RESEARCH Business Economy

GAMBLING
Casino's costs far outweigh their economic benefits, economist
says

Mark Reutter, Business Editor
(217) 333-0568; mreutter@uiuc.edu

10/1/2001

CHAMPAIGN, Ill. — Although promoted as an economic development tool, casino gambling is a losing hand when subjected to rigorous cost-benefit analysis, a University of Illinois economist concludes.

Analysis of data compiled from around the country suggests that opening a casino eventually costs a community at least 1.9 times more than its benefits, Earl L. Grinols, a UI economist, writes. This amounts to a yearly national loss of at least $27.5 billion.

Grinols co-edited a special issue on casino gambling in the journal, Managerial and Decision Economics, with David B. Mustard, a University of Georgia economist. In their paper, which concludes the issue, Grinols and Mustard reviewed studies on the gambling industry, which expanded rapidly in the 1990s and includes an array of riverboat and Indian casinos. "Much of the information has been funded by the gambling industry itself and is marked by poorly executed or biased economic-impact studies that use incomplete data or make conclusions not supported by facts," Grinols said in an interview. "But there is a growing consensus by independent economists on the benefits and costs of casinos." Putting together the best available information was a major objective of the special issue.

A major source of the social cost of gambling comes from the relatively small (but growing) group known as problem and pathological gamblers. "Two-thirds to 80 percent of gambling revenues come from the 10 percent of the population that gambles most heavily. Expressed in reverse, 90 percent of the population may provide as little as 20 percent of casino revenues," Grinols and Mustard wrote.
At least one in five compulsive gamblers file for bankruptcy after they have exhausted multiple credit cards and other lines of credit, often putting their families in jeopardy.

Lost productivity from sick days off for gambling and extended lunch hours is another cost borne by the local economy. Between 21 and 36 percent of compulsive gamblers report losing a job because of their gambling habit, according to information from gambling treatment centers.

Grinols and Mustard identified higher crime rates as yet another price of gambling. A county with a casino has about 8 percent higher crime rates than a county without a casino four years after the casino is opened, a study by Mustard and Grinols concluded in 1999.

So, too, pathological gamblers followed "a predictable path of exhausting personal resources, selling insurance policies, selling possessions and ‘borrowing’ from family and friends." Overall, the "cost-creating activities" of a pathological gambler is $13,586 a year, the economists concluded.

The major benefits of gambling come from profits and tax revenues from the casinos as well as possible price effects such as higher wages or housing prices. However, a common fallacy involves just computing the tax receipts and wages from a casino without examining the ramifications of a casino on other economic activity. Casinos are known, for example, to draw revenues from other businesses and to discourage the location of new business.