Outlook: Slots of Trouble?

Can it be true that every slot machine installed in the District of Columbia could cost the local economy a job? It's true that slot machines and other forms of gambling can provide a revenue source for cash-strapped state and local governments. But William N. Thompson, a professor and gambling researcher at the University of Nevada/Las Vegas suggests that it's equally true that the regional economy as a whole -- not just the government budget item -- almost certainly will suffer when slots are installed. In Sunday's Outlook section, Thompson tracks where the money comes from and where it goes, using data he collected to help Pennsylvania legislators make their decision.

Thompson was online Monday, July 19, at 11 a.m. ET to discuss his article, Bad Bet, and the possible ramifications of bringing slot machines to Washington, D.C.

Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.

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William N. Thompson: I live in Las Vegas and we are the fastest growing city in America. We have a lot of money, but we are in the desert. We don't have any trees. My home state is Michigan and I've lived most of my life in the Eastern U.S. It's very green and beautiful, but the economy is not strong and not growing like Las Vegas. It seems there is not money in the East. The East has trees and no money. Vegas has money and no trees. Guess what America: money doesn't grow on trees.

The sponsors of most gambling propositions are trying to bamboozle the public and the politicians into thinking somehow if you have gambling money will fall out of the sky as if it grows on trees. It does not. Money comes out of people's pockets. Every dollar spent in a casino or slot machine is a dollar not spent in another business. Gambling can only help a local economy if the vast majority of players live somewhere else. Gambling does help the Vegas economy. It cannot help an urban economy where the vast majority of players will be local residents.

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Washington, D.C.: Every blow you strike against the expansion of slot machines to other parts of the country benefits the economies of Las Vegas and Nevada, by reinforcing the exclusivity of their gambling opportunities. I think it behooves you to point out that, as an employee of a state institution, you are arguing in favor of a position that indirectly benefits you. Also, do you receive any direct funding for your work from state or local government or business entities in Nevada or Las Vegas?

William N. Thompson: I receive a salary from a University. I am hired for my independent research expertise. I'm not a "hired gun." I've worked for many people concerned with gambling. I pointed out in my story that I worked for the Governor's office in Pennsylvania, but also a citizen's group opposed to slots.

I pointed out in the article that slots in Pennsylvania will directly benefit Nevada because we make the machines. Therefore if I am opposing slots in other locations, in that respect I am advocating something that hurts Nevada's economy. It is bizarre to think that Nevada is an exclusive gambling jurisdiction. Over 48 states plus the District have some form of legal gambling. Over 30 states have legalized gambling -- either commercial or on Indian reservations.

In 1978, prior to Memorial Day, Nevada did have an exclusive monopoly on casino gambling. Since that time the monopoly has disintegrated to the point where Nevada now generates only about 20 percent of the casino revenues in America. Has this hurt Nevada to have gambling elsewhere? Come to Las Vegas and see how we are hurt because others have gambling. We are not hurt. We have been helped by the spread in two ways:

1. The Federal government has abandoned the notion that somehow Las Vegas will be closed down. When a majority of Congressmen are from jurisdictions from gambling, the industry is no longer threatened as it was in the 50s and 60s. By the government, Robert Kennedy, etc. The spread helps in that regard.

2. The spread of gambling has brought a product that was previously thought of as evil close to the vast majority of Americans. Indeed, over 90 percent can now drive to a casino within one day. Instead of hurting Nevada, this has exposed people to a product they thought evil. They have reassessed their feelings and many now like gambling.

And now they come to Las Vegas. We have 36 million visitors a year.

I studied this precise issue from 1989 - 1996. I found that the number of casinos outside of Nevada had increased from approx. 75 to over 320. During that period of time, for every additional casino outside of Nevada, revenues inside Nevada went up $10 million each year. If I want to help Nevada gaming and if I was spokesman for Nevada gaming and for the Nevada economy, I would go out to the rest of the U.S. and say "legalize slots and casinos everywhere." I am not a hired gun of the Nevada casinos, nor of the state establishment. I go out and I say some gambling is good, some is bad. Before you decide to legalize gambling, consider where the money comes from and where it goes. And even then if you find a positive flow of money you must closely examine the social costs of gambling before you decide it will be a winner for the community.

I did not include social costs in the essay I presented because I made a solid case that more money would leave the community than enter the community by placing slots in Philadelphia. So we need not consider the moral question.

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William N. Thompson: Parenthetically, only six percent of the adults in Las Vegas were born in Las Vegas. I am personally from Michigan and I think my perspective on gambling is not confined by any geographical constraints.

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Westminister, Md.: Wow. Great article. Gave me lots to think about. Thanks.

