One of the questions people ask me most often is, “How did the gaming industry get to be so large and so controversial? When did it all begin?” Of course, many of them, if they really stopped to think, would realize that gambling has been around for centuries—dice have been used since antiquity and have been recovered from Egyptian tombs. Many references to games played with dice can be found in Greek and Roman literature. Gaming has also been a part of U.S. history, with lotteries used in Colonial America to finance George Washington’s army and to build several of the most prestigious U.S. academic institutions, including Harvard and Yale universities.
Of course, when I am asked about gaming’s growth, people mean the latest wave, which has brought some form of gambling to 47 of the 50 states in our country. Near the beginning of this century, in the wake of a series of lottery scandals, virtually all gambling was outlawed in the United States.
By the end of that decade, the United States was mired in an economic depression. The state of Nevada—my home state—decided to do something about it. They decided to re-legalize casino gambling in 1931. Thus began a gradual trend toward re-acceptance of different forms of legalized gambling back into American society. Throughout the 1930s, 21 states brought back racetracks. Low-stakes charity bingo began to spread throughout the nation. By the 1940s and 1950s, almost all states had changed their laws to allow pari-mutuel wagering and low-stakes charitable gaming.
But it was the legalization of a lottery in the state of New Hampshire in 1963 that I consider to be the seminal event that shaped the modern history of gambling in the United States. This led many other states to follow suit. An activity that was once viewed with suspicion by most Americans was now being run by state governments, which gave gambling added credibility and, most importantly, helped build widespread public acceptance. Today, approximately 90 percent of all Americans believe that gambling is acceptable for themselves or others—certainly a figure that couldn’t have been imagined just 50 years earlier.
Another critical event was a 1987 U.S. Supreme Court decision that affirmed the right of Indian tribes to self-regulate high-stakes versions of all games not prohibited by state law. A year later, the U.S. Congress passed the Indian Gaming Regulatory Act, commonly referred to as IGRA. This opened the floodgates for the development of casinos on Indian reservations in the United States. Today, 10 years later, 107 federally recognized tribes operate 143 Class III gaming facilities in the United States, with estimated annual revenues of more than $4.9 billion.
The segment of the industry I represent—the commercial casino industry—also experienced tremendous growth during this same period. My members are primarily the publicly held companies, such as Mirage Resorts, Circus Circus and Park Place Entertainment, which was recently spun off from Hilton. At least two of our members—Harrah’s and MGM Grand—do business here in Australia. Much of this growth has occurred largely as the result of economic pressures in different communities—and, of course, the growing acceptance of gambling. More than 40 years after Nevada re-legalized casino gambling, the state of New Jersey in 1976 legalized commercial casino gambling for Atlantic City in an effort to rebuild that community.
The next wave of growth occurred primarily in the mid-section of our country, along the Mississippi and Missouri rivers. Commonly referred to as the “riverboat states,” Iowa, Illinois, Indiana, Missouri, Mississippi and Louisiana all adopted casino gambling as a way to rejuvenate local and state economies. In less than 10 years, the state of Mississippi has grown to become the third-largest gaming jurisdiction in the United States, after Las Vegas and Atlantic City, with $2 billion in revenue last year.
Today, 47 of the 50 states have some form of legalized gambling. Only Hawaii, Utah and Tennessee have no legalized gambling. Thirty-seven states plus the District of Columbia operate lotteries. Forty-one states permit pari-mutuel wagering. Forty-six allow charitable gaming. Casino gaming, including Native American casinos, is legal in 26 states. Only 10 (soon to be 11) of the 50 U.S. states permit commercial casino gaming.
If you look at the expansion that has occurred during the past 20 or so years, you may notice a certain trend—that is, the use of tax revenues from the gaming industry to help meet local economic needs. In 1995, the U.S. casino industry paid more than $3 billion in taxes to federal, state and local governments. Today, we estimate that figure has grown to between $3.5 million and $4 million. This money has been used to improve goods and services to local citizens, including public safety, education, transportation and health care. Casino revenues have helped to buy new police cars, build libraries and construct highways, among other projects. The casino industry also has created more than 700,000 direct and indirect jobs with wages of more than $21 billion.
The casino industry is not the only segment of the U.S. gaming industry to contribute to local economic needs. The lottery, which has experienced the greatest growth of any sector of the industry, has been used as a tool by state government to finance programs that otherwise might not receive adequate funding without politically unpopular tax increases. The best example of this is the Georgia Lottery, which provides funding for college scholarships to all students in the state who graduate from high school with a B average. To date, the Georgia Lottery has provided scholarships to 320,000 high-school students. The success of the Georgia Lottery has led other states in the South —generally known as a conservative area of the United States whose citizens would not ordinarily advocate gambling—to take steps to enact a lottery similar to that in their neighboring state of Georgia. The support for a state lottery was considered to be a primary factor in the election of new governors in two states, South Carolina and Alabama.
