The Central Statistic of Casino Revenues

Central Statistic

The central statistic of  casino revenues gives the lie to assurances from casino promoters that they do not want, or need,   problem gamblers. In one line:

52 % of revenue at the average casino is the net losses of  “problem gamblers.”

The term “Problem gamblers”  as used above combines gamblers in two categories: what is now called “disordered gambling” (formerly called “pathological” or “addicted” or level 3); and those in what was formerly called “problem” or “subclinical pathological” or level 2).  There is no universally accepted name and unambiguous term for the combination, which was in the past termed by some “disordered gambling,”   by others “problem gambling.”  The combination  category is about  4 % of the adult population,   perhaps  10 to 15 %  of  casino users.  We recommend that “problem gambling” be kept as the portmanteau term for the combination.  We recommend that  persons whose lives are adversely affected by gambling but who do not meet  criteria for “disordered gambling” be called “at risk for disordered gambling.”

Nearly all the quantifiable socio-economic costs of legalized gambling,  more than $60 billion/year nationally ,2  move through this same 4 %  of adults who are “disordered”   or “at-risk-for-disordered” gamblers.   A program that reduced to zero the number of active disordered and at-risk gamblers and totally prevented formation of new ones would almost wipe away  the huge quantifiable socio-economic costs of legalized gambling, estimated at  $266 per year/capita adult  in the USA. 3

But,  that program would also reduce casino revenues by close on half.  Government’s share, based on taxing the total net losses of gamblers (“gross gaming revenue”), would drop by the same proportion.

The casino exchange exists only for profits.  Do you really think it would support in good faith a prevention and treatment program designed to cut its profit margin by half ?

Do you honestly think the state government would support in good faith a program whose complete success would mean a 50%  decrease in a budgeted revenue line?

Or, do you think the casino exchange and  government agencies would rather cooperate  to showcase  worthy  aims for “regulation” and “prevention  and treatment”  that might just fall short in practice ?

References

1.  Grinols, Earl L. and Omorow  J.D.  16  J. Law and Commerce 1996-97  p. 59 .  Details in appendix below.

2. The figure $60 billion comes from making low-side cost of living adjustments to convert 2003 dollars into those of 2012 and adjusting for population growth between 2003 and 2012.  The 2003 figures are on page 176-177 of Gambling in America by Earl L. Grinols (Cambridge University Press, 2004). This works out to about one-third the annual cost of illicit drug use.    https://www.drugfree.org/join-together/drugs/new-report-estimates-illicit-drug-use-costs-u-s-economy-more-than-193-billion-annually

3. http://cagnyinf.org/wp/gambling-economics-statistical-summary-by-prof-earl-grinols

Appendix:  What Proportion of Gamblers’ Net Losses to Casinos come from Problem Gamblers?  Brief  Review of  Five  Major Reports from the Last Twenty Years

Estimates of what proportion of casino gross gaming revenues derive from the approximately 4% of adults whose lives are adversely affected to varying degrees (“problem gamblers”) by gambling are not many.  The one most directly applicable to the average American casino is that of Grinols and Omorov.  Observations of  types of gambling other than physical casinos accord with Grinols and  Omorov in that  gamblers’ total net losses to a casino (also termed “gross gaming revenues”) have, like many other human activities, a Pareto distribution: the bulk of the output or the uptake   (e.g. consumption, volunteer work done) comes from a relative minority of the participants.

The casino exchange is wont to say that all such problem gambler statistics are wrong, that the biggest chunk of casino revenue is from wealthy “whales”  who  are not problem gamblers, just persons with a lot of discretionary spending money. That is all the rebuttal the exchange offers.

While “whales”  do exist, they do not frequent most casinos or racinos.  Casinos certainly have the information technology to respond with data to the above charges by opponents of predatory gambling, yet they do not.  To weigh in on this they would have to  acknowledge that they can identify all or most of the problem gamblers in their clientele.  This would open them to well-deserved criticism that they are not acting responsibly towards those persons.

Below, we review five documents related to the question of  % gambling revenues from problem gamblers, one each from United States, Alberta, Nova Scotia, Great Britain and Western Europe.