However, I have a question: I live near the Pennsylvania border, and I and some of my neighbors are looking forward to the arrival of slots nearby. Wouldn't Maryland be better off legalizing slots, to keep my money in the state? From your article I just couldn't tell.

Also, it seems logical that as more states legalize slots, the out-of-state revenue for all states, including Nevada, will fall. Is Nevada worried about this possibility? Thanks for your time.

William N. Thompson: Look at the flows of money for your local area. Don't get confused about state boundaries. THe U.S. has a constitution because the state of Maryland and Virginia impose tariffs on one another for the Potomac river. Our constitution established that we don't have trade barriers between states. So state lines do not separate economies. I prefer to address gambling in terms of its impact on economies. However, when you consider your local government, consider that a slot machine in your town may be taking money to Annapolis and Baltimore. Whereas, a slot machine across the line in Delaware may take the money to Dover, which may be even closer to your town than your state capital. So it may be more beneficial to you even though it is across the state line. Don't be fooled into thinking state lines are economic boundaries.

Also, if the money is across the border in another state and helps your economy, you have more jobs for your kids when they graduate from high school. Very few college graduates tell themselves they have to stay within a state when job hunting. However, many do want to stay within their region. Don't confuse political boundaries with economic boundaries.

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Arlington, Va.: What are we supposed to make of your point that the corporate owners of slot machines are typically located outside Washington and even outside the U.S.? After all, the owners of the ESPNZone restaurant, or Borders bookstores, or Exxon gas stations, are generally located outside the local area; is it a bad thing that we patronize those establishments? If not, then why is uniquely bad to have slot machines owned by outsiders?

William N. Thompson: You said unique, lets deal with the uniqueness of the situation.

First of all, slots do not produce a product. When you go to WalMart or Borders and you spend money, indeed money goes to someone outside the economy. However, something is brought into the economy -- a tangible good. WHen you buy a good, you pay less than the good is worth. For instance, if you buy a suit of clothes for $200, that suit of clothes is worth more than $200 to you or you would not have taken the time to purchase it. You have given WalMart $200. And indeed a portion will leave the community. However, what has come into the community is a suit worth $250. The wealth of the economy has grown. That is why trade is so vital -- because both sides win when it is tangible goods.

But you mention services, too. Food is tangible, entertainment is not. If you go to a movie or another entertainment facility, much of the profits may go to another jurisdiction.

What is unique about gambling? The profit levels are extraordinary. My illustration of Philadelphia was not unrealistic. The owners will make 30 percent profit on the revenue. Owners of movie theaters make a more typical 5 to 10 percent on their revenues. Therefore, in exchange for entertainment, they take a lot less money out of the community.

Third, unique qualities of gambling? Every product produces externalities. ALcohol produces alcoholics. Gambling produces very expensive externalities. One compulsive gambler will steal, miss work, borrow money and not return it and engage in many social maladies. In surveys of compulsive gamblers I've made, I've shown that typically a compulsive gambler imposes costs of $10K a year through theft, bad debts, missed work, public welfare, criminal justice costs. A shopoholic does not impose these cost on other people and except for accidents, alcoholics don't either. Indeed, every product has externalities, but those from gambling are extremely high.

Further, the national gambling impact commission determined from their surveys of over 4,000 Americans that the rate of compulsive gambling doubles, that is increases from approximately one percent to two percent of all adults, when casino-style games are placed within 50 miles of a person's house.

As people living in the District now must go further than 50 miles to find slots in Delaware or Atlantic City or W. Va., this will not be the case when slots come to the District. Assuming an adult population of 500,000, we can expect the number of compulsive gamblers to increase from 5,000 to 10,000. An extra 5,000 compulsive gamblers inside the District of Columbia will impose costs of $50 million dollars through theft, bad debts, missed work and other social maladies on their fellow citizens every year. This number is in addition to the negative economic flows that will come from slots, as illustrated in the Philadelphia case.

There's another problem not unique to the District, but must be considered special -- the District has a larger proportion of poor people than other urban areas in the East. The cost of gambling, even if recreational and not a pathology, will rest heavier on poor people.

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Alexandria, Va.: Alexandria congressman James Moran has proposed legislation granting federal recognition to Virginia's Native American tribes.

Some are concerned that granting such recognition would open the door for the Indian gaming industry to come to Virginia.

Is there a relationship between the granting of federal recognition to tribes and the arrival of slots and other forms of gambling?

William N. Thompson: Absolutely. There is no group in America seeking recognition as a Native American entity that is not doing so for the precise reason that they want gambling operations. Period.

