An Economic Analysis of Machine
Gambling in South
Carolina
|
William N. Thompson, Ph.D. Chair and Professor
Department of Public Administration, University of Nevada, Las Vegas 89154and
Frank L. Quinn, Ph.D., Carolina Psychiatric Services
Nine Richland Medical Park, 200
Columbia, South Carolina 29203
A Report Prepared in Conjunction with Friends of South Carolina
Presented to The Education Foundation of the South Carolina Policy Council
1323 Pendleton Street
Columbia, South Carolina 29201
May 18, 1999
An Economic Analysis of Machine Gambling in South Carolina
I. An Overview of Machine Gambling South Carolina Style
During the 1990s South Carolina has become the land of gambling loopholes. During the 70s and 80s video game machines began to appear in many South
Carolina locations. Cash prizes were given to players who accumulated points representing winning scores at the games. The owners of
establishments with the machines paid the players. No cash was dispensed by the machines. While the arrangements seemed on their surface to violate
anti-gambling laws, they survived legal challenges. In 1991 the state supreme court bought into a loophole that the operators offered in their
defense. The operators argued that the machines were not gambling machines as long as the prizes were not given out by the machines directly. The
Court agreed and so naturally a gaming machine industry began to blossom throughout the state. (Thompson, 1999).
Operators "seen their opportunity," as the famous turn of the last century
political philosopher George Washington Plunkitt of Tammany Hall would say, "and they took
'em." As the gaming revenues flowed in, the operators formed a very strong political lobby to defend their status quo. The legislature
addressed the issue of machine gaming, but they could only offer a set of weak rules that have not been rigorously enforced. Legislation provided
that gaming payouts for machine wins were supposed to be capped at $125 a day for each player. Advertising was prohibited. There could be no
machines where alcoholic beverages were sold, and operators could not offer any incentives to get persons to play the machines, and there could be only
five machines per establishment. Machines were also licensed and taxed by the state at a rate of $2000 per year. (Of the tax, $200 is now given to an
out-of-state firm to install a linked information system).
The rules have not been followed in their totality. Establishments have
linked several rooms each having five machines. As many as 100 machines appeared under a single roof. Progressive machines offer prizes into the
thousands of dollars. Operators claimed they pay each player only $125 of the prize each day. In some cases, they awarded the full amount of the
prize and have the player sign a "legal" statement affirming that the player
will not spend more than $125 of the prize in a single day. Dah!
Advertisements of machine gaming appear on large signs by many
establishments. Bars and taverns have machines. There have been thousands of citations against establishments, and fines
have been levied: $429,000 in a nine month period in 1997-8). However, the practices have not ended. (Palermo, 1998).
Several interests in the state did not care for the gambling. They persuaded the legislature to authorize a statewide vote on banning the
machines. According to the legislation authorizing the elections, votes were to be counted by counties. If a majority of the voters in a county
said they did not want the machines, the machines would be removed from that
county. In 1996, 12 of 46 counties said they did not want the machines.
However, before they could be removed, the operators won a ruling from the
state supreme court saying that the vote was unconstitutional. The court reasoned that South Carolina criminal law (banning the machines) could not
be enforced unequally across the state. Equal Protection of the Law
ruled supreme in the Palmetto State.
Over the past four years, the legislature and state regulators have
continued to wrestle with issues surrounding machine gaming. One effort to have all the machines declared lotteries and banned in accordance with a
state constitutional prohibition on lotteries failed, as the supreme court held by a single vote majority that the gaming on the machines did not
constitute lottery gaming. The 1998 gubernatorial election seemed to turn on gambling issues, as supporters of machine gaming and lotteries gave large
donations to the winning candidate. The new governor has sought to win wide support by initiating new "more effective" regulations, but these have not
yet won consensus support in the legislature. One new proposed regulation would allow machines to have individual prizes of up to $500 that could be
one on a single play. Another proposal would set up a new state regulatory
mechanism for machine gaming.
In the meantime, the machine gaming flourishes. At the beginning of 1999
there were over 31,000 machines in operation. They attracted over $2.1 billion in wagers, and operators paid out prizes of $1.5 billion. Machine
owners and operators realized gross gaming profits of $610 million--approximately $20,000 per machine per year. Almost all of the
machines were made out side of the state. Over one-half were "Pot o
Gold" machines made in Norcross, Georgia. These cost $7500 each. Most of the
operators share revenues with owners of slot machine routes. At present
there is no mandatory auditing of machine performance, although the state has authorized the statewide installation of a slot information system.
Is machine gaming good for the economy of South Carolina? This is the
question addressed in this report. The machines bring profits to operators of small businesses in the state.
