Thursday, August 25, 2005

House Odds

The casino gambling report sponsored by CG Partnership has sent a couple of ripples through the blogosphere. In addition to my post, Joe at RubberBuzz chimed in with the standard "money is leaving the state now" argument. He personalizes it by discussing his recent trip to Wheeling to lose money.

In addition, Bill Callahan cited my post (thanks for the love) and generated a bit of discussion including another money-leaving-the-state take. And a reader emailed me with cites to the local business/nonlocal chain stats I had been groping for in my first gambling post.

My main objection to legalized casino gambling is more economic than moral. The only argument for casino gambling that makes economic sense is the money-already-leaving-the-state argument. But even a cursory look at the numbers from the CG study knock the feet out from under it.

Let's do a little rough math based on the numbers from the CG study. We are going to set aside the restaurant and hotel revenues because of concerns about tradeoffs. We are just looking at the "revenues" that constitute gambling losses.

I'm going to make an assumption about how much of the gambling loss money will stay in the state. To be fair, let's assume that the casinos are owned by a mix of homegrown corporations and out-of-staters. Since the percentages for local vs out-of-state business are 45 vs 15, lets be generous and split the difference. We will assume that 30% of money lost in casinos will recirculate in the state as opposed to being immediately repatriated out of state.

Recall the numbers from the study:

$2.975 billion in gambling loss revenues from Ohioans, including $925 million currently going out of state. That breaks down to:

$2.050 billion in new gambling losses
$ 925 million in recaptured gambling losses

Plus we get another billion from out-of-state suckers.

I contend that the total money that recirculates in the state from gambling losses must be more than the money that leaves the state as a result of the new gambling losses for this to make economic sense. Otherwise it's a net loss, even before you figure in tradeoffs, more problem gamblers, regional impacts and so forth.

The 70% of the recaptured money and out-of-state money that flows out of the state can be ignored since we would not see that anyway. The 30% that recirculates from recaptured and out-of-stater money is free money. For our purposes, I'm granting that we wouldn't see any of that money without legalized casino gambling.

So let's see how this all totals up.

The money that stays in the state is:
$601.5 million from new gambling losses
$277.5 million from recaptured gambling losses
$300 million from gambling losses by out-of-staters

Total = $1.178 billion recirculating

The total leaving the state due to new gambling losses is $1.4 billion -- 70% of $2 billion. That is a net loss of $222 million dollars.

Look, I'm not an economist. These are calculations done literally on the back of an envelope. Maybe I'm missing something, but when I saw the figures for revenue from new gambling losses, this started to look like an even worse bet than I thought.

One lesson I learned from watching to much poker on TV is that a good bet is one in which the odds are in your favor, not one you win. Every game of chance at a casino is a bad bet. You are playing at house odds -- the house will win a greater percentage of the time than you will. Rest assured that prospective casino owners know all the numbers, including the numbers I've crunched above.