Center of the American Experiment

Turning Back to Go Forward:

Why Gambling Doesn’t Pay, But Costs

Earl L. Grinols
__________________

Earl L. Grinols, former Senior Economist with the Council of Economic Advisers, has taught at a
number of institutions including MIT, Cornell University, University of Chicago, and the
University of Illinois. Currently he is Distinguished Professor of Economics at Baylor
University. Dr. Grinols was born in Bemidji, Minnesota and grew up in St. Paul where he
attended the University of Minnesota, and, always a Minnesotan—as Garrison Keillor reminds
us—doing outstanding things, completed a BA in mathematics and a BS in economics
simultaneously and was graduated from both with highest honors. He earned his Ph.D. from
MIT. Dr. Grinols was one of the first academicians to recommend to Congress in 1994 that it
establish a national commission to study the impact of casino gambling. The National Gambling
Impact Study Commission was formed in 1996. Annette Meeks, CEO of the Center of the
American Experiment, was honored to participate in the appointment of the members from the
House of Representatives to that very commission. The Commission recommended a
moratorium on gambling expansion. Dr. Grinols continued gambling research and released
with Cambridge University Press in 2004, a comprehensive book on the subject, entitled,
Gambling in America: Costs and Benefits.

Thank you. It is a pleasure to be here. I appreciate very much the chance to speak.
We recognize Christopher Columbus today because he seemed to have a better
understanding of his world than those around him at the time did. That better
understanding caused him to decide that he had to sail west to go east. There is
something about the irony of that that has caught my attention. I would like to reference

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Columbus as a kind of theme for my remarks today: Are there sometimes situations
where you have to turn back to go forward?

Imagine that there is a newly developed drug to solve certain medical problems.
Other drugs exist for the same problem and the new drug’s use is successful for most
people. It seems to serve the purpose well, but as time passes, experience reveals that,
for one or two percent of the users, the drug has devastatingly harmful consequences.
For another two or three percent of users, it has harmful consequences. The company
wants continued licensing and the state is considering complying if the promoter will
share the profits. Recent experience in the case of Vioxx was that less than 3/1000ths of
1 percent of the users were found to suffer harmful cardiac events as a result of the use
of Vioxx. That is fewer than 5,600 individuals per year. Yet, Merck voluntarily removed
the drug from the market last September 30, 2004. Or consider Giftco, Inc. of Vernon
Hills, Illinois, whose Winnie the Pooh plates and their utensils could suffer a broken tine.
After one incident of choking, in which the child was unhurt, Giftco voluntarily withdrew
the entire product from the market.
But we’re not talking about Winnie the Pooh utensils or drugs. My real purpose here
today is to discuss what we have learned about casino-level, class III-level gambling
and give you some information, which I hope will be helpful in the public debate in
Minnesota and in other parts of the country.
I can summarize the information very easily in three statements: They are that
casino money comes from the wrong place; it comes from the wrong people; and it
comes at the wrong price. Let me elaborate. First, note that the type of gambling that
has expanded to the rest of the nation since 1990 is represented in casinos of
convenience for nearby residents. In Illinois, research conducted in the middle 1990’s
found that more than 75 percent of casino revenues came from individuals living fewer
than 35 miles away, and if you add an additional ring, maybe 35 to 75 miles, you include
the great bulk of the revenue—well into the mid 90’s percent of the total. Figure 1
displays this information.1
These numbers are probably understatements for today, because at the time this
study was done, there were fewer alternative casino gambling opportunities for

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residents in the area surrounding Illinois, and the evidence that we have is that people
don’t drive past a casino to get to another one. This is not the case for certain
destination resort casinos locations such as Las Vegas, perhaps Atlantic City and
Foxwoods in Connecticut.

GEOGRAPHICAL DISTRIBUTION OF CASINO

REVENUES: IL Data, 1995

80%
70%
60%
50%
40%
30%
20%
10%
0%
0-35 Miles 35-75 Miles 75-100 Miles 100-150 300+ Miles
Miles

FIGURE 1: Casinos of convenience predominantly serve nearby residents.

We also know that in the period of casino expansion to the rest of the country in the
1990s, Las Vegas experienced an absolute boom. If you teach a population to gamble
that didn’t gamble before, a certain percent inevitably want to go to the big-time and that
means going to Las Vegas. In Lake Wobegon everybody can be above average, but for
the nation as a whole, all of the states that have introduced casinos cannot be getting
rich by attracting an above-average amount of each other’s money. If Las Vegas is
benefiting at the expense of the rest of the country, it must indeed be at the expense of
the rest of the country. Numbers being what they are, the dollar flows must work a
certain way.
If we say that casino revenues come primarily from neighboring residents or locals—
in the state of Minnesota, the likelihood is that the share is above 96 percent—this
means that the revenue must be coming out of other businesses. At my hotel door this
morning was a copy of USAToday. In the Life section I saw a piece on “Destinations
and Diversions” that talks about American Indian casinos in New Mexico. I want to give

