States' Endless Pursuit of Gambling Revenue Is Bad for Everyone

Doubling down on failure.

Photo credit: Maryland GovPics

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All over the country, all the time it seems, lawmakers are pushing for their constituents to have more gambling options available in their communities: New York legislators want faster approval for New York City casinos; Ohio legislators want to legalize online poker; city officials in Cedar Rapids, Iowa, want a casino to open there; several states launched online sports betting operations in the last year, and a proposition to do so in Missouri is on the November ballot.

The nearly singular justification for these efforts is revenue and economic development. Politicians believe — or at least publicly claim to believe — that legalizing a plethora of gaming options will be beneficial for their local economies, bringing in new money and creating jobs. “We’re leaving $2 billion on the table,” said one New York Assemblyman regarding casino development in the Big Apple.

With apologies to everyone who enjoys a round of poker or placing a bet on a football game, I’m going to be the fly in the punch bowl here: States (and municipalities) are making a massive mistake creating an endless array of gambling options in the pursuit of economic development and state revenue. The history here is one of states promoting a potentially addictive activity with little to show for it over the long term except for creating a constant race to capitalize on the next hot gambling trend.

Think about it for a moment: Either a) there is a truly bottomless pit of dollars Americans are willing to spend on gambling, which will bring with it a set of negative outcomes — addiction, debt, bankruptcy — that will require public resources and intervention to correct or b) there is not said bottomless pit, but instead a limit to what American consumers are collectively willing to spend on gambling. In the latter case, elected officials are fighting over a limited set of dollars, cannibalizing economic activity from each other both within the state and across states lines, and allowing public budgets to become reliant on a revenue stream that will inevitably drop off someday.

Either way, it stinks.

As I wrote in my book, and a previous newsletter here several years ago, the latter is pretty much what happened with widespread adoption of casino gambling across the U.S., which was mostly undertaken in the name of economic development and revenue. As more states allowed casinos to open, what began as a play to attract visitors and pull in out-of-state dollars turned into a desperate effort to prevent local gamers from leaving to gamble in some other jurisdiction.

Rather than competing with other casinos, then, newer entrants were just competing with other local entertainment options — and therefore just shuffling already existing dollars around, and perhaps convincing a few residents not to go out of town on a road trip. No foundation for long-term economic prosperity was built and no stable source of money, public or private, was created.

The end result, in fact, was a loss of revenue for states, even though casino gambling is taxed at a higher rate than most other economic activities. One study found that, for every dollar a state’s residents bet in a casino, state revenue falls by seven cents.

That’s a failure any way you slice it. But hey, at least promoting casinos keeps the campaign contributions flowing!

If I were to wager (ha!), the same dynamic is going to play out with the rush to legalize sports gambling and other forms of mobile gaming at the state level, which was permitted by a 2018 Supreme Court case and is the new hot thing for states to chase, with more than 30 joining the party so far. Though legalized sports betting is a growing source of state revenue today, providing a potent revenue boost to the first movers, as more states pile in, the returns to the public are going to diminish.

Or, if that doesn’t happen, it’s because people are spending more and more of their money on gambling, as opposed to other entertainment options, depriving other local businesses of clientele and setting up potentially crippling financial problems with which the state will have to grapple.

Indeed, a recent study showed that states with legalized sports gambling are experiencing meaningful increases in bankruptcies, loan delinquencies, and declining credit scores, and it’s even worse in states that have legalized online sports gambling, as opposed to only in-person betting.

Layer on that much of the sports gambling industry is controlled by the duopoly of FanDuel and DraftKings, who are, I would expect, going to demand that a larger share of the industry’s spoils go to them rather than into public coffers, and you have the recipe for a whole lot of heartbreak coming down the pike for both families and state budgets.

Gambling dollars are also tied to broader economic conditions, which can become problematic in a downturn if states have certain revenue expectations or have tied certain public programs specifically to gambling revenues that are falling, as occurred during the Great Recession in 2008 and 2009.

Look, I’m not here to harsh anyone’s vibe if they want to bet on sports or hit the casino for a few hands of cards. I’m merely saying that as a public policy question, we’re all being misled by elected officials, who make it seem as if constantly providing new avenues for gambling is a good thing for economic growth and state revenue, a boon to the public dole that is inevitably going to pay off.

History has shown that isn’t the case, and it’s foolish to think something new and different is happening today. Politicians are simply making a bad bet in your name.

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SIMPLY STATED: Links to a few stories that caught my eye this week.

• How federal trade rules could foil state-based efforts to rein in big tech corporations.

• Facebook keeps blocking public emergency warnings about wildfires.

• These “citizen protests” were correct: Providing 30 years of public subsidies to a resort/convention center is bonkers.

• A Minnesota state senate candidate has deep ties to Xcel Energy, a major electric and gas utility.

• Washington State’s case against the Kroger-Albertsons grocery merger went to trial this week.

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— Pat Garofalo