Having Native American standing where you do not have to compete with other tribes is, as in a title of a book about Nevada, "A License to Steal." The quest to be a Native American increased immeasurably after Congress passed the National Indian Gaming Regulatory Act in 1988. Since then, every issue involving Native Americans of any consequence has been tied to gambling. It's a fact of life. At present there are no indian tribes recognized in Virginia. Therefore, the state of Virginia does not have to recognize any tribal rights to have gambling operations. THis will change as soon as a tribe is given federal recognition.

Because Virginia allows various forms of gambling, the state will have to negotiate to permit forms of gambling, including casino gambling, with Indian tribes.

Study the economic flows. If it is good for the state, go for it. But be very careful, because evidence will probably show it is not good for the state.

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Philadelphia, Pa.: Okay, regional economies carry more weight than state or local governments. But when the revenue is directed toward reducing state property taxes or improving schools, don't borders matter more than a little bit?

William N. Thompson: It's false economy. If, as my example illustrates, more money leaves than comes into the economy, you lose jobs. When you lose jobs, you lose other streams of revenue which are taxed. In the short run, state budgets may go up, but in the long run unemployment destroys any temporary advantage.

Also, people in the Philadelphia area should not look upon Atlantic City as if it is a parasite. Atlantic City does not manufacture any product -- except saltwater taffy. Atlantic City casinos must buy all their supplies from outside the region and probably over half those supplies are purchased from beyond the NJ borders. Many of those supplies would be purchased through Philly wholesalers since it is the biggest metro area nearby. It is very likely that Atlantic City sends more money to Philadelphia than Philadelphia sends to Atlantic City through gambling.

Again, the notion about states not being inter-dependent certainly blurs eyes when you consider gambling. In Nevada, many people in California think we siphon money from the Calif. economy because 20 percent of our gamblers are Californians. However, Nevada makes no products other than slot machines, marshmallows and chocolate candy with liquor in the middle of it. We take money from 36 million visitors, 30 million of whom are not Californians. And we ship a lot of that money to California because over 90 percent of the things we buy in Nevada come from or through California.

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Bethesda, Md.: There was an article a few weeks ago in the New York Times Magazine about the new generation of slot machines-- much more addictive than the old ones. It changed my mind about slots-- I was basically neutral before, but it now seems to me to be a way of hypnotizing people in order to pick their pockets.

William N. Thompson: My essay addressed gambling machines of all types. Slots, as well as video lottery terminals and poker machines. These are the most addictive devices for gambling. One of the reasons is that the machine player plays alone and the machine player can easily be led to the belief that they are part of the machine and they lose touch with reality much more quickly than a gambler who is associating with other people in his/her game. I've commented about the costs of compulsive gambling. The numbers I used are probably small because they apply to all gamblers. Machine gamblers impose the greatest social costs among all gamblers.

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Arlington, Va.: Would slots in the District have ANY beneficial effects for the area?

William N. Thompson: Well, yes, there are social benefits as well as social costs. If someone is a rational person and they want to exercise their freedom to spend money as they wish and completely in control of themselves and if they want to engage in the "fun" of gambling -- and there certainly can be fun in gambling -- than having the slot machine in the District, society would be saved the cost the person driving to Delaware and wasting 20 gallons of fuel and polluting the air.

In my illustration, these are externalities and the social costs I've identified are much greater than these benefits.

My friend Earl Grilnos, made an intensive study of costs and benefits of gambling and he said the American adult receives a benefit of approx. $43 a year by having access to gambling. It is a freedom benefit. However, he, like myself, concludes that the social costs are much greater than this gain.

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University City, Md.: As I read this article, unless a state can rely heavily on out-of-state gamblers, slots are not a good idea economically even before you take into account the social costs of compulsive gambling (broken families, increasing bankruptcy and the like). Is this an accurate reading? If so, it is OK to blanket Annapolis with copies of this article?

Have you done any work in Maryland on this issue?

William N. Thompson: I presented a talk to the National Coalition Against Gambling at their 2003 conference in Baltimore. I am also a member of the board of advisers for the Harbor Center for Compulsive Gambling Treatment in Baltimore. But other than that, my work in Maryland has been confined with interviews I've done with Mike Adams at the Baltimore Sun.

I am available and don't mind working for money!

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Laurel, Md.: Although on a much smaller scale, my hometown is also gambling mecca of sorts, so I see two sides to this debate.

The slot debate in Maryland is confounded with the health of its horse racing industry. Maryland used to have the highest quality racing of any state in this region, but has become supplanted by Delaware on the high end and West Virginia on the low end.

Much of the argument about gambling recently has operated in an environment in gambling was done principally by tourists. Atlantic City draws most of its tourists from New York and Pennsylvania. Delaware similarly is a very small state that draws from the much larger ones surrounding it.

Maryland's problem is that it is ALREADY losing money from its own population visiting out-of-state to gamble. Your analysis seems to assume that every local slot player is a NEW slot player. But if Marylander X is already losing his/her $350/year in Delaware, how much does it affect Maryland if he/she loses it here, instead?

