WILLIAM N. THOMPSON
PROFESSOR OF PUBLIC ADMINISTRATION
UNIVERSITY OF NEVADA - LAS VEGAS

TOTAL COST OF GAMBLING ADDICTION

www.billygamble.com
Professor Thompson's Report on the Finacial
Impact of an Additional Casino in the St. Louis Area
Presented to the St. Louis County Council on April 20, 2004

A Report by William N. Thompson, Ph.D.
Professor of Public Administration
(see bio: www.billygamble.com/unlv.edu)
February 25, 2004

"We Will Make it Up on Volume Sales--NOT"

There is an old story about a retail businessman who was losing $2.00 on each $10.00 shirt he sold. When he asked how he planned to remedy the situation, he replied, "We will make it up on volume sales."

If the St. Louis metropolitan economy is losing money on each dollar being gambled in one of the area's casinos, the economy will not benefit from having more money gambled at area casinos. Any solution that includes adding capacity to casino gambling will be as faulty as the retail businessman's logic indicated above.

St. Louis is facing a decision on whether or not to have a new casino. Should the state and county policy makers grant a license to a casino, which will become the sixth casino for the St. Louis metropolitan area?

Currently there are three casinos in St. Louis and St. Louis County, and two in nearby Illinois suburbs.

If the decision-makers decide in the affirmative to grant the license, they will have to make secondary decisions about the specific location of the casino and the company that will operate the casino. This statement is concerned only with the first question--should the policy makers authorize an additional casino?

A simple but compelling conclusion must follow from this analysis--if the casinos of St. Louis are causing more money to be taken out of the metropolitan economy than they bring into the economy, any additional casinos will have additional adverse economic consequences and therefore they should not be authorized.

The report uses existing information regarding casino revenues and typical casino expenditures as well as player information for the area casinos. The purpose is to identify how much money is brought into the area because of casino gambling, and how much money remains or leaves the area due to expenditures of the gambling casinos. This report looks solely at casino gambling revenue.

The report also indicates collateral community costs and benefits from having a casino in the community. These include the benefit for a player of having to travel a shorter distance in order to gamble, and the costs of compulsive gambling and crime that is associated with the presence of a casino.

The analysis will consider present revenues of five casinos plus 20%, representing expected revenues with six casinos. Assumptions used will be identified along with their rationale.

The report will use a geographical region consisting of a 50-mile ring around St. Louis. This may be considered the boundaries of the metropolitan economy. People who live within the fifty-mile (radius) circle can be expected to be consumers of local media--newspaper readers, local radio and television viewers, and accordingly they are recipients of local advertisements, and they purchase almost all of their household goods within the area.

Missouri and Illinois authorities reported that the five local casinos had gambling revenues (casino wins) of $766.3 million in 2002. Using this as our base number, we can project that six casinos will have revenues of $919.6 million for a single year.

A first and ESSENTIAL step in the assessment of the economic benefits and costs of any casino MUST BE identifying the source of the gambling revenues. We are fortunate that Bear, Stearns and Company makes market analyses for each casino region in the United States (2002-2003 North American Gaming Almanac). Their analysis of the St. Louis market reveals that the adult population of the region (within 50 miles) in 2006 (when a sixth casino would be in place) would be 1,920,649.

Each of these adults (on average) would make 7.2 casino visits per year (according to Bear Stearns). They would make a total of 13,828,673 total visits.

As this is the only region of our concern, I will not show visits from rings beyond, but rather indicate only that the "local" visits constitute 71.8% (or 13.8 million) out of a total of 19.3 million annual casino visits to six facilities.

Each visitor will lose (at gambling) approximately (on average) $47 per visit. $660.3 million will come out of local pockets.

This gambling revenue for the casinos is ALREADY IN the St. Louis metropolitan economy.

People living outside the 50-mile ring will BRING IN $259.3 million to the metropolitan economy because of their casino losses.

The FIRST FACT that we must consider in an analysis is that the casino will attract ONLY $259.3 million to the region. We must ask next how much of the casinos expenditures (including profits) will stay in St. Louis and how much will leave the St. Louis metropolitan economy. First, I will assess the casino expenditures (and profits).

CASINO GAMBLING REVENUES $919.6 Million
(All figures are rounded to nearest 100,000)


CASINO EXPENDITURES

1. Salaries will go to approximately 1200 workers in each casino, or 7200 workers overall. At a basic salary of $28,000 each salaries are $201.6 million. (This amount will include all social security payments).

2. Fringe benefits (in addition to social security) will be 25% of the salary. Fringes will be $50.4 million.

3. State taxes are assumed to be 25%. The Missouri rate is 20% while Illinois rates are graduated up to 50%. This makes the state tax $229.9 million. A local tax of $2 per visit will be $38.5 million.

4. Marketing and promotional costs will be 3% of revenues or $27.6 Million.

5. Gaming supplies, including over 10,000 slot machines and almost 300 tables, dice, cards, and other items will annually cost 5% of the revenues or $46.0 million.

6. Other supplies will cost 8% of revenues, or $73.6 million.

7. The building facility including financing, maintenance and utilities, and local taxes will cost 10% of revenues or $92.0 million each year.