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you some information that just happens to be from New Mexico. “Diversions” is a good
word choice, because it is the neighboring businesses and areas that are losing money.
You can’t have two or three hundred million dollars going into casinos without that two
or three hundred million dollars coming out of some alternate use.
The New Mexico Taxation and Revenue Department did a study in the late 1990s,
investigating a drop-off in the taxable gross revenues that occurred at the time of the
expansion of the casinos in that state. The deviation from trend resulted in, by their
estimates, about $45 million of failed growth—growth in revenues that should have
occurred but didn’t—that seemed to be tied to the expansion of Indian casinos in the
state. They produced a lot of charts and graphs. Figures 3 and 6 from their study are
reproduced below as our Figure 2, showing the deviation of taxable gross receipts from
the best fit trend in 1994-95, the period when casinos began operation.2
Eating establishments and certain other types of establishments, for example, are
well known to suffer losses if they are close to casinos. This is consistent with my own
studies. In Illinois, I got the locations of the ten riverboat casinos that exist in that state,
drew five-mile, ten-mile and 30-mile rings around them, and compiled the sales tax data
for those rings that the state collected on a quarterly basis in what is called “kind-of-
business” tax receipts.3 There were ten classifications of these receipts. We found that
there is no single classification of spending that people use to fund their gambling.
People don’t say, “I was going to save this money for a refrigerator, but I think instead
that I’ll take the refrigerator money and spend it at the casino.” Rather, we found that
casino spending comes from a range of alternatives. Miscellaneous retail and
wholesale sales were down as a result of higher casino revenues, as were general
merchandise sales. There was no single category of spending that rose as a result,
save one. We learned that money that went into the casinos was coming out of the
rings closer in and we found that if you are a gas station or filling station close to the
casino, then, probably, your revenues would rise. So people fill their gas tanks in
connection with their gambling! My coauthor and I wondered, did we really have to do
this much statistical work to figure that out? At least it told us that the data that we had
was good enough to distinguish these kinds of impacts and give us some confidence
that what we were finding was accurate.

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 FIGURE 2: Casino take money from other uses and reduce taxes from other
sources.
New Mexico was cautious in its conclusions. The state experienced $175 million of
unexplained drop-off in tax revenues from other taxable sources and concluded that
some of that had to be laid at the doorstep of the casinos. The study reported that New

5
Mexico was collecting $39 million in direct taxes from the casinos, but attributed to the
casinos the loss of growth in revenues of $45 million. Pairing these numbers implied
the obvious interpretation that there was not a fully well thought through deal made
when the casinos were allowed into the state.

In addition to coming from the wrong place, gambling revenues come from the
wrong people. If you go to a typical person and ask, Have you gambled in the past
year? 30 percent will say, No, they haven’t. This is true, even in Las Vegas, which
probably has the most gambling opportunities available of any place in the country. If
you ask a different question, Have you gambled ever in your life?, you will get a higher
percentage. Most of us have gambled somewhere at some time, but how many of us
have gambled in the last 12-month period? Answering no is a pretty good indication
that we’re not really much into gambling. An additional 60 percent might enjoy gambling
once in a while. It is a way to spend an evening. Such individuals might plan on losing
a certain amount of money, taking in a meal perhaps, but they are not going to be in the
casinos on a weekly basis or a daily basis, and they’re certainly not going to be there at
2:00 am and at their lunchtime at noon. With respect to the remaining 10 percent, we
know that they account for about 80 percent of the revenues. In the case of Minnesota
casinos—this information is from a study done at the University of Minnesota in the
1990’s—the top 1 percent of wagerers were accounting for 50 percent of the money
collected by the casinos.4 A recent study from Pennsylvania just this year found that
the top 1.1 percent was responsible for 39 percent of the slot machine activity and the
top 8.7 percent accounted for 85 percent.5 This is a very skewed distribution that shows
that, yes, people like gambling, but it is a very tiny percent of the population that likes
gambling a lot.
In fact, the problem is a worse than these numbers reveal. To make this point, I’d
like to tell just one story. This comes from a former student of mine. His name is
Ricardo Gazelle. He now works in Washington at the InterAmerican Development
Bank, but at the time, he was at his first job at the University of Nevada-Las Vegas.
While there, he decided that he might as well do bit of research on gambling. He began

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to investigate and attended some of the Gamblers Anonymous group meetings in the
area. He told me that in one of the meetings a woman stood up, and following the
format, gave her first name and began to explain her story. She said that she decided
she had a gambling problem when she found herself buying extra-absorbent
sweatpants so that she could ignore the call of nature, up to two times, without having to
leave the gambling table. It was then that she asked, “What am I doing? I have a
problem. I need to deal with this.” These types of stories are not difficult to find, and
you have to consider that the people who have gotten caught up in gambling pathology
say that the addiction is every bit as strong as drug addiction or any other kind of
addiction. We are not talking about minor problems for those people who have
problems. We will return to this shortly.
While looking at data in the middle 1990s, I found some interesting facts. As far as I
know, I am the first person to have noticed what I am about to explain. Before I do,
however, I would like to make a little footnote at this point in my remarks. Gambling at
the Class III (casino) level has been legal in Nevada since 1931. Yet there is virtually
no research of any kind that is citable that came out of Nevada through the 1990s, and
there is still not a lot coming, that documents the social costs of gambling. Even the first
study of pathological gambling of which I am aware to find out how many problem and
pathological gamblers there were in Nevada, was done just a few years ago. Now back
to the interesting facts: The evidence that I had was twofold. First, I learned that the
average adult living within 35 miles of a casino lost about $200 per year. This was
industry data for Atlantic City. At the same time, I was learning of research on people
who were problem gamblers who said they were losing as much as four, five, or six
thousand dollars a year. In the case of Australia, for example, the evidence there was
that problem gamblers were losing seven thousand dollars a year to gambling,
measured in US dollars. So I put the numbers together. If 100 adults lose $20,000
annually to casinos, and there are a couple of pathological gamblers in the total who are
each losing $3,000, $4,000 or $5,000, it doesn’t take very much to figure out that
pathological gamblers are supplying a sizable percentage of casino revenues. These
numbers have to work this way. I put together the available figures at the time and the
estimate that I first provided was that 1/3rd to 1/2 of casino revenues come from problem

