Statement before the Iowa Racing and Gaming Commission

Mr. Chairman and members of the gaming board, I appreciate the opportunity to address you today. My name is Frank Fahrenkopf, and I am president and CEO of the American Gaming Association, 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.

During the brief time I have here today, I would like to focus on what I’m sure you want to be the basis of all the policy decisions you make: the facts. Unfortunately, the gaming industry has long been plagued by myths and stereotypes, and we are always glad to have the opportunity to address the misinformation perpetuated by those opposed to our business.

As the National Gambling Impact Study Commission reported, “the 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.” Most of our customers gamble for entertainment and set a budget. Our research tells us that. However, we recognize that a small percentage of the population, about 1 percent, as you’ve heard from prior witnesses, cannot gamble responsibly, and we are working to address that in every way the scientific experts have told us to.

First, let me say that since our organization was founded five years ago, we have had a commitment to addressing problem gambling. This has been a commitment in words and deeds, as you can see in this chart we’ve prepared documenting our activities. In fact, the federal commission acknowledged that the commercial casino industry is funding more research and doing more in the area of responsible gaming than any other segment of the gaming industry.

Let me first address the claim that social costs from our industry exceed the benefits. Again, I will cite the federal commission’s research, copies of which have been included in the materials submitted for the record. 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 NORC determined that “[t]hose communities closest to casinos experienced a 12% to 17% drop in welfare payments, unemployment rates and unemployment insurance.”

While opponents of our industry have made outlandish claims about social costs of $200 billion annually, 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.

Let me next discuss the assumptions that increased availability of gambling, access to funds and expanded hours of operation lead to an increase in pathological gambling. While this might seem like a logical assumption, and certainly one perpetuated by our opponents, let me ask you, again, to look at the facts. 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, Texas and Connecticut all showed statistically stable rates of pathological gambling in those states, despite significant increases in the availability of gaming.

I recognize that a prevalence study was done here in Iowa in 1988, which was repeated in 1995 and seemed to come to a different conclusion. It’s not my job to analyze scientific data, but I’d like to share with you what some experts have said about those studies. First, 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. Secondly, the lifetime and past-year rates for pathological gambling in 1995 are consistent with the numbers found nationally by the commission in 1999. Finally, the prevalence figures for both Iowa studies relied on a methodology that has been widely discredited - in fact, the federal commission did not use the South Oaks Gambling Screen, or SOGS, for its research. The main criticism has been that it does not distinguish well between recreational gamblers and problem gamblers. Knowing this, I would think it would be difficult to reach sweeping conclusions about prevalence here in Iowa based on those studies.

Another erroneous assumption about our industry is that the more people gamble, the more likely they are to become pathological gamblers. In fact, the NORC research 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 recently completed 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.”

An oft-repeated claim by our opponents is that a high percentage of our revenue, up to 50 percent, comes from pathological gamblers. I again point you to the commission report’s research findings. NORC estimated that 5 percent to 15 percent of the industry’s gross revenues were from pathological gamblers. Our companies have said it time and time again. We don’t want customers who bet over their heads. We have been working in every way the scientific experts tell us to promote responsible gaming, whether it’s educating our customers through posters and brochures, training employees, or posting toll-free help line phone numbers on our casino floors. We also have been pro-actively working with our financial services partners to develop voluntary self-exclusion programs from cash access machines on the casino premises.

Another false charge is that our companies in some way target pathological gamblers in our marketing and that somehow we are able to detect pathological gamblers through our customer database. Ask any treatment expert, and they will tell you that it is impossible for us - or anyone else - to determine who is a pathological gambler based on a list of names and data. In fact, they’ll tell you that even in person it is a difficult disorder to diagnose. The experts have told us that our role should be one of educating our employees and customers and funding research - a role that we certainly have undertaken and will continue to do.

Despite overwhelming evidence to the contrary, industry foes continue false accusations about the issue of bankruptcy. A U.S. Treasury Department study released last year found “… no connection between state bankruptcy rates and either the extent of or introduction of casino gambling.” This was on the heels of federal commission research by NORC, which concluded, “… the casino effect is not statistically significant for any of the bankruptcy … measures. …”

Our opponents also are fond of claiming that gambling will contribute to an increase in crime - this despite the fact that the federal commission found no link between the two, stating in its research that “… 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.

One of the most commonly held myths perpetuated by our opponents is a purported link between gambling and 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.

When I first testified before the federal commission, I asked them to follow the lead of my old boss Ronald Reagan, who often said in reference to his dealings with the Soviet Union during the Cold War, “Trust, but verify.” In most cases, the federal commission did just that. Despite the fact that the majority of commissioners, including the chairman, were personally opposed to gambling, they still concluded that the commercial casino industry provides quality jobs, promotes capital investment and generates economic development. As you move forward in your deliberations on these issue and others, we ask only one thing of you, and that is to make your decisions based on facts, not anecdotes; science, not theories.

Thank you.