The next section, to the asterisks, is a continuous quote from page 59 of the article by E.L. Grinols and J.D. Omorov “Development or Dreamfield Delusions?: Assessing Casino Gambling’s Costs and Benefits.”  J. Law and Commerce vol. 16 (1996-1997) pp. 49-87.  The table has been re-formatted and footnotes removed.

“Table 1 provides a hypothetical profile of gambling revenues by type of gambler.

                           [table below]

Applying the terms “pathological” and “problem gambling” as

used by the psychology profession to the two groups losing the most to

casinos, we call those who have not gambled in a casino in the past year

“nonbettors,” and divide the remaining gamblers into “heavy” and

“light” bettor categories. Based on prevalence studies, we assume that

1.38 percent of the adults will be pathological gamblers  who lose an

average of $4,01328 and that problem gamblers lose one-seventh the

amount that pathological gamblers lose. This implies that 52 percent of

casino revenues come from the 4.11 percent of the population who are

pathological and problem gamblers.  In this respect, casino gambling resembles

alcohol of which 6.7 percent of the population consumes 50 percent

of all alcohol consumed. Allowing for the average adult to lose as

much as $200 annually to casinos in some areas would still mean that

more than 35 percent of casino revenues in those areas come from problem

and pathological gamblers.

 

The fact that the gambling industry is dependent on problem and

pathological gamblers for a large share of its revenues casts doubt on the

feasibility of treating pathological gamblers using industry tax revenues

to prophylactically prevent the externality costs of gambling addiction.

The treatment cost to the industry would be high, and these costs would

be in addition to existing taxes on gambling gross revenues that are already

high in many cases. Further, if treatment were successful in

preventing gambling by problem and pathological gamblers, it would significantly

reduce industry revenues. It is probably safe to conclude that

not everyone in the casino industry would willingly forego 35 percent or

more of their revenues.”  [emphasis added]

TABLE 1: Representative Distribution of Gambling Revenues by Type of Gambler

% of pop. designation annual loss annual loss cumul % of
per bettor $ per 100 adults $ casino gross
1.38 pathol. gambler 4013 5538 39
2.73 problem gambler 669 1826 52
5.89 heavy bettor 317 1866 65
50 light bettor 99 4970 100
40 non-bettor 0 0 0
100 total 14200 100

 

***********************************************************************

Figures in the table were computed by the authors  using information from  a 1992 report prepared by Deloitte  & Touche for the  City of  Chicago Gaming Commission:  ECONOMIC AND OTHER IMPACTS OF A PROPOSED GAMING. ENTERTAINMENT AND HOTEL FACILITY 137, 146, 147, 162

The Alberta study ( Williams et al)   two direct quotes

“ In 2008/2009 it is estimated that problem gamblers in Alberta account for 50% of all reported gambling expenditures, with that ratio being even higher for VLTs, slot machine and casino table games .”  Williams Robert J,  Belanger Yale, and Harris Jennifer N.  Gaming in Alberta  Final Report to the Alberta Gaming Research Institute 2011 p. 259

 

“A much more serious concern is that 75% of reported gambling expenditure comes from roughly 6% of the population. The most distinguishing feature of these individuals is the fact that 40.6% of them are problem gamblers. Overall, problem gamblers in 2008/2009 in Alberta appear to account for roughly 50% of all reported expenditure, a percentage that is even higher than previous Canadian estimates of between 23% – 36% (Williams & Wood, 2004; 2007). It is ethically problematic for governments and charity organizations to be drawing such a significant percentage of their revenue from a vulnerable segment of the population.”  [emphasis added]  Williams et al   op cit   Final Report to the Alberta Gaming Research Institute 2011 page 280

 

The Bwin study (Planzer, Gray and Howard Shaffer)

A study in Europe on internet gambling with casino type “games” authorized by the internet gaming company Bwin was reported on in an October 2013 article in the Wall Street Journal by Mark Maremont and Alexandra Berzon.   The investigators were Planzer,  Gray  and Howard Shaffer; their report is not yet published.  IThe WSJ article says that  3% of the 4222 customers tracked provided “half  the casino’s take.”  The  WSJ article did not say what proportion of the adult population the 3%  of the 4222 customers were.  Certainly it would be less than 3%, since only a minority of the adults do internet gambling.   The  article did not identify how many of the 3% were problem gamblers.  Safe guess it’s at least half.