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and pathological gamblers.6 Since that time, other studies have appeared with
confirming numbers and these ranges no longer seem unusual. The share from
problem and pathological gamblers, of course, depends upon the type of gambling.
Casinos take in more of their revenues from problem and pathological gamblers than do
lotteries, for example.
As expected, the industry reaction was negative. I was at a state-run symposium on
gambling in an eastern state where there was a gambling industry executive on one
side of me, a gambling industry consultant on the other side, and various state officials
further down the panel table. I reported this information and also reported the
Minnesota figure about the top 1 percent supplying 50 percent of the wagers.
Afterward, the gambling industry executive next to me dismissively pronounced that
what I said couldn’t possibly be true because pathological gamblers didn’t have enough
money to supply that large a fraction of casino industry revenues. Well, you’ve heard
the numbers. It seems to me perfectly possible for an average pathological gambler to
lose $5,000 or even $6,000 a year when the average adult is losing $200.
The most recent study on this topic of which I’m aware happens to be from Ontario.
The researchers used diaries where gamblers kept track of their winnings and losings.7
Figure 3 reproduces Table 17 from their study.

FIGURE 3: Casino revenues come heavily from problem and pathological gamblers.

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 If you look at the top line relating to gaming machines (slot machines), you find that
no matter how the authors trim their data or adjust it by taking off the highest winners
and the lowest winners, 60 percent of the revenues of slot machines come from
problem and pathological gamblers. To confirm our earlier calculation, let’s do the math
one more time. If 80 percent of casino revenues come from slot machines,8 and 60
percent of that is coming from problem and pathological gamblers, 6x8 is 48, implying
that 48 percent of casino revenues typically come from problem and pathological
gamblers. Once again, the most recent study of which I’m aware, using the best
methodology of which I’m aware, confirms the original range of one-third to a half.

In addition to casino revenues coming from the wrong place and from the wrong
people, they come at the wrong price. To introduce the costs of casino gambling I
would like to begin with another story. After I gave testimony, this time in Rhode Island,
one of the finance committee members turned to me and said, “Professor Grinols, you
have reported to us negative consequences of gambling, but I’ve been to Las Vegas
and it looked like a perfectly fine city to me. I didn’t see anything to be alarmed about.”
I asked him in reply, “What did you expect to see?” Indeed, introducing casinos to your
community does not mean that it is going to look like a war zone when you walk down
the street. You are not going to witness people being mugged as you pass by the shop
fronts.
Nevertheless, his question prompted me to take a closer look at Nevada. Nevada’s
economy is 60 percent dependent on gambling. If there is any place on earth in which
gambling’s social consequences ought to be evident, then they ought to be evident in
Nevada. So, let’s look at Nevada. Before doing so, however, consider the type of
casino consequences we do know. The first example happens to be from Illinois.
Figure 4 shows the title to a newspaper account of a woman who gambled away
mortgage money using monthly house payments, and ended up exhausting the

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 FIGURE 4: Gambling social costs are serious and often hidden.

children’s college savings. The story reports that her husband was notified by the local
sheriff that he had to come home to meet the sheriff there because his house was being
foreclosed. The sheriff, arriving at the house, discovered a suicide note. The husband
also arrived to learn that the wife was dead in their car in the local parking lot of the
nearby shopping area. This was the first moment that the husband knew there was a
problem present. The problem was hidden even to him.
The second example is a man from Iowa. The article is titled, “GAMBLED TO
DEATH. A Des Moines-area man didn’t have a gambling problem until he started
playing the slots at Prairie Meadows. His suicide leaves his family with grief and
questions.” His story is similar to many others: an accountant gets into gambling-
related problems, and ends up committing suicide.
It is important to recognize that casino social costs do not come just at the expense
of the gambler. The teenaged girl shown in Figure 5 had to discover on the day of her
graduation from high school that her mother had committed suicide over her slot
machine habits. She reports hesitating to open her mother’s bedroom door for fear of

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 FIGURE 5: Gambling Social Costs Affect Those Who Do not Gamble.

what she would find. This case happens to be from South Dakota.
Last month, March of 2005, the attorney general of New Hampshire testified about
an addicted gambler, Uno Kim, who entered the home of two elderly Manchester, New
Hampshire, residents, strangled them to death for $36,000, after which he immediately
drove to the Mohican Sun casino and gambled it away. Gambling money was the
motive for that crime.
We also have the case of the woman from Chicago who suffocated her 7-month-old
infant for $200,000 of insurance money for her gambling habit. She was convicted and
is now in prison, serving a 21-year sentence.

