The Curse

Pachinko

Pachinko

 

A Talk at Patchogue-Medford Library Long Island NY  July 30, 2015  by Robert H. Steele

Mr. Steele is a Connecticut business executive and former U.S. Congressman, and was a nominee for Governor of Connecticut.

 

Comment by CAGNY editor: This talk starts about  a book set in Connecticut but moves through many important issues about predatory gambling before homing in on a location in New York State now threatened with the imposition of a 1000-device slot parlor.  It is a privilege to present it here.

Thank you for the invitation to come to Patchogue and for your interest in my book, The Curse: Big-Time Gambling’s Seduction of a Small New England Town.

The book is a fact-based novel set against the explosion of casino gambling that hit southeastern CT during the 1990.

The novel begins with the Pequot War in 1637, when Connecticut’s Puritan colonists joined with their Mohegan allies to defeat and almost destroy the Pequots, who were the largest and most warlike of the Connecticut tribes. The story then jumps 350 years, as these two tribes reemerge to build the world’s two biggest casinos – Foxwoods and Mohegan Sun – and a Connecticut family, led by a descendant of one of the Puritan colonists, becomes embroiled in a battle to stop a third casino that threatens the family’s town and ancestral home.

In the end, a small, quintessential New England town faces a Faustian dilemma in which it must choose between preserving its character and values or accepting an enormously seductive offer that would change the town forever.

The Curse, in sum, is a novel based on fact, and this evening I’d like to focus on the factual background of what has occurred in Connecticut and elsewhere – in other words, on the story behind the book.

First, I should probably give you a little more of my background since it entered into my writing the book.

I represented eastern Connecticut in Congress in the 1970s. Then, after running unsuccessfully for governor, I left politics and my family – my wife and four children and I – moved to Ledyard, Connecticut well before anyone dreamed of casinos coming to Connecticut. Those two experiences – knowing Connecticut’s politics as intimately as I did and then living in the midst of the subsequent casino explosion – gave me a front row seat for watching the political maneuverings that led to the casinos and then seeing their impact.

Indian casinos got their start in 1988, when Congress passed the Indian Gaming Regulatory Act, which was seen as a means of promoting tribal economic development and self-sufficiency by allowing federally recognized tribes to open casinos on their reservations.

It would be fair to say, however, that Congress had no idea of the Pandora’s Box it was opening when it passed the act.

As it turned out, the law not only opened the door to Indian-owned casinos, but it spurred the legalization of commercial casinos as many states rushed to open casinos as way to raise revenue without directly and overly raising taxes.

 

Back in 1988, only two states had casinos, Nevada and New Jersey. Today 40 states have casinos, and we now have nearly 1,000 of them, almost evenly divided between Indian and commercial casinos.

As a result, casino gambling has literally become America’s new national pastime, with higher attendance than professional baseball, football, and basketball combined.

And nowhere in the past 25 years did it get off to a more spectacular start than in Connecticut.

Foxwoods opened in 1992 in Ledyard and Mohegan Sun opened in 1996 eight miles away in Montville. With virtually no competition other than Atlantic City, they quickly grew into the two biggest casinos on the planet, drawing over half their combined customers from out of state, creating 23,000 casino jobs, and sending hundreds of millions of dollars a year in shared slot revenues to the state.

It’s truly one of the most amazing stories in New England history – these two Connecticut tribes, the Mashantucket Pequots and the Mohegans, once mortal enemies, gradually fading away generation after generation until there is almost no Indian blood or culture left, and then reemerging almost miraculously hundreds of years after the Pequot War to build the world’s biggest casinos.

Great story, right? Except, of course, the story’s not over, and with each passing year we have become increasingly aware of the casinos’ downside.

For starters, the casinos have created a pervasive gambling culture in southeastern Connecticut; they’ve skewed the region’s economy heavily toward low-wage service jobs; and they were followed by a steep increase in the number of Connecticut residents seeking treatment for gambling addiction.

One of the most remarkable findings from a 2009 state-sponsored study was that there had been a 400% increase in arrests for embezzlements in Connecticut since the casinos opened, a rate of increase 10 times the national average.

One of the embezzlers was my tax collector in Ledyard, who stole $302,000 of tax receipts to play the slots at Foxwoods. And, of course, she didn’t win, because over time it is virtually impossible to win when the casinos take roughly 10% of what you bet. The total number of embezzlement arrests was so high, in fact, that a columnist for the New London Day described southeastern Connecticut as the embezzlement capital of America.

In one of our most recent embezzlements, the chief financial officer of Winchester, Connecticut, in Litchfield County, stole over $2 million from that town and lost much of it at the state’s casinos. The embezzlement was so serious the town considered temporarily closing its school system for a lack of money.