They bring profits to machine owners most of whom in the state. The
machines give jobs to South Carolinians. There must be one employee for each five machines. The machines bring entertainment to thousands and
thousands of South Carolinians. Is this good? The case is made over and over to public officials that the machines are good for South Carolina. But
how can we assess the question? This report presents an input-output model
for that assessment. This report also seeks to fill in the squares of the model with South Carolina information--some hard data, as well as some data
gained from secondary sources, and other data based upon assumptions derived
from other studies. The model has been utilized to assess the economic advantages of gambling in other jurisdictions. The model can be used to
assess the economic value of other non-gaming-entertainment facilities as well. Actually the model could be used to assess the economic growth value
of any kind of business venture.
II. Gaming Economics and the Bath Tub Model: Inputs and Outputs
A. Overview of Model
The model is simple. The model portrays gambling enterprise as a bathtub
for the economy with money running into and out of the bathtub as if it were
water. If more money runs in than runs out, the economy gains. If more money runs out than in, the economy loses. (Thompson, 1998a)
*****************Diagram 1 Placed Here*******************
Water comes into a bath tub. Water runs out of a bath tub. If the water
comes in at a higher rate than it leaves the tub, the water level rises; if the water comes in at a slower rate than it leaves, the water level is
lowered. A local or regional economy attracts money. A local or regional economy discards money. If as a result of the presence of gambling
enterprise more money comes into an economy than leaves the economy, there is a net positive impact. However, if more money leaves than comes in, then
there is a net negative impact.
Money come into economies because of gambling. Players lose money to the
games. Also players who come to gamble spend money on food, lodging, and transportation. Gambling enterprise can attract construction money. The
money coming to the economy circulates and
re-circulates at rates which are called multipliers.
Money leaves gambling economies. Money brought to gaming by local residents
is actually leaving other sectors of the local economy, so they must be subtracted from the positive side (the water into the tub). State and
federal taxes on gaming wins and profits go off to capital cities and may never be seen again (or, only a small portion of the money will be seen
again in local services such as salaries for on site gaming regulators). It is unlikely that a central government will give added general services to a
local area just because the area is providing gambling taxes. Gaming establishments need many supplies. Many of these are purchased from sources
outside of the area. This is money lost. So too are profits that go to outside owners. Some gaming owners may reinvest monies in the local economy,
but few have incentives for doing so.
The economies also lose money due to the costs of government services: extra
police protection, better roads, traffic control in the gaming areas. Also gaming may attract or motivate criminal activity resulting in police and
judicial system costs as well as costs of victimization and insurance premiums. Additionally, the presence of gaming will be associated with
increases in pathological gambling behaviors, and these carry costs for economies.
The factors vary from gaming location to gaming location. The owners may
have to be state residents or give preference to local suppliers. Taxes vary. The establishments can be required to pay for extra policemen, or
give money to programs for problem gamblers. The
bottom line effects of gaming also depend upon the reason for its existence. If gaming exists to
block the local resident from going elsewhere to gamble, the establishment may be successful without attracting outside players. If the goal is job
production, many players will have to be visitors.
Conceptually, the application of the model is also simple: (1) Identify all
the sources of money coming into the business enterprise--in this case into the coffers of those controlling 31,000 gaming machines; conceptualize also
other expenditures that visitors playing the machines will bring to the state because they are playing the machines: and (2) Identify all the
outflows of moneys resulting from the presence of the machines; and (3) Assess how the inflows and outputs represent moneys flowing into and out of
the economy. The economy can be conceptualized as a local economy or a statewide economy. However, what is conceptually easy can be quite complex
in actual application. Nonetheless, this report suggests that a general application of the model can be applied to knowledge we have about South
Carolina gaming and South Carolina gamers, and from knowledge about gaming elsewhere and knowledge derived from studies of gaming in other
jurisdictions.
B. Applying the Model to South Carolina--Overview
The question is: does the economy of South Carolina (or alternatively the
local economies of South Carolina) experience a growth due to the presence of 31,000 gaming machines in the state? The machines generate revenues for
owners and operators approximating $610,000,000 per year.
1. Inputs
The machines bring in $610 million. Added to these revenues may be other
expenditures of visitors to the state--such as lodging and meals--if the visitors came specifically to game at the machines, and otherwise would not
have come to the state. In the case of South Carolina it is difficult to believe there is much value in these expenses. So first we need to determine
the source of the $610 million. Of course, the source is players. How many are from South Carolina? The money South Carolinians spend on the machine
gaming may not be considered money brought into the South Carolina (or local) economy. There is one exception--the money can be considered money
brought into South Carolina if the presence of the machines keeps the South Carolina players from spending their money outside the South Carolina
economy. That is, the presence of machines represents an economic gain if the machines keep South Carolinians from traveling to Las Vegas or Atlantic
City to gamble, or to the beaches of Florida for holidays. Money spend on machines by persons visiting the state can be considered money brought into
the state, again, with one exception. If they would have otherwise spent the money in South Carolina for another purpose, the money cannot be
considered an imported value for the South Carolina economy. For instance, if a conventioneer or visitor to Myrtle Beach decided to spend one evening
on entertainment and made plans to go to a restaurant and show and spend $150, but instead spent $150 on the machines and stuffed snacks from the
conference coffee service area into his pocket for dinner, that $150 cannot be considered money added to the South Carolina and Horry County economies.