Nova Scotia Video Lottery  (report by Focal Research)

A 470 page report on the Nova Scotia Lottery done by Focal Research [Schellink and Schrans principal authors] concluded that

“in 1997/98  5.7% of adults in Nova Scotia (approximately 38,750 adults) did most of the video lottery activity in the province and are contributing approximately $113,236,800, or approximately 96%, of the annual net revenue for video lottery gambling in the province.  Therefore, it can be assumed that VL   play behaviour differs significantly among those who are Casual VL Players and those who play on a regular, continuous basis and that these distinctions have significant implications, in terms of profiling VL gambling within the population at large.”

The Nova Scotia report (pages 3-42, 3-43) found that 55% of VL revenues were from “problem VL players,” who were about one-sixth  of the 5.75% of adults classed as “regular players” [defined as once a month or more].  Problem VL players thus comprised about .92% of adults.

The authors observe “It is obvious that success in helping Problem Players to reduce their expenditures will have a substantial impact on the total revenue Nova Scotia derives from VL play. If  Problem Players’ expenditure was similar to that noted for Frequent Players, there would be a reduction in total revenues from VL gambling of approximately 35% to 40%.

Using  the 2010 British Gambling Prevalence Survey, James Orford (Univ Birmingham), Heather Wardle and Mark Griffiths derived a lower figure for % of gamblers’ net losses coming from problem gamblers: 23% at FOBTs [Fixed Odds Betting Terminals].  We note, however, that the prevalence of current problem gambling in this survey (0.9% by DSM –IV and 0.7% by PGSI criteria)  was much lower than the 2-4% figures from elsewhere.  This difference is more likely to be due to methods than to Britons’ being less vulnerable.  In this study, then,  23% of the FOBT revenues come from less than 1% of the adult population.  This ratio is even more skewed than what what Grinols and Omorov reported for “the average casino” (52% from 4%) .

The opinions expressed above are those of the writer,  Stephen Q. Shafer  MD, MPH, MA retired Clinical Professor of Neurology at Harlem Hospital Center, Columbia University , New York City.  He is Chairperson of Coalition Against Gambling in New York, a non-profit registered in Buffalo  http://cagnyinf.org    Permission is hereby given to quote in whole or in part as long as the permalink is cited and all citations to other work are correctly conveyed.

The graphic is by Dave Colavito.  He places no restrictions on use  but please attribute work to him.

Cornfields and Dreamfields

The New Bridge

The New Bridge

 

States of the States in Casinoland: Cornfields  and  Dreamfields

Summary:  An overview of casino spread in the United States                                             (1) Looks at locations and fiscal markers of “cornfield casinos” in Iowa, a thinly-populated state that  has  eighteen commercial casinos and two Indian ones.                                       (2) Discusses likely rationales for two sites proposed for new casinos in Iowa.                (3) A table using  figures from  the American Gaming Association web site  compares  year-2012 fiscal data for commercial casinos or racetrack electronic gaming devices  among all  twenty-three states that have either or both.  States can be ranked on  characteristics such as “win per capita” or taxes paid to government.  

Talking with someone from a very small city in NY (pop 900)   proposed as casino site,  I  remarked  naively that it must be unique in the country in being a truly rural community into which a commercial casino might come. I had thought all commercial casinos are in suburbs,  exurbs or fair-sized towns when  not in big cities.  Iowa then came to mind as predominantly rural but with commercial casinos.

A look at that state surprised me.  Iowa has fifteen commercial casinos classed  as “riverboats,”  three tracks with electronic gambling devices (EGDs)  and two Indian casinos.   It is hard to understand how the state could support so many; yet it is  considering two more.    This count led me  to compare Iowa to other states as to number, size and locations of casinos.  Two questions arose:  (1) were  impacts on small rural communities  assessed  in any way by  independent studies?  (2) how  did landlocked rural casinos fare financially compared to ones at riverside  or more urban settings?