8. General administrative costs will add $18.4 million or 2% of the revenues.

TOTAL EXPENDITURES ARE $778 Million

9. Profits are $141.7 million or 15.4% of revenues. (34% of this amount or $48.2 million goes for federal income taxes)


RETENTION AND OUTWARD DISTRIBUTION OF EXPENSES AND PROFITS

1. Salary. While all workers will be local residents (within 50 miles), much of their salary package still leaves the area through social security payments and taxes. Of the $201.6 million, 15% or $30.2 million leaves because of social security charges, while an assumed 8% or $16.1 million leaves due to federal income taxes; it is assumed that local and state income taxes will remain in the area as services will be returned in proportion to these taxes. Such is not the case with the casino tax.

$155.3 of salary funds stay in the local area.

2. About one half of the fringes will stay in the area, while one-half will go to providers outside of the area. $25.2 million stays, and 25.2 million leaves.

3. State casino taxes will leave the area and go to state capitals. However, about one half will be retained in state services. Therefore of casino taxes $114.9 million stays and $114.9 million leaves. The $38.5 million in boarding fees stays.

4. Marketing money goes where the players are. 71.8% or $19.8 million stays, while 28.2% or $7.8 million leaves.

5. Gaming supplies are purchased outside the area. Almost all slot machines are made in Nevada (thank you!). $46.0 million leaves.

6. We can assume that 75% of other purchases will be local. $55.2 million stays, and $18.4 million leaves.

7. Most building costs (75%), including maintenance, utilities, and local taxes will remain, so $69 million stays. Most financing funds will leave. 25% of costs or $23 million leaves.

8. General administration costs of $18.4 million stays.

9. Federal taxes on profits cause a leaving of $48.2 million. Of the retained profits after federal taxes of 93.5 million, we can assume that 75% or $70.1 million leaves, as the casinos for the most part are owned by out of area investors and operators. $23.4 stays.


ANALYSIS OF REVENUES

MONEY IN THE LOCAL (50 mile) AREA

We start with $660.3 million that has been gambled and lost by local residents.

Is the metropolitan region able to retain an amount of money equal to or greater than the money LOST by local players?

Money STAYING in local area:

1. Salary Package......$155.3 million
2. Fringe Package..........25.2 million
3. State taxes..............114.9 million
4. Boarding fee..............38.5 million
5. Marketing..................19.8 million
6. Gaming supplies............0
7. Other supplies...........55.2 million
8. Building costs............69.0 million
9. General Admin...........18.4 million
10. Profits......................23.4 million
TOTAL RETAINED.......519.7 million

Net Direct Costs to Metropolitan St. Louis = $140.6 million (rounded) per year.



Money LEAVING the local area vis a vis $259.3 coming into area from outside gamblers.

1. Salary Package..................$46.3 million
2. Fringe Package................... 25.2 million
3. State Taxes.......................114.9 million
4. Marketing............................ 7.8 million
5. Gaming supplies................. 46.0 million
6. Other supplies.................... 18.4 million
7. Building costs..................... 23.0 million
8. General admin..................... 0
9. Profits/fed tax....................118.2 million
TOTAL FUNDS LEAVING...399.8 MILLION

Net Direct losses to Metropolitan Area = $140.5 million (rounded) per year.


SOCIAL COSTS AND BENEFITS

There are collateral benefits and costs to having a casino. Earl Grinols study (2004) Gambling in America: Costs and Benefits (Cambridge University Press) identifies most of these. He cites several of my studies regarding costs due to crime and compulsive gambling.

1. Benefits. Grinols identifies a benefit of $43 to each adult of a region due to having the convenience of a nearby casino when they want to gamble.

Having the casino nearby means that the person does not have to incur costs of travel. Also, there is a freedom value of being able to do something one chooses to do.

For the St. Louis metropolitan area these benefits amount to $82.6 million per year.

2. Crime Costs. My 1996 study of crime and casinos in Wisconsin "Casinos and Crime: What's the Connection" by William Thompson, Ricardo Gazel, and Dan Rickman, Wisconsin Policy Research Institute) revealed that extra crime due to the presence of casinos in a community cost each resident $17 per year. This cost becomes $32.7 million for St. Louis each year.

3. Compulsive gambling costs. Most compulsive and problem gamblers in St. Louis frequent the local casinos.

The region, according to rates determined by the National Gambling Impact Study Commission, will have 1.8% of its adult population--or 34,571--in category of compulsive gambler. Another 3.2%--or 61,460 will be designated to be problem gamblers.


Several studies show the costs compulsive gamblers impose on others through thefts, lost work, non-productive work, bad debts, and required social services including criminal justice system costs. Very conservatively, I will use one of the lowest amounts found in any study of costs, that being $8000 a year. This is a conservative estimate. (Very conservative.) Compulsive gamblers in St. Louis cost other people in the society $276.6 million dollars each year.

Add to this a $4000 (again a very conservative estimate) cost for each problem gambler, and St. Louis residents lose another $245.8 million a year. This troubled gambler social cost amounts to $522.4 million a year, an amount well over the taxation revenue yielded by the casinos -- albeit, most of the costs are burdens on private citizens (non-problem gamblers).

Don't Increase Volume--It is a Loser

The result is clear; casinos lose money for the St. Louis economy--directly and indirectly. Actually, the results are probably even worse than displayed, as there are multipliers in effect. Each dollar that is lost to St. Louis could have been spent two times before it would have otherwise left the economy. Casinos are a big economic (and social) loser for St. Louis. More casinos will not solve the problem, they will only make the losses greater ones.

You cannot make it up with volume!