Looking at crime overall, a 2014 study from Western Connecticut State University shows that the number of violent crimes (including murder, rape, robbery and aggravated assault) increased in the towns surrounding the casinos after they opened despite a sharp drop in violent crime nationally and in Connecticut as a whole. And while the number of theft crimes in those towns decreased with the national and state trends, the value of property stolen skyrocketed by nearly 40%.

According to the study’s author, interviews with local police and judicial officials also indicated increases in crimes such as prostitution and illicit drug use.

As far back as 1997, Congress became so concerned about the spread of casino gambling that it joined with the President in creating a National Commission to study the issue. Based on its findings, the Commission recommended that there be a moratorium on opening new casinos until the government could gain a better understanding of their social and economic costs.

But the recommendation was never implemented, and casinos have continued to multiply.

In the process, casino gambling has become a $67 billion industry (exclusive of entertainment, food, and lodging) and the casino industry has become one of the most powerful political forces in the country. The industry contends that casinos spur economic development, create jobs, and provide states and municipalities with much-needed revenue.

Opponents, however, have long argued that casinos do far more harm than good.

They begin with the facts that gambling is addictive for millions of people, and that gambling addiction leads to debt, bankruptcies, broken families and crime.

Second, opponents reject the contention that casinos promote economic development. They point out that the revenue and jobs a casino produces are funded by the gambling losses of its customers, leaving those individuals with less money to spend on other goods and services and resulting in what Nobel-Prize-winning economist Paul Samuelson called “the sterile transfer of money” from one group to another without creating any new value. In Connecticut, critics note, the casinos have done little to create spin-off businesses, but have cannibalized other businesses.

Third, opponents say there is little evidence that casinos ultimately strengthen a state’s finances. Connecticut, they note, receives 25% of Foxwoods’ and Mohegan Sun’s slots profits, which has provided the state treasury with over $6.5 billion in revenue. Yet Connecticut today is in the worst financial shape in its history, with a lagging economy and one of the highest debt and unfunded liability ratios of any state.

And now, an independent group of scholars assembled by the nonpartisan Institute for American Values in New York has published a landmark report that looks at the impact the casino explosion has had on the nation as a whole. Here are some of its key findings:

  1. The new regional and local casinos are different from traditional Vegas-style resort casinos that catered predominately to well-heeled players who came from long distances away and preferred table games. In contrast, the new casinos are primarily filled with a new generation of rapid-play, highly addictive slot machines and cater overwhelmingly to middle and low rollers who live within an hour away, return frequently, and play the slots.
  1. Slot machines depend on problem gamblers – that is people with some level of gambling addiction – for 35-60% of their profits.
  1. Living within 10 miles of a casino doubles the chance of developing a gambling addiction.
  1. Casinos constitute a regressive tax that hits low wage earners, minorities, and the elderly the hardest, thereby contributing to economic inequality in America.
  1. Government sponsorship of gambling is a conflict of interest for state and local governments that are established to promote the general welfare, not prey on their citizens by encouraging them to gamble.

In sum, according to the report, the new regional and local casinos drain wealth from communities, weaken nearby businesses, hurt property values, and reduce civic participation, family stability, and other forms of social capital that are at the heart of a successful community.

Despite the costs, the conventional wisdom has been that Connecticut’s casinos have been a net economic plus for the state in the past because of their success in attracting such a large number of out-of-state gamblers who bring new money into Connecticut.

But the regional monopoly that allowed Connecticut’s casinos to attract so many out-of-staters has been disappearing and the number of out-of-staters visiting Connecticut’s casinos has been declining as the Northeast has become saturated with casinos. As a result, Connecticut’s casinos are having to increasingly depend on the gambling losses of Connecticut residents, which simply recirculates money within the state without creating any net new economic value.

In fact, once the social and public health costs are factored in, economist Earl Grinols, the country’s leading independent expert on the subject, concludes that the cost-to-benefit ratio of casinos that merely recirculate money is greater than 3-1.

And, of course, the number of casinos continues to grow.

When Foxwoods opened in 1992 there were only 10 other casinos in the entire 12 states comprising the Northeast, and all of them were in Atlantic City, 250 miles away. Today there are 56 casinos in the Northeast and the number could easily go to over 70 based on those approved or under consideration.

Thanks to the growing competition – particularly from Rhode Island’s Twin River Casino and the slots casinos at Aqueduct and Yonkers Racetracks in New York, the combined revenue for Connecticut’s two casinos is down 38% from its peak. They’ve eliminated 8,000 jobs and have been increasingly replacing full-time jobs with part-time jobs to reduce wage costs and eliminate medical benefits, while Foxwoods has stopped profit sharing payments to its tribal owners and is mired in debt.

The story is the same elsewhere, with growing cross-border competition cutting into the profits of casinos in more and more states. For example, Delaware has had to put millions of dollars toward bailing out its 3 casinos, while New Jersey has spent hundreds of millions trying to prop up its casinos, only to see a third of them close in the past 19 months. In Ohio and Maryland, casino revenue is roughly 40% below original projections.

