle, equipment supplier International Gaming Technology and its subsidiaries have given $1 million to politicos, says the Center for Responsive Government in Washington.
That kind of money buys a lot of resistance, even to steps (such as a rollback in "convenience" gambling like video lotteries) urged in 1999 by a "National Gambling Impact Study" commissioned by Congress and the White House.
At the state level, it's no different. In California, for example, gaming interests and Indian tribes combined are up there with real estate developers as the largest sources of political fundraising.
Park Place Entertainment's chief executive, Thomas Gallagher, involved in the grand scheme to bring casino gambling to New York (see sidebar), tells FORBES his company's lobbying budget is "very small" and the company has a strict policy not to "spend money influencing a jurisdiction to legalize gambling." But according to records on file with New York State, Park Place spent at least $620,000 lobbying politicians in Albany during 2000 and 2001.
The social questions inherent in legalized gambling are ripe for debate.
According to studies by Rachel Volberg, president of Gemini Research in Northampton, Mass., 2.5 million Americans are "pathological" gamblers. And the poor disproportionately waste their income on gambling.
At Caesars in Atlantic City a Keno cart sits seductively next to the breakfast buffet; ATMs are at the elbow; alcohol is on the house. "Loyalty" cards encourage bigger bets and return visits, translating into free rooms, gambling chits or even a "spiral cut ham." It works.
Yes, the casinos warn the wastrels. "Unlike the tobacco industry, we have made no bones about the fact that not everybody should gamble," says Gallagher of Park Place, "and we've gone down quite a road to educate people."
But is a small-print caution enough fanny-covering to fend off future liability?
It's midnight at a blackjack table in Atlantic City: A row of women young enough to still have acne snap off crisp $100 bills each time their stack of chips disappears. The table freezes as a middle-aged man, audibly sighing all night as he loses, suddenly curses them and screams, "You don't know what you are doing!" before storming off.
The National Center for Addiction & Substance Abuse, run by old Washington hand Joseph Califano, is quietly making gambling a health care issue. Last year it hosted Dr. Alan Leshner of the National Institute on Drug Abuse saying scientists were discovering there was little difference between so-called psychological and physical addiction; the brain waves and dopamine spikes in a drug addict and a gambling addict are strikingly similar. Dr. Steve Hyman, director of the National Institute of Mental Health, reported that between 9% and 30% of people suffering from substance abuse also qualified as pathological gamblers. America's trial lawyers will find such reports useful.
Might taxpayers, too, be liable? A 1998 study revealed that almost a third of all states that had authorized gambling did not spend anything on its problems. Along Route 17 in upstate New York a radio spot promotes the state's newest "777" lottery while a billboard for Off-Track Betting, also owned by New York State, encourages motorists to "pick up some bread on the way home"--from a wager. Imagine the outcry if the government similarly encouraged a few belts of Scotch or a cigarette smoke.
Yet those same taxpayers have a stake in the action. Were legal gambling stopped cold tomorrow and public budgets held steady, every U.S. household would have to cough up $254 to make up the difference. If we were betting types we'd say that isn't going to happen.
Casino Junkies
By Richard C. Morais
The latest gambling wave has a silent partner: Governments throughout the country are hooked.
It's Valentine's Day at Caesars in Atlantic City. Every room in the hotel is taken. In the casino, bells ring; gamblers are three-deep at the craps table and roaring. Earth, Wind and Fire, the hit big band of the 1970s, is blaring its horns and the crowd is going wild.
ADVERTISEMENT
America is back to betting. It hadn't paused very long. Sept. 11 may have dented air travel to spots like Las Vegas, but neither that nor the economic downturn could stop the U.S. gambling industry (lotteries, casinos, bingo, pari-mutuel tracks) from posting a 5% increase in revenues last year, to an estimated $64 billion, even after a decade of explosive growth. According to Christiansen Capital Advisors LLC in Limerick, Me., Americans today lose more gambling than they spend on movie tickets, theme parks, spectator sports and videogames combined. Merrill Lynch figures illegal betting is a similar amount again.
Simon Holliday, partner at Britain's Global Betting & Gaming Consultants, says the U.S. was the world's fastest-growing gambling market in the last decade, even though it had plenty of competition for that honor worldwide. Global Betting estimates $900 billion was spent on legal wagers worldwide last year, leaving the industry with a $270 billion take, or gross revenues, after payouts. By the latter score, legal gambling is almost as big a business as steel.
This isn't just a phenomenon of relaxed social strictures. There's a reason governments around the world are embracing this vice: to tax it. And few nations are traveling quicker down this path than the U.S. Windfall: American government received $27 billion in "gambling privilege taxes" in 2000, calculates Christiansen Capital, a 45% increase since 1997. Two-thirds was from state-sponsored lotteries. Gambling now generates far more public revenues than either tobacco or alcohol.
America has been down this road before. The 1612-15 Jamestown, Va. settlement was financed with English lottery money, as were colonial churches, roads, prisons and hospitals. By 1795 the likes of Harvard, Yale and Princeton drew on some 2,000 authorized lotteries.