With the recent growth of the industry has come considerable media and political scrutiny. Just as you have experienced here in Australia, we’ve faced the challenges of a federal panel charged with examining the economic and social impact of gambling in the United States. After two years of criss-crossing the United States listening to testimony, as well as commissioning research, the National Gambling Impact Study Commission is preparing to release its final report in June.
In many ways, it’s been a tremendous opportunity for our industry to set the record straight on a number of issues and dispel many of the myths and stereotypes about our business, many of which have been spread by anti-gaming advocates.
This is the challenge we faced: For years, anti-gaming advocates have 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 predator 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. Let me give you an overview of each leg of the stool and tell you what the commission heard to refute that—making this a stool I wouldn’t want to sit on.
As for the morality argument … well, the United States is a wonderful country where a divergence of opinion is not only tolerated but encouraged. The United States and Australia 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 that 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 opinion on morality, the fact is their views are not shared by the vast majority of Americans. U.S. households made about 170 million visits to casinos last year. Moral questions, of course, cannot be proven or disproved with numbers, research or testimony, but I venture to say 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 me and the author of two economic impact studies conducted for the industry by Arthur Andersen, a highly regarded U.S. consulting firm. 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. Spending on recreational activities increased from 5 percent in 1970 to 9 percent in 1993. 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. In the riverboat communities where casino gaming was introduced in the early 1990s, we saw dramatic increases in retail sales, in many 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 gaming. Housing starts increased and continue to rise. Where is the substitution? There is 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 pumped millions of dollars into these local economies. The wages paid by the casinos were slightly 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. Where is the substitution? There is 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” cannot stand up to reality. Our commission testimony documented that case publicly.
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. It was a university professor hired by the commission to conduct independent research on the economic impact of casinos. 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. What do critics mean by social ills? Their argument is that people go to casinos, lose their money, lose their jobs, end up on welfare or commit crimes, and 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.
Once again, testimony and research that’s come out of this commission have challenged that very finding. Employees of gaming companies talked about the excellent benefits packages, retirement and investment opportunities, low-cost loans and mortgage payments, tuition reimbursement and scholarships offered for their children. A county administrator testified about the gaming industry’s dramatic effect on local government services … funding a public transportation program … building a new facility for a youth recreation program … increasing services to the elderly … hiring new staff to work with at-risk teenagers … buying an emergency communications system … opening a new 24-hour medical clinic … purchasing new fire trucks … making extensive improvements to the water and sewer systems. A state legislator testified about the state social programs that benefit from casino funding, including assistance to the elderly and the disabled. A mayor testified about a charitable foundation funded by the industry, which has donated $3.5 million to philanthropic causes in his community. The list goes on and on and on.
The research conducted on the commission’s behalf supports these statements from state and local officials. One analysis found that casino proximity did not contribute to increased bankruptcy, crime or infant mortality. It also found that those communities close to casinos experienced a 12 to 17 percent drop in welfare payments, unemployment rates and unemployment insurance. Furthermore, it estimated that problem and pathological gambling cost society approximately $5 billion annually—a figure far lower than any floated by gaming opponents. Compare this figure to the estimated annual costs of $166 billion for alcohol abuse, $110 billion for drug abuse and $71 billion for motor vehicle accidents.
We have all heard critics throw around figures about the number of problem gamblers. Again, studies by the commission have shown that our industry-funded research was right on target. There is a general agreement among these studies that approximately 1 percent of the U.S. adult population, or about 2 million people, can be classified as pathological gamblers. That’s a far cry from the numbers thrown around by opponents of gambling, which we see now had no basis in fact.
One of the reports conducted for this federal commission—prepared by one of the most highly regarded research institutions in the United States—challenged assumptions that a gambling disorder can be classified as an addiction. It found that most of the existing research is of limited scientific value. The report, which was just completed last month, was prepared by the National Research Council, part of the National Academy of Sciences, an independent, nonprofit organization of distinguished scholars established by the U.S. Congress in 1863 to advise the federal government on questions of science and technology.
But the National Research Council report also found that the problem is significant enough to warrant further research. And we agree. That’s why when my organization, 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 can’t gamble responsibly. These people deserve our attention and our help, regardless of their numbers. My 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 also dedicated close to $5 million to fund peer-reviewed research to better understand gambling disorders, establishing an independent organization called the National Center for Responsible Gaming.
Despite our progress, we recognize that much more needs to be done about pathological gambling by all segments of the industry. We expect that this will be a major focus of the federal commission’s report when it is released this spring. We believe that they will recommend additional research by governmental organizations such as the National Institutes of Health, which should significantly enhance the quality and quantity of research available so we can better understand and treat the disorder.
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.
Are the social costs too high? Clearly those who were in public assistance programs and now have a future because of 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, demonstrate that the social benefits of gambling outweigh any costs.