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 In Connecticut, the accountant from the town of Stonington admitted to stealing
$257,000. The tax collectors for both Ledyard and Sprague, stole $400,000 between
them.
Such stories are easy to find. In my book, I put 21 pages of half-paragraph
examples of crimes that I easily collected covering a few years of time. I have been
criticized for that by a reviewer, who said Professor Grinols should not have done this
because he demonstrates bias thereby. However, the reason I included examples was
to answer questions like the one I received in Rhode Island. Numbers do not convince
unless the hearer knows what they mean.
And the numbers for Las Vegas are not good. Collected here are some of the social
statistics for Nevada in recent years, many of which apply for the period when Nevada
was the only state that had casinos. Of course, Nevada does not top the list for every
harmful social statistic, and neither does it stay in the same position on a list every year,
but the following figures provide food for thought.

• 1st in suicide, double national average.

• 1st in gambling addictions.
• 1st in divorce.
• 1st in women killed by men.
• 1st in child death by abuse 1978-88.
• 1st in deaths per vehicle mile driven, 1991.
• 1st in per capita bankruptcy rate 1998.
• Most dangerous place to live.
• Most bankruptcies per capita.
• Highest dropout rate for public high schools.
• Lowest percentage of graduates who go on to college.
• Second for worst credit scores, 2005.
• 3rd for children abused or neglected.
• 3rd in abortions.
• 4th in rape.

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 • 4th in out of wedlock births.
• 4th in alcohol related deaths.
• 5th for lawsuits.

FIGURE 6: Nevada’s Social Statistics are not good

Prominent on the list is Nevada’s first-in-suicide rate, more than double the national
average. Not surprisingly, it is first in gambling addiction rate. It is first in women killed
by men. It is first in divorce, first in child death by abuse, first in deaths per vehicle mile
driven, first in per capita bankruptcy rate. It’s the most dangerous place to live. It has
the highest crime rate. Highest dropout rates for public high schools, and the list
continues. Just yesterday (31 March 2005) USAToday reported that Nevada had the
second worst credit scores among states.
Figure 6 is not proof that Nevada’s social climate is due to gambling, but it is grand
jury level evidence that there might be some connection. What do the studies and the
more careful attempts to prove causality show? If you go to the literature and try to find
out what the harmful consequences of gambling are, you learn that there are at least
nine classifications:
1. crime (apprehension & increased police costs, adjudication including criminal
& civil justice costs, incarceration and supervision costs),
2. business costs and employment costs (lost productivity on the job, lost time
and unemployment—if an employee becomes a pathological gambler, is fired,
and another person is hired and trained, there are business costs created),
3. bankruptcy,
4. suicide,
5. illness,
6. social service costs (therapy/treatment costs, unemployment & social
services including welfare and food stamps),
7. government direct regulatory costs,
8. family costs (such as divorce and separation), and
9. abused dollars.

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The term “abused dollars” refers to money obtained under false pretenses by the
gambler but because it is taken from a family member or relative is not reported as a
crime. An example would be the Wisconsin man who took out over 20 credit cards
in his father’s name and ran up $170,000 in debt at the casinos. If you use these
classifications to produce as much as possible an exhaustive and mutually exclusive
list of social costs, collect original studies that have examined one or more of them,
make adjustments for representativeness of the samples studied, and allow for the
fact that other causes contribute to these social problems in addition to gambling,
you can construct the estimate of the social cost to society of one additional
pathological gambler or one additional problem gambler. Combining this information
with the number of additional individuals of each type due to casinos generates a
total social cost number which, when divided by the number of adults in the area of
interest, produces a social cost number per adult that can be compared to a
comparable measure of the benefits of gambling. In my book, I take a good bit of
space to explain what the benefits of gambling are.
The social costs of problem and pathological gambling are about $219 per adult
annually in an area that has had casino gambling present for a sufficient number of
years for gambling pathology to develop—probably 3 or 4 years is sufficient—
whereas the social benefits are about $46 per adult annually. Gambling fails a
cost/benefit test and the failure is not by a close margin. If you want to use the
numbers differently by saying that a state such as Minnesota already has gambling
social costs, you would want to know what the additional social costs would be. In
that case, the cost figures are different because you are restricting attention to the
additions. Numbers vary, but for an area that has initial access to casino gambling
but at a distance, additional social costs might be $143 per adult as I show in my
book. Even then, gambling fails a cost-benefit test by a factor of 3 to 1.
How should you interpret a conclusion of this type? One way would be to
compare it to the lost output of a recession in the economy. President Reagan used
to say that a recession is when your neighbor loses his job; a depression is when
you lose your job. Figure 7 displays quarterly national output for the period of the

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 1990-91 recession. The height of the gray bars is quarterly output. The darker area
above the bars is the lost output due to the recession.