Added inputs may come from investments made in the state because of the
machines. These investments would have to be financed by out-of-statedollars.
2. Outputs: Internal Expenditures--External Expenditures
How much of the $610 million will remain in the state after it is collected
by the operators? We cannot trace the money too many steps, but we should ask where it goes in the first step. The money goes to workers. There will
be at least 12000 workers (two shifts), most of whom will earn a minimum wage of approximately $12000 a year. How many of these workers will live in
another state? A two thousand dollar annual fee per machine will move from the local to the state economy. Ten percent of the fee will leave the state
and go to a company installing an information system on the machines. The machines are made elsewhere, so too, their cost will leave the state.
(There are new instate manufacturers, but to date, their share of the market for
machines is miniscule and is not factored into this analysis). The state will also lose money for other supplies purchased by the machine operators
from out of state sources. (We make no assumption for the value of these purchases, hence do not factor these into the analysis either). Any
excessive federal tax that is imposed on the machines and not on other entertainment industries may also be seen as money leaving the state.
Ordinary corporate and personal income taxes from profits and wages would
leave the state anyway, as without the machines, incomes would be earned in other places and also taxed. Profits may stay in the state or leave the
state. Are the owners of the machines local residents? Or, in other words, how much of the net profits from the machines will remain in local owners'
hands, and how many in the hands of out-of-staters? Then, will they reinvest the money in South Carolina business enterprise, or will they place
profits into investments in other places?
3. Externalities
An application of the model will not be complete without assessing
other costs of gaming. The machines require state regulatory expenses. The many
charges and fines of machine operators are made at costs to the government.
Do the costs exceed the fines? We can speculate on what would be the cost
of a system that would effectively regulate the machine industry. The presence of the gaming also impacts the social fabric of the state in ways
that involve costs that would not otherwise be incurred by the full economy of the state, by non-gamers of the state, and by the government of the
state. The presence of the gaming may be associated with incidence of problem and compulsive gambling, and we can make estimates of how great a
cost each compulsive and problem (or other) gambler has on the state.
Gaming may also be related to criminal behaviors which likely would not have
occurred in the absence of machines in South Carolina. Our estimates represent moneys taken away from the South Carolina economy.
4. Summing It Up
It is a simple matter of inputs and outputs, net wins and net losses for the
South Carolina economy and for the local economies of the state.
C. Some Other Applications of the Model
1. The Las Vegas Bath Tub Model
The Las Vegas economy has witness phenomenal growth. This has occurred in
the face of increasing casino competition from around the nation and world.
The overwhelming amount of gambling money (as much as 90%) brought to the
casinos comes from visitors. Visitors stay in Las Vegas an average of four days and spend money outside of casinos. State taxes are low, and profits
remain as owners are local, or if not, they see advantages in reinvesting profits in expanded facilities in Las Vegas. The costs of crime and
compulsive gambling associated with gambling are probably major, however, many of these costs are transferred to other economies as most problem
players are visitors. Las Vegas is not a manufacturing or an agricultural region so most of the purchases (except for gambling supplies) result in
major leakages. Las Vegas does have several gambling locations--bars, 7-ll stores, grocery stores which represent very faulty bath tubs--bath tubs with
great leakages. These locations do not attract tourists.
2. Other American Jurisdictions
Atlantic City's casino bath tub holds water as many gamblers are
outsiders. However, players are mostly "day trippers" (averaging four hour stays) who
do not spend money outside the casinos. Most purchases--as with Las Vegas--go to outside vendors. Like Las Vegas, state gaming taxes are
reasonably low; other taxes, however, are high. Other American casino jurisdictions do not have well-functioning bath tubs, because most offer
gambling products to local players. Native American casinos may help local economies, because they do not pay gambling excise taxes or federal income
taxes on gambling profits, and they are wholly owned by tribal governments who keep profits (which are in form tribal taxes) in the local economies.
3. Wisconsin and Illinois
Two Midwestern studies using the model focused upon Native American casinos
in Wisconsin and riverboat casinos in Illinois. In each state the authors
discerned that approximately 20% of the gaming dollars came from out-of-the state. The studies examined both local economies and state wide economies.