But 19th-century Reformist disgust at gambling dens and lottery corruption brought decades in which legal betting in the U.S. was confined mostly to a few horse or dog tracks and an occasional church bingo night.
Then in 1964 a lottery reappeared in tax-starved New Hampshire; most other states would follow in the 1980s. Corporatization of the isolated Nevada casinos (legalized in the Great Depression) began in the late 1960s. New Jersey followed on the Boardwalk in 1976, but the wholesale rout of gambling prohibition is traceable to two recent phenomena: Indian reservations getting a federal go-ahead in 1988 and the early 1990s recession inviting a revenue fix. In a decade billions of dollars were spent on new betting palaces in the U.S., and 48 out of 50 states again offer legal betting.
Consider South Dakota. After Wild Bill Hickock was shot in the back in 1876 while playing poker in Deadwood Gulch, the cards he was holding--two pairs, aces and eights--became known as "the dead man's hand." Today casinos are back in Deadwood. The handle is small, but not so for the video lottery terminals in gas stations, bars and convenience stores, off of which South Dakota skims 50%. The state's general fund gets 12% of its money from video lotteries.
Video lotteries are the "crack cocaine" of gambling, says the Illinois-based Reverend Tom Grey, a Methodist who is spokesman for the National Coalition Against Legalized Gambling. Seven years after they were legalized, South Dakota has 8,000 of them, one for every 94 people in the state. Attempts to ban them are defeated at the ballot box for fear of tax increases.
Powerful lobbies and prodigious levels of campaign donations have gathered around gaming. If some of the influence is illicit, it wouldn't be the first time. Louisiana's Serpent became the most famous post-Civil War state lottery, drawing action across the Union. But the Serpent eventually ensnared 23 Louisiana senators in fraud and profit-skimming charges. The same state saw Governor Edwin Edwards convicted on casino-related bid-rigging counts (still on appeal) nearly a century later.
But in today's big-business gambling world most influence-peddling is of a legal variety. In the current two-year election cycle, equipment supplier International Gaming Technology and its subsidiaries have given $1 million to politicos, says the Center for Responsive Government in Washington.
That kind of money buys a lot of resistance, even to steps (such as a rollback in "convenience" gambling like video lotteries) urged in 1999 by a "National Gambling Impact Study" commissioned by Congress and the White House.
At the state level, it's no different. In California, for example, gaming interests and Indian tribes combined are up there with real estate developers as the largest sources of political fundraising.
Park Place Entertainment's chief executive, Thomas Gallagher, involved in the grand scheme to bring casino gambling to New York (see sidebar), tells FORBES his company's lobbying budget is "very small" and the company has a strict policy not to "spend money influencing a jurisdiction to legalize gambling." But according to records on file with New York State, Park Place spent at least $620,000 lobbying politicians in Albany during 2000 and 2001.
The social questions inherent in legalized gambling are ripe for debate.
According to studies by Rachel Volberg, president of Gemini Research in Northampton, Mass., 2.5 million Americans are "pathological" gamblers. And the poor disproportionately waste their income on gambling.
At Caesars in Atlantic City a Keno cart sits seductively next to the breakfast buffet; ATMs are at the elbow; alcohol is on the house. "Loyalty" cards encourage bigger bets and return visits, translating into free rooms, gambling chits or even a "spiral cut ham." It works.
Yes, the casinos warn the wastrels. "Unlike the tobacco industry, we have made no bones about the fact that not everybody should gamble," says Gallagher of Park Place, "and we've gone down quite a road to educate people."
But is a small-print caution enough fanny-covering to fend off future liability?
It's midnight at a blackjack table in Atlantic City: A row of women young enough to still have acne snap off crisp $100 bills each time their stack of chips disappears. The table freezes as a middle-aged man, audibly sighing all night as he loses, suddenly curses them and screams, "You don't know what you are doing!" before storming off.
The National Center for Addiction & Substance Abuse, run by old Washington hand Joseph Califano, is quietly making gambling a health care issue. Last year it hosted Dr. Alan Leshner of the National Institute on Drug Abuse saying scientists were discovering there was little difference between so-called psychological and physical addiction; the brain waves and dopamine spikes in a drug addict and a gambling addict are strikingly similar. Dr. Steve Hyman, director of the National Institute of Mental Health, reported that between 9% and 30% of people suffering from substance abuse also qualified as pathological gamblers. America's trial lawyers will find such reports useful.
Might taxpayers, too, be liable? A 1998 study revealed that almost a third of all states that had authorized gambling did not spend anything on its problems. Along Route 17 in upstate New York a radio spot promotes the state's newest "777" lottery while a billboard for Off-Track Betting, also owned by New York State, encourages motorists to "pick up some bread on the way home"--from a wager. Imagine the outcry if the government similarly encouraged a few belts of Scotch or a cigarette smoke.
Yet those same taxpayers have a stake in the action. Were legal gambling stopped cold tomorrow and public budgets held steady, every U.S. household would have to cough up $254 to make up the difference. If we were betting types we'd say that isn't going to happen.