10 YRS OF GAMBLING COSTS

VS 1990-91 RECESSION
Quarterly GDP, Annual Rate

$6,300

$6,200 Area = Recession Lost Output

Billions of 1992 Dollars

$6,100

$6,000

$5,900

$5,800

$5,700
1990: I 1990:II 1990:III 1990:IV 1991:I 1991:II 1991:III 1991:IV 1992: I 1992:II 1992:III

FIGURE 7: Casino Social Costs are Comparable Nationally to the Lost Output of an
Additional 1990-91 Recession Every 7 or 8 Years

If you compare to that a midrange estimate of the social costs of gambling on a

nationwide basis over a ten-year span of time and plot this as the lower black area, you
find that they are roughly comparable in size. The social costs of gambling in society
are equivalent to the lost output of an additional recession of the 1990-91 type every
seven or eight years. We would survive having an additional recession in the economy
that frequently. We could probably have two or three additional recessions and life
would go on. The point, however, is why have these social costs when you do not need
to?
Were you to introduce gambling to a room of 100 adults, and from that you
developed one pathological gambler in the group of 100 and created one problem
gambler in that group of 100, the group would have to pay $14,526—that is a mid range
number—in social costs. That is not the amount of money the group would gamble, that

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is the cost that the group would impose on themselves by having the gambling in their
midst.
I would like to leave my area of expertise in economics for a moment to make a
political recommendation in light of the numbers just presented: Why doesn’t the state
commission three separate groups to work independently, using methodology from
available state-of-the-art studies—I think one of the best studies of costs is contained in
the Tim Ryan study from the University of Louisiana—to determine what the social costs
are of gambling in Minnesota?9 At the deadline, they can come together to compare
their results and the state can put together a list of policy options for itself. If the
numbers that I have presented are not convincing or there are any remaining doubts—I
do think we have seen enough studies since the middle 1990s to lead me to believe that
new research not going to find anything much different—you would have new original
research to consult. Following this advice would not take much time and it would lead
to a better, informed decision.
Because the Mall of America is important to Minnesota, I couldn’t resist providing
you with the following information. In my travels around the country, I have found that
the gambling industry and its representatives tend to draw lines in the sand. When
you cross one line in the sand, they simply draw another line in the sand. The first line
in the sand was the assertion that the expansion of gambling does not increase the
number of problem and pathological gamblers. According to the industry, they’re
already out there, and gambling expansion doesn’t do anything to add to them. That
line in the sand has been crossed. The National Gambling Impact Study Commission
has pretty much demolished that argument. Another line in the sand was the claim
that problem and pathological gamblers could not possibly account for a third to half of
casino revenues. Most of the research has been pretty consistent on that issue. That
line in the sand, too, has been demolished. A third line in the sand which was drawn
is the claim that casinos do not cause crime, visitors cause crime, and casinos cause
visitors. It occurred to me that the casino industry might be wrong about this too. A
casino visitor might be different than the other kinds of visitors. To check, I gathered
data on the three biggest tourist attractions in America. They happen to be the Mall of
America in Bloomington, Minnesota, which has on the order of 38 million visitors a

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year; Disneyworld in Orlando, Florida, which has somewhat fewer visitors per year;
and Branson, Missouri, which is known for country and western music, and gets 6
million visitors a year. Branson, Missouri, by far, gets the most visitors per resident,
over twelve hundred per resident. 6 million visitors per year, by the way, is as many
visitors as the entire state of Hawaii has in a year’s time and Branson is a town of
several thousand. You can imagine that Branson, Missouri ought to be the most
crime-ridden spot on earth if visitors cause crime. Figure 8 shows the number of

GAMBLING AND CRIME: UNIFORM CRIME REPORTS

Las Vegas, Orlando, Branson and Bloomington, Minnesota, 1994

8,000

7,000

6,000
Branson, MO
5,000 Bloomington, MN
4,000 Orlando
Las Vegas
3,000

2,000

1,000

0
Visitors per Resident Crime Per (Visitors+Population)
Capita (Left Scale) (Scaled)

FIGURE 8: Las Vegas receives only 3% of the visitors that Branson, MO

does, but has 11.4 times its crime. It has 15.7 times the crime of
Bloomington, Minnesota (Mall of America) which also receives more visitors.

visitors per resident (left scale) using the leftmost set of bars. Displayed are (left to
right) Branson, Bloomington, and Orlando, followed by Las Vegas, which has the fewest
visitors per resident. The right-hand set of bars displays the number of crimes per
resident-plus-visitors, which is how the gambling industry says they want you to
compute crime. Their preference is that you dilute the crime rate by the number of
visitors plus residents. The figure shows the difference in the crime order of magnitude.

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The crime rate in Las Vegas is 1,040 percent higher than in Branson, Missouri, and it’s
15.7 times higher than Bloomington, Minnesota. Shoppers and people going to hear
semi-retired performers don’t seem to be responsible for as much crime as people who
visit casinos.
In my own study of crime10, I also did the following. I discovered that the National
Park Service collects data on visitors to the national parks. Golden Gate Park in San
Francisco, for example, gets 14 million visitors a year. Park County, Wyoming, which
contains Yellowstone Park, gets 3 to 4 million visitors a year. Many locations are in tiny,
sparsely populated counties. And so I put this information into my data set of every
county in the United States, all the crime rates for FBI Index I crimes, demographic
variables, income variables, and information about when casinos first entered the
counties that had casinos. I included leads and the lags and, in short, did everything
that you’re supposed to do to figure out how much of the crime is due to the presence of
the casino and how much is due to the visitors that I had information on. I found that
national park visitors appear to be associated with reduced crime levels and in the
cases that are statistically significant on the positive side are economically insignificant.
In other words, comparing orders of magnitude shows that park visitors don’t cause
crime at anywhere near the rate which appears to be associated with casinos. In my
mind, the visitor line in the sand has also been crossed. I’m not sure what line in the
sand the casino industry will settle on next, but I’m sure they will find one.
If things are as bad as the ratios say that they are, you might ask, Why does this
activity persist and why is there such constant pressure for casino expansion
everywhere? The answer comes from my 7th grade shop class instructor. He said that
when someone is using the band saw, no one else must stand within the yellow line that
was painted on the floor. The reason was that if you are helping your friend push the
wood through the band saw, he could cut your finger entirely off and he wouldn’t feel a
thing. If he is cutting his own finger off, he might notice before the job is finished. A
similar situation applies to casinos. The people who are getting the benefits from
casinos are not the people who are suffering the costs. There is a separation of those
making decisions and that, in a nutshell, explains why there is such continued pressure
for expansion. And there will continue to be such pressure, until the separation of