William N. Thompson: You will get some gamblers returning to places closer to home, but with more establishments and the 60K plus machines in Pa., you'll get a huge amount of advertising. This brings new players in and they will dwarf people returning from Atlantic City. This will also create a demand for new Marylanders to go to Atlantic City. You'll lose as much as you gain.

Consider the situation in Detroit in 1996. Michigan voters were persuaded to pass an initiative authorizing three Detroit casinos. They did this because Windsor, Ontario had a casino and Michigan gamblers were losing $1 million a day there. The argument was that if Detroit opened casinos, gamblers would stay in state. Since 1996, the three casinos have exceeded the WIndsor's revenues and Windsor has built a second casino. It is doing very very well and the preponderance of its players are still Michigan residents.

My hometown is Ann Arbor, Mich. My friends there say to me they go to Windsor and would never go to downtown Detroit to gamble. The notion that you're gonna bring 'em home is another illusion with gambling.

The Niagara Falls, N.Y., example is similar. Niagara has established its new casino. Buffalo is considering one. Niagara Falls, Canada, has built a new one. They are not planning on the Buffalo people staying in the USA to gamble.

In both these cases, the amount of gambling has tripled with the introduction of new casinos.

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Altoona, Pa.: Professor Thompson,

I agree with your opening remarks. As a resident of PA, I am more than disappointed with the course that Governor Rendell and the legislature has taken; I am deeply disturbed. I really wish that the powers-that-be had listened to your advice, and acted on it. Here's a new motto for PA:
"Pennsylvania- It's Like Atlantic City, But Without the Boardwalk".

William N. Thompson: For those that think gambling is a glamorous, visit the slots in the Las Vegas grocery stores. Slot machine gaming without the hotels and showrooms and glamorous shopping and great restaurants is not attractive at all.

It's interesting that one of the first slot machine developed by Charles Fey was called The Liberty Bell. It was probably cracked, too.

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William N. Thompson: One question asked about horse-racing and how it has emerged as the industry desiring slots. An argument horse people make is that we somehow have to protect the breed and protect an industry employing a lot of people. But guess what people, the Army doesn't rely on horses anymore. Nor do we need horses for transportation as we did 100 years ago. There is no national public interest in protecting the horse-breeding industry. We have electric lightbulbs, so no reason to protect the candle industry.

By giving slots to a failing industry, we are rewarding failure. If horse-racing can't stand on its own, it should go the way of other failed industries -- buggies, candles, corsets. It would be similar to saying since Walmart is kicking KMarts butt, let's give slots to KMart, after all they employ people. The best philosophy, let Walmart and Kmart work out their rivalry, and if one does better than the other, so be it. It's not a matter of public interest to protect failing companies in a free economy -- barring some demonstrated national interest to do so.

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Gaithersburg, Md.: Do most of your arguments apply equally strongly to states conducting lotteries?

It's probably the most regressive of all taxes.

William N. Thompson: With variations, yes. And no state gets a large number of players from another state. You get the border phenom when one state has a big jackpot, but that's usually returned when the other state does, too.

The disgusting thing about the lottery is that we have a national presidential campaign and talking about national issues such as healthcare and examining policies about how the govt should or should not be involved. It's ironic and absurd that the people accept that the govt delivers gambling to people when we can't even determine if they should deliver health services to people.

So that applies to both sides of the political fence.

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Washington, D.C.: What about the psychological and emotional toll from gambling?

William N. Thompson: It's a critical factor. It may be difficult to quantify. My friend Henry Leseure has done extensive studies on pathological gambling and he's concluded that one pathological gambler brings critical emotional harm to from 12-15 people -- friends, relatives and co-workers.

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Philadelphia, Pa.: How likely is it that Philadelphia will become more attractive to tourists, particularly conventioneers because of slots palaces as a differentiator against other cities? What Philly can offer now is lightweight gambling, combined with history, culture, trees, etc and now cheaper airfares because of Southwest. Yes, that differentiator disappears as other cities add in slots, but doesn't it provide a short-term leg up?

William N. Thompson: You find it more attractive when the father says to the mother and children, you run down and see Ben Franklin's house, I'm gonna go over here for a few hours? And then later on the father informs the mother they're driving back to St. Louis because he lost all their money. Is that more attractive for tourism? I don't think so.

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William N. Thompson: Gambling addiction is considered the strongest addiction affecting our society. The forces of the addition dwarf people hooked on alcohol and drugs and tobacco. It is disturbing the governments not only fail to recognize the addictive qualities of gambling, but the politicians themselves now seem addicted to the desire to have gambling revenues feed public budgets.

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