Question 1 is a rapid dead end. No.  Question 2 opened a window on the United States as casinoland that this essay props wide.

To imagine from  the Iowa experience what a very small rural community in upstate NY might expect from a casino’s arrival,   I picked  four  similar locales in Iowa that now have casinos and one (Jefferson, in Green County) for which a casino is proposed.  Click here for a map.    Four locales were chosen by developers.  One, in Tama (Tama County),  is Indian-operated and was thus not free to roam.  Because it is a small “city” like the other four  and evidently  a test case for new competition while Iowa plans  more  casinos,  I included Tama.

Emmetsburg, pop 3900,  is home since 2006 to the Wild Rose Casino (550 slots,  17 table games, or TGs).   The casino is right in town on (literally)  Main Street,  US Rte 18,  which crosses the state.  Emmetsburg is the County Seat of Palo Alto County,  with a population  density of 16.5/sq mile it ranks 84th out of 99 in the state (Iowa pop. density is about 54/sq mi).  The town’s web site shows merited civic pride in history.    A report by a consulting group  in 2009 commented that there are no communities of much size nearby,  though Highway 18 eases travel.  The report stated that win/admission ratio (“win” means “gaming revenue”  of course)  and gaming revenue in first two full years were below most other markets in Iowa.  This is still true through FY 2013.

Northwood, pop 1989,  hosts  the Diamond Jo Worth casino  with 1000 slots and 32 TGs.  The casino is right off  I-35,  ( 9 mi west of the center of town)  about 25 mi south of  I-90 as it traverses southern Minnesota.   Click here for  Christmas Greetings from the casino in  2009.   Worth County ,  with population  density of 18.9 / sq mi,  ranks 76th in the state.   The  report by a consulting group in 2009 remarked that  the casino’s nearness to I-35 brought Mason City  into its reach at the time.  In its first two years the casino had an   “win”/admission ratio  and adjusted gross gambling revenues that outdid the state average.

Larchwood (pop.  866) is the city in Iowa most remote from  the capital, Des Moines.  Lyon County ranks 75th in state in pop density,  at 19.7.  In the northwest corner of Iowa,  Larchwood  saw in 2011 the rapid   opening of the Grand Falls casino,  which cost $120 million and offers   900 slots.  Tables games are now up to thirty-seven. This casino was obviously sited to capture Sioux Falls, South Dakota,  the largest city in that state.  A website blurb says it’s just eight minutes from Sioux Falls.  Actually eight miles from the extreme eastern side,  it is  more like 15 mi and 25 minutes from the center of the city.  The manager of the Grand Falls casino   told a reporter that she expected  an annual revenue of $70 million,  with 80%  to come from out-of-staters.

South Dakota  on the AGA listing ( see table below ) has thirty-five (35) “casinos”  but total “gaming” revenue is only $107M with revenue to state only $ 16.6M.  [Note well: these data may be wrong, but are copied correctly from the web site.]  I did not research the  state  in detail but would guess that many  of the “casinos” are like Borrowed Buck’s Roadhouse, the only “casino” in Sioux Falls that shows on a commercial website map  It has ten (10)  VLTs, pool tables and foosball.  South Dakota had decided,  upon legalizing casinos,  to put all its  real commercial casinos in one town,  Deadwood, almost 400 miles from Sioux Falls.   Since 1989 S. D. has had video lottery.  In FY 2013 an average of 9133 machines operated in the state in an average of 1426 establishments.  The nearest real casino to S.F. is an Indian one at Flandreau, 44 miles away.   A casino in nearer-by Larchwood was supposed to appeal to people in Sioux Falls who want live table games and lots of slots.

In Larchwood  gaming revenue has not reached the anticipated 70 M .   At 59 M for 2012 it was in the red $ 4.8 million.  Adjusted gross revenue in 2013 was $58 million, and the “win”/capita $46 in FY 2013, below the state average.  It may be that Sioux Falls gamblers find the convenient VLTs in town surpass the call of the casino.

