I’ve been involved in a few political campaigns that brought me to your state in the wintertime, so it might be a little disingenuous of me to say I’m glad to be here in Iowa in January. But I am glad to have the opportunity to speak to all of you today, as well to meet many of you for the first time. The American Gaming Association is the national trade organization representing the commercial casino industry, including several of the companies with a presence here in Iowa: Argosy Gaming Company; Harveys; and Isle of Capri Casinos Inc. But be clear, I am not an expert on gaming here in Iowa, and we don’t take a specific position on your issues. I am speaking here from a national perspective.
During the time I have here today, I would like to focus on some issues that will be extremely important for you to understand as you prepare for your state referendum next year. The gaming industry has long been plagued by myths and stereotypes. Those opposed to our business like to perpetuate that misinformation, and they will do that here in Iowa as you debate this referendum.
Fortunately, a lot of good, independent research has been done recently that disproves nearly everything they say. The most comprehensive study in the past 20 years on the subject of legalized gambling was completed in 1999 after a two-year federal commission appointed by Congress conducted a comprehensive, legal and factual study of the social and economic impacts of gambling on federal, state, local, and Native American tribal governments, and on communities and social institutions. The final report of the National Gambling Impact Study Commission addresses many of the issues you will be confronted with, and I would urge you to get a copy and familiarize yourself with it. It’s important for you to be aware of all this information so you can counter their attacks with facts.
For years, anti-gaming advocates had been selling the American people, media and decision makers a defective bill of goods based on so-called economic theories with no basis in fact. That bill of goods has three distinct parts: first, that all gaming is immoral; second, that it is a predatory industry; and third, that any economic benefits from gaming will be exceeded by the social costs of gaming. I like to give these theories a visual image by comparing them to the three legs of a stool - a stool upon which anti-gaming advocates rest their case.
All three legs of this stool faced public scrutiny for the first time ever during the commission’s deliberations. Today, I’d like to give you an overview of each leg of the stool, tell you what the commission heard to refute that and add what the latest independent research tell us - making this a stool I wouldn’t want to sit on.
Let’s start with the morality argument. The United States is a wonderful country where a divergence of opinion is not only tolerated but encouraged. The United States and Canada share a common ancestral heritage with England. But as you are probably aware, the first settlers in our country were the Puritans - religious extremists of their era. In some ways, this cultural heritage still manifests itself today. And so there are many who find what we do immoral. So be it. Nothing we can say or do will change their minds. While we respect their right to maintain their moral views, the fact is they are not shared by the vast majority of Americans. The latest polling data says that more than 80 percent of Americans believe that casino gambling is acceptable for themselves or others. And U.S. households visited casinos more than 162 million times last year.
Even the most religious Americans believe in the public’s right to choose whether or not to gamble. According to a national survey we did in 1998, three of four Americans who attend religious services regularly (at least once a week) consider casino gaming an acceptable form of entertainment. What is interesting in this survey is that the overwhelming majority of regular churchgoers not only share that attitude, but also are pretty much like the rest of America when it comes to their attitudes and actions about gaming.
Some people, however, make exceptions about acceptability for one segment of the population: senior citizens. And so last year we surveyed seniors and found that they are even more likely than other customers to always set a budget when gambling (69 percent vs. 62 percent), overwhelmingly believe in personal freedom and in making their own choices about how they spend their time and money (over 90 percent) and cite fun and entertainment as the primary reason they visit casinos, not just the gambling.
Moral questions, of course, cannot be proven or disproved with numbers, research or testimony. But I venture to say that with this widespread acceptability our opponents have one very weak leg on that stool upon which to rest their case.
As for the second leg … our opponents contend that what we do is predatory. They ascribe to the so-called “substitution theory” and claim that we feed off other goods and services. In other words, they say that the $1 spent in a casino is $1 less spent in a restaurant or shoe store. According to this argument, gaming simply takes from an established business without creating true growth of its own within the economy. The question of morality might be a tough one to decide conclusively with numbers. This predatory issue is not.