So how is all this relevant to this beautiful stretch of Long Island — the Medford/Patchogue area — where Suffolk OTB wants to open a slots casino?

And is the proposed casino as important an issue as opponents contend?

After all, OTB isn’t talking about opening another Foxwoods or Mohegan Sun. All it wants to do, it says, is open a modest all-slots gambling parlor with no table games, no human card dealers, no big hotels, no fancy restaurants with celebrity chefs or theaters with headline entertainment. Just a convenient place where local people can come and spend the afternoon or evening playing the latest video slot machine games. You know, spice up their lives, have a little fun, maybe even win a jackpot.

Despite the efforts to portray it all as harmless fun, here’s why the proposed slots casino is a big deal.

First, unlike Las-Vegas-style resort casinos, which a typical out-of-state customer might visit once or twice a year, local casinos depend overwhelmingly on encouraging frequent visits from nearby residents, which results in taking dollars out of surrounding communities rather than bringing dollars in.

Second, what OTB is proposing is the worst of all gambling worlds – a local casino that depends entirely on the most addictive form of casino gambling – advanced electronic gambling machines, which addiction experts call the crack cocaine of casino gambling.

If you have any doubt about the addictiveness of the latest slots, I urge you to read a recent book titled Addiction by Design by a brilliant MIT professor named Natasha Schull. The book documents in dramatic detail how today’s slots are the result of exhaustive corporate research designed to maximize what the industry calls “time on device” in order to keep people playing as long as possible and thereby extract maximum profit from each player over time.

Today’s slots have become sophisticated computers which use a mesmerizing mix of sound and graphics combined with an increased frequency of near-misses and more frequent but lower payouts to encourage people to keep playing, while simultaneously amassing detailed information about the player for use in aggressive marketing programs designed to get the player to come back as frequently as possible.

These are the machines OTB wants to bring into the community.

Third, the high relative addictiveness of machine gambling makes it likely that a slots casino will generate even more social and public health problems than a comparably-sized full-scale casino.

And fourth and finally, does anyone in this room think that if the proposed Medford slots casino opens there won’t be efforts to expand it and legalized gambling in general on Long Island – just as is happening elsewhere in the country, where state after state has become so hooked on casino money that it is seeking to expand gambling either to increase gambling revenue or replace the gambling revenue it is losing to cross-border competition.

Take Connecticut for example. The consensus for years was that the state would never allow casino gambling to expand beyond our two Indian casinos. But once Connecticut’s gambling revenue began to shrink, state politicians began to call for gambling expansion.

Connecticut began by increasing Foxwoods’ and Mohegan Suns’ free play allowance so they could attract more customers; the state legalized the casino game Keno for restaurants, bars, and convenience stores; and now the legislature has passed a bill creating a process for allowing the Mashantucket Pequots and the Mohegans to jointly open the first of what could become 3 new commercial satellite casinos meant to defend against Massachusetts and New York casinos.

To see where all of this could go, and in some cases is already going, one need only look at what’s happening in Illinois. That state already has 10 casinos and is considering at least 3 more, including a mega-casino in Chicago that would be owned by the city itself.

In the meantime, while Illinois has debated whether to open the new casinos, the state has allowed thousands of bars, taverns, restaurants, truck stops, and so-called “gaming cafes” to become slots parlors with up to 5 video gambling machines each. The gaming cafes are run by large chains, with endearing names like Dolly’s, Stacy’s, and Penny’s.

There are now more than 20,000 video gaming terminals at these non-casino venues, and I am told there are even 2 florist shops that offer alcohol and snacks in order to qualify for the gambling machines.

Looking a little farther into the future, there are 3 major factors at work which could result in further expanding legalized gambling, especially among Millennials, currently aged 15-35, who are the country’s largest age group.

First, slot machine manufacturers are hard at work designing new games modeled after popular video games (think Angry Birds, but for money) and casinos are beginning to add arcade-style games, all in an effort to attract younger people to play the slots.

Second, there is an increasing push to expand legalized sports betting in the United States.

And third, thanks to a 2011 U.S. Justice Department ruling, New Jersey, Delaware, and Nevada have legalized in-state online betting for their casinos, and other states are considering legalizing Internet gambling as well.

In short, the lesson across the country, and the lesson we are increasingly learning in Connecticut, is that once you open the door to legalized gambling, the pressure inevitably builds for more gambling.

The massive further expansion of government-sponsored and promoted gambling – in Connecticut, New England, and across the nation – is a daunting prospect for those who think we already have enough of it. In fact, for me, the whole remarkable story of casinos in Connecticut was enough to want to write a book.

Thanks very much.

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photo “pachinko”  from flickr creative commons