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decision-making is solved in some fashion. It is the government’s job to do collectively
for us what we as citizens would do if we each had the time and opportunity to act.
There is a reason for collective action. That is what government is for. Markets are
great at handling what markets handle and voluntary non-governmental organizations
are good at doing certain other kinds of things that groups of people can voluntarily get
together to do. But there are some things that collective action requires a government
to do. Fundamentally, casino gambling is a problem that government must properly
solve, because the citizens cannot and the private organizations cannot.
I was in Springfield, Illinois within the past month. A very courageous young
representative there named John Bradley decided that he’d had enough of Illinois’s
experiments with casinos. He came to the conclusion that it was time to shut down the
whole operation. He said, “Our state has become reliant on an industry that, rather than
a boon, has actually been a drain on our resources. It’s time that we have the courage
to recognize that gambling is a failure and that we must end this 15-year social
experiment that’s done far more harm than good. People of this state were sold a bill of
goods when the Legislature approved casinos, and it’s time we cut our losses and cash
out.” His bill was voted out of committee and the surprising thing, to me, was that after
all of the members of the committee heard my testimony, others’ testimony, and the
representatives’ testimony, they said, “Yeah, you’re probably right. We think the
information you’re giving us is basically right.” They voted 8 to 1 to send it to the floor of
the House. The representative would have been happy to get—and thought he was
only going to get—five votes, just enough to get it out of committee. Instead he got it out
8 to 1, and the one vote against was from a person who had a casino in her district and
felt constrained for that reason. I’m told that the bill has a very good chance of being
passed in the Illinois House, but that they may play the usual games in the Senate and
the prospects there may not be as good. We’ll see what happens down there, but to
return to my original point:
You are on a road trip and you suddenly discover halfway down the road that it is not
taking you where you want to go. One suggestion would be to say, My goodness, we
need to increase our speed and just keep going down this road because we’ll be going
faster. Or, you might think that a better solution is to stop, turn around, find the right

19
road, and get onto the right road. So, maybe sometimes you do have to turn back to go
forward. Thank you.

Following his speech, Professor Grinols took questions from his American Experiment
audience.
MEEKS: Thank you, Professor. Just a quick question to start it off: Has any state
repealed slot machines once they have been introduced?
GRINOLS: The only state of which I’m aware that has ever, in this modern
cycle of gambling expansion, reversed course is the state of South Carolina and that
was because the Supreme Court found that slot machines had entered the state illegally
in the first place. There is an interesting story associated with this. I end my book with
this information. In Hoary County, South Carolina, which is Myrtle Beach, the rate of
Gamblers Anonymous hotline calls was running at around 200 a month, and the number
of Gamblers Anonymous groups in the state was 32. When the order came to shut
down the slot machines on July 1, in one day every slot machine in the state simply,
Bang, stopped operating. Six months later, the number of hotline calls had dropped to
zero, the number of Gamblers Anonymous groups had dropped to 11, and instead of
having 35 and 40 people at those meetings, the number dropped in many of these
meetings to one or two. Gambling is a reversible social experiment. After all, we
successfully banned Class III gambling for most of the country for most of the 20th
century. This is not like Prohibition, where we tried to ban alcohol and—everybody
seems to agree—it didn’t work. Alcohol, by the way, has social costs that are higher
than the social costs of gambling and yet we continue to permit alcohol. It would be
interesting to see what a cost/benefit analysis would say in this case also. But the short
answer is No, no state has yet reversed it legislatively.
MEEKS: Thank you. Jim Van Houten?
VAN HOUTEN: Professor Grinols, it seems to me that the public policy issue is,
number one, can the state really prohibit a sovereign tribe from having gambling. The
federal courts seem to have ruled some things that make some in state government
doubt that that’s really possible. I don’t know about the perceptions in Minnesota, but