With the completion of the commission’s work, we now have a solid body of evidence to refute the three major criticisms of gaming that we knew could not stand up to a critical analysis. And we have also managed to kick all three legs out from underneath that unstable stool of our opponents.
Our work with the commission has not been limited to responding to our opponents’ unfounded claims. We have made formal recommendations to the commission, not only to re-emphasize our basic views but also to suggest positive, concrete steps our industry could take to tackle some of the more controversial issues. We urged them to rely on facts, not anecdote; information, not propaganda. We urged them to protect the rights of individual Americans who choose to be entertained and pursue employment opportunities in the gaming industry. We urged them to rely on actual data and statistics; economic models are no longer needed. We urged them to consider the social benefits as well as the so-called social costs. We urged them to encourage strong, independent state regulation of the casino gaming industry. We urged them to encourage research into the prevention, education and treatment of disordered gambling. We urged them to encourage the adoption of 21 as the minimum legal age for all forms of gambling. We urged them to support the development and implementation of comprehensive, uniform, voluntary guidelines addressing underage and disordered gambling.
Another issue expected to receive considerable attention in the federal commission’s report—and an area of great interest to you here in Australia—is Internet gambling. I will tell you that there is a near consensus on this commission that Internet gambling should be prohibited. Some commissioners have raised concerns about the enforceability of such a ban, but that has not deterred the majority. I expect that will be one of the recommendations in their final report.
But it’s not just the commission that is calling for a ban on Internet gambling; it’s also the Congress of the United States. Unlike the commission, which only has the power to recommend policy, the Congress has the power to enact policy, with the approval of the president. For the third consecutive legislative session, a bill has been introduced to ban Internet gambling by U.S. citizens. The U.S. Senate passed similar legislation last year by an overwhelming majority, 90 to 10. It is expected to pass by a similar margin this year, and the House of Representatives -focused this year on legislation rather than on impeachment hearings—is expected to follow suit. The new Congress now in session is likely to act by the end of next year to enact such a ban.
You may wonder why there is such a debate about Internet gambling in our country. There are many reasons for it, but the primary reason has to do with the U.S. Constitution. The 10th Amendment of the U.S. Constitution states that any right not explicitly granted to the federal government lies with the states. As a result, each state has the right to determine whether or not it will allow any form of gambling. As I said earlier, 47 of the 50 states have some form of legalized gambling today. Thirty-seven states plus the District of Columbia operate lotteries. Forty-one states permit pari-mutuel wagering. Forty-six allow charitable gaming. Casino gaming, including Native American casinos, is legal in 26 states. Only 10 (soon to be 11) of the 50 U.S. states permit commercial casino gaming. Internet gambling denies states the right to make the decision about what forms of gambling, if any, should be allowed in their state.
The federal government recognized these states’ rights when it passed the Wire Act in 1961, making it illegal to circumvent state restrictions by using the telephone or the wires to place or receive a bet or wager, or send or receive related information. There have been some prosecutions against Internet gambling operators under this law. However, there are some that argue that it’s vague. For example, does it apply to non-sports gambling, such as traditional casino-style games? There is also the potential for wireless Internet transmissions to evade the existing ban.
Aside from allowing each of our states to continue determining the extent of gaming within its jurisdiction, an Internet ban is also designed to permit each state to impose appropriate regulatory and licensing requirements on those who conduct gaming and to levy state taxes. No one has yet come forward with a concrete proposal to place Internet gambling under the same legal and tax regimes as non-Internet casinos. The commercial casino industry believes that tight regulation and strict law enforcement are necessary to ensure the integrity of our business. Until some form of regulatory enforcement can be developed, my organization supports a ban on Internet gambling.
Just as some of the federal commissioners raised the question about enforceability of a ban on an activity that recognizes no national borders, so too have some in Congress and in our U.S. Justice Department, which is responsible for enforcing federal law. The key question is how to enforce. Congressional sponsors of an Internet gambling ban are looking to Internet service providers, credit card processors and other support services as ways to help enforce an Internet ban.
U.S. government authorities recognize that Australia is in the process of setting up regulatory regimes to permit the operation of Internet gambling Web sites worldwide. This would allow them to be taxed and licensed in the so-called “First World” to avoid the present stigma of being operated only with the approval of small Caribbean and Central American countries. The United States and Australia already have entered into a comprehensive agreement on various e-commerce issues. While this agreement does not mention Internet gambling by name, it does set up a government-to-government process to address matters such as Internet gambling restrictions should the United States move in that direction, as expected.
The issue of Internet gambling is just one of many unanswered questions ahead for us in the gaming industry. Just as companies in other industries have become increasingly global, so too will those in the gaming industry. As a world leader in providing gambling entertainment, Australia will certainly play a big role in shaping any future international policy issues. We expect that there will be much for our two countries to debate and discuss as we enter the next millennium to determine the future course of our industry.