The commission hearings provided us with the opportunity to disprove their “substitution theory” with research and expert testimony. Commissioners heard testimony from the author of two economic impact studies conducted for the industry by Arthur Andersen. The macro-economic study by Arthur Andersen concluded that the “substitution theory” is wrong for a number of reasons. First of all, the argument works only if an economy is static and real personal incomes do not grow over time. Consequently, if this economic model were correct, we would not see any increases in retail sales or in business growth. In fact, the size of the U.S. economy is not fixed; rather, it expands over time as new jobs are created. Per capita disposable income has also increased, leading to substantial increases in personal consumption expenditures. For example, there was a 58 percent increase in spending on entertainment in the United States from 1984 to 1997. Furthermore, the industries allegedly affected negatively by consumer spending on gaming - such as restaurants and hotels - have grown concurrently with the gaming industry. That is the big-picture economic argument disproving the “substitution theory.”
The “substitution theory” was also challenged by results of Arthur Andersen’s micro-economic impact study, which studied three geographically separate, new gaming jurisdictions - Shreveport/Bossier City, La.; Biloxi/Gulfport, Miss.; and Joliet, Ill. - in order to examine the local micro-economic impacts that arose from the introduction of gaming. In the riverboat communities where casino gaming was introduced in the early 1990s, we saw dramatic increases in retail sales, in most cases higher than growth at the national level. The study found an increase in restaurant sales and openings. Commercial and residential construction also increased appreciably in many of these regions … a telling sign that independent economic growth is a definite byproduct of casino gaming. Housing starts increased and continue to rise. Where was the substitution? There was none.
The bottom line of this consideration as to whether gaming contributes to economic growth is simple. It does, because what we do creates jobs … good jobs in every sector of the local economy. Casino jobs accounted for the majority of jobs created in many of these communities. These new jobs significantly reduced the dollar amounts paid and the number of recipients for Aid to Families with Dependent Children (AFDC) and food stamp benefits in these communities, and pumped millions of dollars into these local economies. The wages paid by the casinos were higher than the local average wage, which meant the pay scale of entire areas increased. The casinos, therefore, had a significant impact on the discretionary income of the work force. This, in turn, contributed to increases in retail sales jobs and to expansions in retail facilities. Employment is at record levels. Last year alone, more than 30,000 new jobs were created in our industry. Where was the substitution? There was none.
The micro-economic study brought the real economic picture into clear focus and gave us an unfettered standard as a way to judge whether or not the “substitution theory” had any validity. More jobs. Better jobs. Jobs for everyone up and down the ladder. This means there is more money in local economies to be spent in restaurants and in other small businesses, and rather than being negatively affected by a predator, these businesses share in economic revival, growth and prosperity. Judged in the cold, clear light of the facts, the “substitution theory” could not stand up to reality.
Importantly, it was not just the industry or the industry’s consultants testifying about the positive economic impact of our business and challenging the “substitution theory.” It was a Mississippi state government economic development official, a Joliet, Ill., city attorney, the New Jersey Casino Control Commission, among others. Independent research conducted for the commission by Penn State University professor Adam Rose concluded this: “The preponderance of empirical studies indicate claims of the complete ‘cannibalization’ of pre-existing local restaurants and entertainment facilities by a mere shift in resident spending is grossly exaggerated.”
So much for the second leg of that increasingly wobbly stool.
And this brings us to the third and final leg, which is built on the faulty argument that the social costs from gaming exceed the benefits. Your critics here in Iowa will argue that people go to casinos, lose their money, lose their jobs, end up on welfare or commit crimes, go into bankruptcy and then the public has to pay the price. That reasoning is just not very sound, and this is perhaps the easiest of the three legs to kick out from under that stool. It’s also the one you will hear the most from your opponents.
The NGISC made a number of remarkable findings about the positive impact of commercial casinos. The commission makes clear that gambling in the United States is not monolithic and that there are seven very distinct types or classes of gambling with different impacts and benefits on society: 1) commercial casinos; 2) tribal casinos; 3) lotteries; 4) pari-mutuels; 5) charitable gaming; 6) Internet gambling; and 7) illegal gambling.