20
that seems to be the national view. And the second question, related to that, would be,
If you really can’t stop the tribes from having gambling, isn’t there a public policy
problem with having just one racial group have an exclusive on this kind of thing?
GRINOLS: The purpose of the Indian Gaming Regulatory Act of 1988 was to
provide states with a tool to control the spread of gambling. It was meant to be a
limiting piece of legislation, rather than what it turned out to be, which was the reverse.
The act actually expanded gambling by American Indian tribes across the country. The
law, as it has been explained to me by all experts that I’ve talked to, says that if a state
has a certain level of gambling available or in operation anywhere in the state, then the
American Indian tribes in that state must also be allowed the same level of gambling. A
state that has banned casino gambling can ban American Indian tribes from having
casino gambling, but you can’t have Class III gambling someplace else in Minnesota
and deny it to the Indian tribes. Your second question had to do with…
VAN HOUTEN: Exclusivity for a cultural group.
GRINOLS: Yes. Well, I think it is unfortunate that gambling has, because of
the Indian Gaming Regulatory Act, become tied up with Indian tribes. I think we all want
to be sympathetic with every racial group. We want to help American Indians like we
want to help every racial group to advance. The fact of the matter is that it is a racist
policy. It says that if you’re an American Indian tribe, you can have a casino, but if
you’re not an American Indian tribe, if you’re from the Norwegian tribe, say, you can’t
have a casino. By definition, it is a racist policy. The thing that I would add is that even
patents in this country, which serve to encourage innovation and new creations, grant
monopoly rights to the inventors for a 20-year period of time. But that’s it. We don’t
give people monopoly licenses in perpetuity and there are social reasons this is so.
Here is the problem that the state has, that every state has: If gambling really is a good
thing—that is, let’s say I’m wrong; let’s say everything I’ve told you is bogus and
incorrect, and that gambling is really a good thing--then why does the state limit it? Why
doesn’t Minnesota allow any person in the state who has the ability to meet the
qualification terms have a casino? You could have casinos in America, across the state
of Minnesota, wherever, as prolifically as you have hamburger stands. But if gambling
is a bad thing and it has more social costs than social good, then why is the state

21
standing halfway between the two extremes? The logic doesn’t work. The obvious
solution is to decide which of those two extremes you think is right and set your policy
accordingly.
MEEKS: Thank you. John La Plante?
La Plante: I have two questions. One, can you explain what is Class III
gambling? And then second, is it possible economically, is it feasible to have gross
receipts taxes high enough to compensate for the social costs?
GRINOLS: The Indian Gaming Regulatory Act defines Class I, Class II and
Class III. Class I consists of traditional games of chance for little value. Class II is
essentially bingo, and Class III is blackjack, roulette, card games, slot machines, games
that we normally associate with casinos.
The economic response to an industry that produces externalities, which gambling
does, would be to allow the activity to continue, but cause the promoters to see in their
calculations the amount of damage that their activity causes. You should tax the
casino, by this line of reasoning, an amount equal to the extent of the social damage
that they inflict on somebody else out there. Here’s how the numbers work out in broad
terms. In the National Gambling Impact Study Commission’s commissioned research,
one of the reports said that an average adult would be losing somewhere between $400
and $600. Those numbers seem a little high but let’s use $500. The social costs of
problem and pathological gambling are $219 per adult. That’s a mid range. The full
range goes up as high as $289. Using this number, the revenues per adult should be
taxed at a rate of $289 to 500 or 58 percent, and that should be the starting point
because it covers damages but does not yet contribute positively to tax needs of the
commonwealth. You then tell anybody who wants to have a casino that they are going
to pay this tax—that’s an average tax rate on gross revenues, by the way—but if they
can still survive and make a profit, that is fine; if they cannot and go out of business,
that’s also fine. With proper policy in place, the state need not worry about how much
or how little of the activity there is.
MEEKS: Tom Prichard gets the next question.
PRICHARD: Yes, Professor, a couple questions. One argument is that if we
eliminated gambling in our state, we would lose the “benefits,” because people will go to

22
other states to gamble. How do you respond to that? And, also, what is the impact of
gambling on reservations? I mean, the argument for keeping them or allowing casinos
to still be on Indian reservations is that it helps them do economic development, but
what are the costs for those groups that we don’t often hear about?
GRINOLS: Those are good questions. The first question is that if Minnesota
eliminates its gambling and South Dakota and Iowa and Wisconsin don’t, how many
Minnesotans are going to be traveling over to those states to gamble? Some of
Minnesota’s money will be bleeding into the neighboring states. There is certainly truth
in that position. Here is the answer, though. By putting gambling right in the home
base of your major population centers, you will be experiencing social costs which, as I
have tried to explain, appear to be very high. While it is true that you may be
experiencing a little revenue loss to the neighboring states, we also know that people
don’t tend to travel that hugely far to gamble. If I’m living in St. Paul, I’m not going to be
driving to Eau Claire or wherever the nearest casino is very often to gamble. So if you
work the numbers and if you balance it out, you are still better off to shut down, even if
the neighboring states don’t. In addition, there is a small probability that some of those
neighboring states may be thinking the same thing, and together we can return to the
previous social compact, which used to say, We in our state won’t have gambling if you
in your state won’t have it and then we’ll all be better off. When one breaks rank,
however, it starts a race to the bottom in which everyone is worrying about getting
everybody else’s money. The numbers suggest that it is worthwhile to see if the
process can be reversed.
FOLLOW-UP QUESTION: [INAUDIBLE—OFF MIC]
GRINOLS: I have less information on that, but what I can tell you is that there
is nothing special about being an American Indian or having a casino on your
reservation that protects you from suffering the same kinds of problems that other
places suffer. Many of the tribes report that their youth are having problems with
gambling, that there are the same problems as elsewhere. It’s just that if you put
yourself in the role of casino owner, the profits are such that for the sake of making a
ton of money as the owner of a casino, you are willing to suffer social costs and say it’s
still worthwhile.