These three active commercial casinos can be compared in the table to the fifteen “riverboat” casinos in Iowa, which includes them.  Data are for FY 2013   Some figures are rounded-off.

Continue reading

The Central Statistic of Casino Profits

The_Goose_That_Laid_the_Golden_Eggs_-_Project_Gutenberg_etext_19994.jpg  from Wiki

The_Goose_That_Laid_the_Golden_Eggs_-_Project_Gutenberg_etext_19994.jpg from Wiki

When Governor Cuomo in 2012  proposed  new commercial casinos he said they would need regulation.  Casino promoters can’t dismiss the concept,  which  has several aims.  One specific to casinos is to mitigate gambling addiction and problem gambling.*  Promoters don’t deny these  can be outcomes of   “gaming.”  Another goal of regulation, applied also to the banking or securities industries, is to protect investors and tax-collecting entities against in-house predatory practices, organized crime and tax dodges.

Casino owners want regulation of how they handle consumers and accounting about as much as do big banks or brokerages: the least possible.   In any business, regulation hurts profits by constraining practices (say, payday loans) and limiting externalities.  For example, a company no longer free to discharge waste into a waterway faces new costs; raising prices may lose it business if competitors don’t raise theirs too.   Casinos are uniquely  intent on profit for its own sake. For them, that’s the be-all and the end-all.   Typical  industries, even those as controversial as “Big Pharma” or “Big Oil” make a product of real use to someone.  The casino business has only one tangible product,  in which it cannot take pride:  addicted and problem gamblers.  That product fuels it.

The central  statistic  of  casinos:  a  large proportion  (Grinols and Omorow** estimated 35-50%)  of  the  gross returns after winnings are paid out comes from compulsive and  problem gamblers — about 4% of the adult population — who comprise maybe 12.5%  of casino users.  Most of that 35-50% is from addicted gamblers.   From this statistic comes

The central dilemma :  if  casino owners  acted effectively to steer  into lasting recovery all pathological and problem gamblers in their sphere and  to prevent the creation of new ones,  profits would  drop by at least 35%.  How would that play on the bottom line?  Not well at all.

Resolution: publicly express concern on problem gambling but make it go on  under a façade of “prevention”  methods structured to fail.   Accede to customized and toothless “regulation” that won’t interfere with the real business.

Recall the goose that laid the golden eggs.  Casinos do not lay the golden eggs their promoters claim; they are gilded base metal.  Whether the bird’s owner knows this or not,  whether  he stores or markets the eggs,  the owner (assuming  he has more common sense than the yokel in the story, who killed it) will cosset the bird.  He won’t let  anyone  change her diet or re-house her.  To an owner eager for  eggs that look golden, regulation threatens the health of  the goose,  jeopardizing  her output.

Legislators weighing the proposed amendment in New York State to legalize new casinos must ask three questions. “Would those casinos knock themselves out  to profit 35%-50% less than many others do?” That’s obvious: No

“Do I really believe NYS can and will properly regulate casinos if they don’t want it?”    Someone very credulous might say so.  No one else will.

“Is it fair to NYS residents to commend to them, by an “Aye” on second passage,  a sham I don’t believe in.”  The response to that should be a third NO.

*These two categories of  “disordered gambling behavior”  are distinct.  About 1% of North American adults are past-year pathological (addicted)  gamblers, another 3% or so past-year problem gamblers. Sometimes for brevity (not clarity) the two categories are lumped into “Problem Gambling.”

** Grinols, Earl L. and J.D. Omorow (1997) “Development or Dreamfield Delusions? Assessing Casino Gambling’s Costs and Benefits.”   Journal of Law and Commerce 16, 1, 49-87.

The opinions are those of the writer, Stephen Q. Shafer and do not necessarily reflect those of all members of Coalition Against Gambling in New York.  Permission is granted to quote from this post at any length or to reproduce the entire post as long as the source is cited using the permalink above.

 

 

 

.