The commission clearly and unequivocally found that “destination type resorts,” such as casinos, offer major economic advantages over what they called “convenience-type gaming,” such as non-casino electronic devices or Internet gambling, because they offer quality jobs, economic development and capital investment in their communities. As the report states: “Research conducted on behalf of the commission confirms the testimony of … casino workers and government officials that casino gaming creates jobs and reduces the level of unemployment and government assistance in communities that have legalized it.”
The report also found that: “… Without exception [the elected officials who testified before the commission] expressed support for gambling and recited instances of increased revenues for their cities. They also discussed community improvements made possible since the advent of gambling in their communities and reviewed the general betterment of life for the citizenry in their cities and towns.” Here in Iowa, you can attest to that firsthand, with the millions of dollars that are earmarked for charitable causes and other local programs.
The research conducted for the commission backed up those statements. The National Research Council of the National Academy of Sciences (NRC) found that “[g]ambling appears to have net economic benefits for economically depressed communities.” Additional research for the commission found that “… a new casino of even limited attractiveness, placed in a market that is not already saturated, will yield positive economic benefits on net to its host economy.” And the National Opinion Research Center at the University of Chicago (NORC) determined that “[t]hose communities closest to casinos experienced a 12% to 17% drop in welfare payments, unemployment rates and unemployment insurance.”
But of course you will not hear about these benefits from your opponents. You will hear about the so-called social costs, and you need to be prepared to respond with the facts that came out of the commission report - facts that our opponents like to forget.
Despite documentation to the contrary, our opponents continue to recite their “ABCs of gambling” - addiction, bankruptcy and crime. But let me tell you what the commission found on these issues.
Starting with the A’s … On addiction, the commission concluded that “[t]he vast majority of Americans either gamble recreationally and experience no measurable side effects related to their gambling, or they choose not to gamble at all. Regrettably, some of them gamble in ways that harm themselves, their families, and their communities.” The NORC study conducted for the commission found that the prevalence of problem gambling is approximately 0.1 percent of the U.S. adult population. The NRC study estimated the number at 0.9 percent. A 1997 industry-funded study by Harvard Medical School’s Division on Addictions estimated the number at about 1.29 percent. Based on this research, there is a general agreement that approximately 1 percent, or about 2 million people, can be classified as pathological gamblers. That’s a far cry from the numbers alleged by opponents of gambling, which we see now had no basis in fact.
But the commission also found that the problem is significant enough to warrant further research. And we agree. When the American Gaming Association was founded in 1995, it was with the commitment that this industry would not repeat the mistakes made by the tobacco industry, by denying the existence of a problem. The vast majority of our customers enjoy gambling as entertainment. The research confirms that. But a small percentage doesn’t gamble responsibly. These people deserve our attention and our help, regardless of their numbers.
That’s why our segment of the industry, the commercial casino industry, has devoted significant resources to raise awareness of this issue among our employees and customers. We’ve committed approximately $7 million since 1996 to fund peer-reviewed research on pathological gambling, establishing an independent organization called the National Center for Responsible Gaming. The National Center’s organizational structure and decision-making procedures were modeled after the National Institutes of Health to ensure that the highest standards are used to evaluate research grant proposals. The National Center already has awarded more than $3 million in grants to leading researchers at some of the preeminent universities and medical research facilities in the United States and Canada to conduct research in the fields of neuroscience, behavioral social science, with an emphasis on prevention and youth gambling.
The work funded by the National Center has earned the respect of top researchers and scholars. In recognition of that, the grant-making arm of the National Center will now be housed at Harvard Medical School’s Division on Addictions, where the newly renamed Institute for Pathological Gambling & Related Disorders will continue to drive the pioneering research we began just four years ago in hopes of furthering our understanding of this disorder and minimizing its impact.