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 MEEKS: Thank you. John Spry, from the University of St. Thomas.
SPRY: Were people trying to evaluate what you’ve been saying versus claims of
advocates of expanded gambling? What type of external review or peer review has
your work and the work you cite been through? And for some of these claims and
counterclaims about the casino industry, that there is a small percentage of revenue
from pathological gamblers, what type of external review have those claims been
through?
GRINOLS: My crime study, which I cited, is still currently under review. You
understand that in academics, things move at the pace of a glacier. This paper is at the
Review of Economics and Statistics, which is one of the blue ribbon journals. It’s in its
second revision. I’m hoping to hear that they’ll finally print it so that whoever wants to
shoot at it can shoot at it, but, yes, our work has been submitted for review. [EDITOR’S
NOTE: This paper has since been accepted for publication and is forthcoming. It is
listed in the references below.] Some of the other research is published in regular
academic journals. There is—as I am sure people in this room are aware—an attempt
in the casino industry to do what I call shadow research. David Phillips of the University
of California-San Diego discovered that the visitors to Las Vegas and the visitors to
Atlantic City seemed to be committing suicide at rates higher than visitors to other
comparable cities, and published a peer reviewed journal article which made that point.
The gambling industry makes no bones about the fact that they hired many researchers
from California Universities to produce another study, which, not surprisingly,
challenged some of the methodology and challenged the conclusions. What you have
here is an industry with a lot of money. In most states casinos enter, they quickly
become the largest lobbying presence, by far. Why not use money to challenge
research that’s harmful to your industry? That’s pretty much what the tobacco industry
did with respect to smoking. There was a lot of research that linked smoking and
cancer. The tobacco industry didn’t tell researchers what to say. But they did fund a lot
of them and those researchers criticized the methodology of studies that made claims
harmful to the industry. In a sense, that is another line in the sand, that none of the
research that says harmful things about the casino industry is valid. But I don’t think
that claim is going to hold any water, ultimately.

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 MEEKS: That will have to be it for the questions. Thank you very much, Dr.
Grinols. [Noise to rear of podium.] I think that was the gambling industry behind you!
Thank you very much for a great presentation.

25
References
Gazel, Ricardo and William Thompson (1996). “Casino Gamblers in Illinois: Who are
They?” Report for The Better Government Association of Chicago (June), 1-25.
(Plus data supplied by the authors.)
Grinols, Earl L. and J. D. Omorov (1996). “Who Loses When Casinos Win?” Illinois
Business Review, 53, 1 (Spring), 7-11, 19.
Grinols, Earl L. and J. D. Omorov (1997). “Development or Dreamfield Delusions?
Assessing Casino Gambling’s Costs and Benefits.” Journal of Law and Commerce,
16, 1, 49-87.
Grinols, Earl L. (2004). Gambling in America: Costs and Benefits. New York:
Cambridge University Press.
Grinols, Earl L. and David B. Mustard (2005). “Casinos, Crime, and Community Costs,”
Review of Economics and Statistics (forthcoming).
Madigan, Timothy J. (2005). “Projected Number Of Slot Machine Gamblers and
Amount Of New Gambling Tax Revenues An Analysis Of Responses To Mansfield
University State Surveys off 2004 And 2005,”, March. The Mansfield University
State Survey (formerly called the Public Mind) is a scientific telephone survey of
adults in Pennsylvania.
New Mexico Taxation and Revenue Department, John J. Chavez, Secretary (1998).
New Mexico’s Indian Casino Gambling Economics and Revenue Effects (November
23), 1-26.
Smith, Frederick and William J. Craig (1992). “Who’s in for How Much?” CURA
Reporter, University of Minnesota, Center for Urban and Regional Affairs, 22, 1, 11-
14, 16. (Plus data supplied by the authors.)
Ryan, Timothy P., Janet F. Speyrer, et al. (1999) “Chapter 5: Gambling Costs” in
Gambling in Louisiana: A Benefit/Cost Analysis, Prepared for The Louisiana
Gaming Control Board, April 1999. http://www.uno.edu/~coba/dber/
gambling1998/index.html, accessed 19 May 2005.
Williams, Robert and Robert Wood (2004) “The Demographic Sources of Ontario
Gaming Revenue: Final Report,” Prepared for the Ontario Problem Gambling
Research Centre, June 23, 1-65.

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Endnotes
1
Gazel, Ricardo and William Thompson (1996).
2
New Mexico Taxation and Revenue Department, John J. Chavez, Secretary (1998).
3
Grinols, Earl L. and J. D. Omorov (1996).
4
Smith, Frederick and William J. Craig (1992).
5
Madigan, Timothy J. (2005).
6
Grinols and Omorov (1997).
7
Williams, Robert and Robert Wood (2004) “Winsorizing” the data means replacing the top and bottom 1% of the
win and loss data with the next highest or lowest value plus one.
8
The casino industry reports that 80 percent of casino revenues typically come from slot machines. The numbers
vary, in some cases rising even higher.
9
Ryan, Timothy P., Janet F. Speyrer, et al. (1999)
10
Grinols, Earl L. and David B. Mustard (2005).

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