Casinos Take Money From States

In Las Vegas, house prices have dropped 55 percent since peaking in August 2006, and the foreclosure rate is seven times the national average. Gigantic new condo towers sit nearly empty (real-estate pros call them "see-through buildings"), and unemployment tops 13 percent. The recession has sent casino revenues plunging 20 percent from two years ago.

"Up until the '90s, we never suffered with the downturn of the economy," William Thompson, a professor at the University of Nevada-Las Vegas and an expert on the casino business, told me.

The sad plight of "Sin City" is a morality tale for other municipalities seeking economic salvation through gambling. And it is against this dark vision that Ohio voters just approved casinos in their state.

Thompson thinks that the money will again roll into Las Vegas as the economy improves. But the prospects are not as bright for non-resort cities without a large tourism infrastructure -- and never were.

"Half the gamblers have to be from outside the state for it to work" as economic development, Thompson says. The only people who will definitely make money are the casino operators.

Ohio's decision to put casinos in Columbus, Toledo, Cincinnati and Cleveland is largely a response to the gaming palaces in Michigan to the north, Indiana to the west and Pennsylvania to the east. (Kentucky to the south still doesn't have casinos.)

What's going to happen, Thompson predicts, is that about 10 percent of Ohio's casino revenues will reflect gamblers returning home from the surrounding states. But the presence of casinos near population centers will simply mint new gamblers, and that will be a drain on the economy.

Compulsive gamblers steal, lose jobs, have debts and go on welfare. The economic rule of thumb on problem gamblers is as follows: A casino within 50 miles of a community doubles the rate of compulsive gambling, and these troubled individuals exact a social cost of about $10,000 each.

About 90 percent of Ohio's population will soon be within 50 miles of a casino. If Ohio follows the expected pattern, the four gaming halls will create 80,000 more compulsive gamblers, siphoning about $800 million a year from the economy.

For gambling to become an economic engine, you have to bring money from elsewhere. In Las Vegas, out-of-state tourists account for nearly 90 percent of the gamblers. The visitors come for the big-time entertainment, shopping and mild winter weather, as well as for the games.

Oddly, casino expansion in other states can help the Nevada economy. The slot machines, for example, are made in Reno and Las Vegas. Ohio casinos will probably buy 20,000 slot machines at a price of $15,000 each. That comes to $300 million being sent to Nevada.

After riverboat casinos opened in Joliet, Ill., local businesses were asked how they were affected. Half said they lost revenues. Only two gained, and one was a travel agency that found itself booking many more trips to Las Vegas for the new gamblers. The other business bought used cars for cash.

Thompson predicts that as Ohio builds its gambling establishments, casinos in neighboring states will prepare themselves for the increased competition. They may improve customer service and up the payout rate on their slot machines. (Outside of Nevada, the slots give back 92 to 94 cents on the dollar. Vegas is the most liberal, at 97 cents.)

In all, the odds of casinos in wanna-be "sin cities" filling state budget holes are not great. The desperation in recession-racked regions is understandable, but the reality is this: If large numbers of high rollers aren't jetting in, casinos tend to take more from local economies than they give.

COPYRIGHT 2009 THE PROVIDENCE JOURNAL CO.

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Views expressed in this column are those of the author, not those of Rasmussen Reports.