Still on the subject of addictions, your opponents will argue that increased availability of gambling, access to funds and expanded hours of operation has led to an increase in pathological gambling. While this might seem like a logical assumption to some, it’s important for you to know the facts so you can respond to these charges. The first federal gambling commission during the 1970s found that the number of “probable compulsive gamblers” was 0.77 percent of the U.S. adult population, virtually identical to the findings of the more recent federal commission, despite the growth of gambling opportunities during that time. In addition, research conducted for the 1999 federal commission stated, “The availability of casinos within driving distance does not appear to affect prevalence rates.” Similar government-sponsored research in Minnesota, South Dakota and Texas all showed statistically stable rates of pathological gambling in those states, despite increases in the availability of gaming.
Your opponents, however, are bound to point to a study done in Iowa in 1988 and repeated in 1995. Here’s what you need to know about that study: 1) The 1988 rates for pathological gambling (0.1 percent lifetime) were far lower than any other state at that time, suggesting that this is an “outlyer” - a number that falls outside an expected range and is therefore not a reliable gauge for comparison to later numbers; 2) The lifetime and past-year rates for pathological gambling in 1995 are consistent with the numbers found nationally by the commission in 1999; 3) Both Iowa studies relied on a faulty methodology called the South Oaks Gambling Screen, or SOGS, which did not distinguish well between recreational gamblers and problem gamblers. The federal commission agreed with that assessment, and therefore did not use SOGS for its research.
Another accusation your opponents will make about our industry is that the more people gamble, the more likely they are to become pathological gamblers. Again, all you need to do is look at the commission’s research. The NORC report found that while many more people have gambled at least once in their lifetimes (68 percent in 1975, compared to 86 percent in 1999), the number of people who have gambled in the past year has remained relatively unchanged (61 percent in 1975, versus 63 percent in 1999). As Lance deHaven-Smith, executive director of the Public Sector Gaming Study Commission, pointed out in his analysis of the National Gambling Impact Study Commission’s final report: “[T]hese findings mean that Americans have become much more likely to have experimented with gambling, but this experimentation has not turned them into people who gamble regularly or routinely.”
Gambling opponents also will assert that half of our revenues come from problem and pathological gamblers. In contrast, the NORC report’s survey data suggested that between 5 percent and 15 percent of gaming revenues come from problem and pathological gamblers. Despite this lower percentage, it’s important to point out that the industry does not want those with gambling disorders as customers.
Now on to the B’s. There is absolutely no credible evidence establishing a link between bankruptcy and gambling, although that is one of the industry’s opponents’ favorite stories. To counter them, you need to talk about the two independent government studies that failed to find any connection between bankruptcy and gambling. NORC’s analysis for the federal commission found that “the casino effect is not statistically significant for … bankruptcy … .” On top of that, the U.S. Treasury Department investigated this issue and released a report, also in 1999, finding “no connection between state bankruptcy rates and either the extent of or introduction of casino gambling.” In preparing its analysis, the Treasury Department examined existing literature on gambling and bankruptcy and conducted new empirical research. According to the study: “Much of the earlier increase in the national bankruptcy rate has been attributed to the changes in the bankruptcy law of 1978. Other economic and social factors cited by researchers as contributing to more recent increases include higher levels of debt relative to income, increasing availability of consumer credit through general purpose credit cards and the reduced social stigma of declaring bankruptcy.” This particular study was requested by a leading opponent of gaming in the U.S. Congress after he discovered that the commission’s findings were not what he had hoped, costing taxpayers an additional $250,000.
Opponents contend that the economic losses incurred by gambling cause people to commit suicide. As has been demonstrated through recent research by the NRC and Harvard Medical School, individuals who are pathological gamblers often suffer from other disorders; a simplistic approach linking gambling with suicide cannot explain away a decision this complex. While opponents of gambling use anecdotal evidence to attempt to prove a link, recent studies contradict their assumptions. A 1997 report from the Centers for Disease Control (CDC) found that suicide rates are a regional phenomenon and do not mirror the availability of legalized gambling. The CDC study pointed out that suicide levels in the West are 70 percent higher than in the Northeast. A study written for the AGA by a team of researchers from the University of California-Irvine compared actual suicide rates and found that gaming communities have “no higher risk” of suicide than non-gaming communities.
