Rural Development News-February 1995

Is Gambling a Cure-All?

As tax-shy politicians and hard-pressed economic development professionals struggle with a variety of economic and social problems in rural and urban areas, they are increasingly looking to gambling as a solution.

Electronic slot machines, riverboats, tribal casinos and mega casinos are springing up across the United States at an unprecedented pace, making legal gambling one of the fastest growing industries in the U.S. Between 1982 and 1990, legal gambling by Americans grew at almost twice the rate of personal income. By 1992, gross revenues from legal operations approached $30 billion a year--an average of more than $100 for every person in the country.

Supporters of legalized gambling promise--and usually deliver--dramatically increased public revenues and the creation of large numbers of jobs. However, there is evidence that the rise of the gambling industry has also caused a decline in the jobs and revenues of other businesses, by diverting a greater percentage of consumer dollars into gambling.

In addition to cannibalization of other existing businesses, land speculation in areas near casinos can lead to increased and overvalued property values. High property values make it difficult to run small businesses or rent to low income people.

Atlantic City is perhaps the best known example of gambling used as an economic tool. Although jobs were created, the number of retail businesses declined by a third. In such communities gambling becomes the only business in town as properties become too valuable for any one else to afford the rent. After the introduction of casinos, homelessness increased dramatically in the city.

Finally, the use of gambling as an economic development tool could have even more severe long term detrimental effects. As the traditional prohibition against casinos in urban areas disappeared, urban casinos will provide additional competition for existing rural casinos. Such competition, coupled with increased forms of legal gambling, could threaten the profitability of some gambling ventures. What were once cash cows could quickly become a highly competitive business sector, with very narrow profit margins.

Overselling the economic development benefits of gambling could not only produce disappointing short-term economic results, but it could also leave communities with long term debt to pay for the public infrastructure investments they made to support their gambling facilities. If the market for gambling becomes saturated and highly competitive, large numbers of gambling industry workers may eventually be unemployed. Risks like these make a gambling-based development a high risk wager and should be considered carefully by economic development professionals.

This article was derived from the publication, Legalized Gambling as a Strategy for Economic Development, by Robert Goodman. Copies of this publication are available for $28 each. To order contact Broadside Books, (413) 586-4235.

Reprinted with permission from Economic Development Digest, Vol. 3, No. 5, May 1994, published by the National Association of Development Organizations Research Foundation.