And finally, the C’s: opponents’ attempts to associate gambling with crime and corruption. Let’s start with their contentions about crime. The federal commission found no link between the two, stating in its research, “… the casino effect is not statistically significant for any of the … crime outcome measures. …” The federal commission’s final report also cited a study in which a comprehensive review of publicly available information on gaming and crime found no documentation of a causal relationship between the two.
On the other “C” claim, again, there is no credible evidence other than innuendo suggesting any link between corruption and gambling. But the federal commission did make two very important findings related to this. First, they put to rest any notion that there is continued organized crime involvement in the modern casino industry. According to the final report, “All of the evidence presented to the commission indicate that effective state regulation, coupled with the corporate takeover of much of the industry, has eliminated organized crime from the ownership and operation of casinos.” The commission also found that “[c]asino gambling, in fact, is the most highly regulated component of the industry.” In fact, our industry is one of the most highly regulated in the entire country. Because most of our companies are publicly traded, they come under the stringent scrutiny of the Securities and Exchange Commission (SEC). More than 1,500 regulators and control board members oversee the industry at a total cost of more than $135 million, helping to ensure that only legitimate interests are involved in casino entertainment.
While we’re discussing opponents’ claims about social costs exceeding benefits, let me mention to you one more finding of the federal commission. Opponents have made outlandish claims about social costs of $200 billion annually, but the commission-funded research conducted by NORC placed the annual cost to society of all forms of gambling - casinos, lotteries, pari-mutuel wagering and charitable gaming, as well as illegal gambling - at about $5 billion. While $5 billion is not an insignificant number, it is helpful to keep it in perspective with the annual cost for alcohol abuse, which is $166 billion, and the annual cost for heart disease, which is $125 billion.
To recap: Is what we do immoral? That is something that every individual will have to decide for himself. But the millions who work in the industry and the many millions who enjoy what we have to offer do not agree that it is immoral.
Is it predatory? As we have seen in the commission testimony and research, the answer is an unequivocal “no.” The “substitution theory” is an unsound economic model and theory without a factual basis when applied to casino gaming.
Are the social costs too high? Clearly those who were in public assistance programs and now have a future because of casino gaming would argue that point … as would the women and minorities who have been given a chance to move ahead because of the opportunities we extend. Are there some costs? Of course. Everything has costs attached to it, as well as benefits. We are working hard to address the problems associated with gambling disorders. On the whole, however, the commission’s research, as well as the sum total of testimony heard, demonstrated that the social benefits of casino gambling dearly outweigh any costs.
The issues we have discussed today are those that you will be confronting as the referendum vote approaches. Take the opportunity to educate Iowans about the modern casino industry and the economic and social benefits we provide. In retrospect, we found that the publicity surrounding the federal commission gave us an opportunity to set the record straight on a lot of stereotypes that had plagued our industry for years.
Just how did we accomplish that? For one thing, we made sure our messages were disseminated through the media. But perhaps most importantly, we relied on the involvement of our industry’s own constituency groups - the mayors, police chiefs, business leaders, tourism bureau directors, social-service agency heads and other local officials who could attest to the benefits casinos have brought to their communities.
The participation of third-party groups was critical, as it demonstrated that our views were shared by many of those who had worked side by side with us in our communities. We had the assistance of elected officials who were able to build new libraries, highways and schools thanks to the tax revenue from the casinos. Business leaders who had witnessed dramatic turnarounds in their town’s economic fortunes. Social-service agency heads who had been the recipients of the casinos’ generosity in charitable giving.
And don’t forget the immeasurable contributions from your own employees, who can be some of your most eloquent spokespersons about what the casino industry has meant to them - how a good job with good wages has enabled them to buy a house, send their child to college or develop new skills.
Remember that this is a process, not a project. The referendum will bring increased attention to your issues over the next two years, but the debate will not go away even after the final tallies are counted. As we’ve seen with the commission report, our opponents are not swayed by the facts. You will need to continually arm yourselves with the facts to protect our industry from the loud voices of the few. While it might be hard to imagine now, Iowa’s casino industry, like the AGA after the federal commission, will be stronger from the experience.