The details of the studies are reported elsewhere. The results found that
the Native American Casinos in Wisconsin produce net positive economic impacts
for the local areas around the casinos, and also for the state of Wisconsin as a whole. The Wisconsin state impact net benefits amount to $326.72
million (annualized), while local benefits amount to $404.41 million.
Commercial riverboat casinos in Illinois produce net economic losses for
local areas around the casinos, and also for the state of Illinois as a whole. The Illinois state impact losses amount to only $6,711,205,
while local losses amount to $239.65 million. (Thompson, Gazel and Rickman, 1995;
and Thompson, Gazel, and Rickman, 1996a; and Thompson and Gazel, 1996).
As an alternative means of looking at the data, we could envision that there
are two casinos each of which is responsible for generating $100 million for
a state in terms of both casino and non-casino spending. One of the
casinos is a large Wisconsin Native casino sharing all the attributes--revenues,
expenses, and markets--presented above for the Native casinos. The other casino is an average sized Illinois riverboat sharing all the attributes
revealed for the riverboat enterprises analyzed above.
As the data reported on Table I indicate a single Native casino
responsible for revenues of $100 million will produce a positive economic impact for the
local area within thirty-five miles amounting to $50.8 million and a positive impact for the entire state of $41.0 million. The commercial
riverboat casino which generates $100 million in revenues produces negative economic impacts. The local area within thirty-five miles of the riverboat
casino experiences an economic loss of $18.4 million, while the state as a whole experiences a loss of over $540 thousand.
TABLE I
REVENUE IMPACTS OF A $100 MILLION CASINO
WISCONSIN ILLINOIS
NATIVE CASINO COMMERCIAL CASINO
Total Revenues $100,000,000 $100,000,000
Casino Revenues 83,609,300 96,007,275
Non-Casino Rev. 16,390,700 3,992,725
Economic Impacts
Local Area $50,793,896 -$18,381,321 (negative) Entire
State $41,036,032 -$ 541,749 (negative)
The casinos in each state made similar purchases, so why was there a
difference. Quite simply because all the Wisconsin casinos were owned locally, while the Illinois casinos had out-of-state corporate owners. Also
the Native casinos did not pay special casino taxes, while the Illinois boats did--both the state government and to the federal government as profit
taxes. The profit margins were higher than other recreational businesses, and therefore the federal government took a greater share of the revenues
than they would from other recreational businesses.
The Wisconsin and Illinois studies did not directly apply the negative
social costs of compulsive gambling and crime associates with
gambling to the analysis. Yet the authors did indicate that the costs would have to be
considered in order to have a full economic picture.
III. The South Carolina Economic Situation
A. Inputs
$610 million dollars comes into the machine gaming industry in one year.
The industry cannot make a claim that it attracts outside investment
dollars, although there is certainly some (minimal) building activity that surrounds the facilities where the machines are placed. We can
assume that the building investments are almost entirely local. To the extent they are
not, they are probably short term investments that are repaid to the out-of-state investors in a short period of time. These investments do not
affect the overall economic equation, and will be considered to be a neutral
factor in the analysis.
The major question then is the source of the $610 million dollars. We have
concluded that 15% of the machines and 20% of the revenues are from out of state and would not have otherwise been expended in South Carolina. In an
earlier analysis, Quinn determined that the out-of-state factor was 15%.
This assessment was based upon interviews with players at machine locations
throughout the state. (Quinn 1998).
We have also looked at the numbers of machines and revenues in the counties
of South Carolina. We assume that the 22 interior counties attract no new visitor funds for the machines. We assume further that the machines are not
such that they cause South Carolinians to cancel or otherwise avoid visits to recreational areas of other states. The machines do not keep the locals
from making trips to Las Vegas, nor do they preclude then from visiting tourist areas such as Orlando or Florida beach communities. Twenty-four
counties bordered other states (North Carolina and Georgia) and/or were located beside the ocean. These counties collectively gave the state 19%
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original questionnaire used as a base point for all the studies was designed
by Henry Lesieur for his Illinois study. A more recent study by the National Opinion Research Council used telephone interviews and also face to
face interviews with gamblers to gain much of the same information. (NORC, 1999).
The studies came to different conclusions regarding the social cost of
gambling. In Wisconsin the social cost of one compulsive gambler was seen as approximately $7100 a year while the cost in Connecticut was seen as
$11000. The NORC study found the cost to be $2500 a year for compulsive gamblers and $1350 for problem gamblers. The NORC study did not include all
the costs used in the Wisconsin, Illinois, and Connecticut studies, but on the other hand did include some costs not identified in the three studies.
Other studies using different methodologies have found the annual
social cost of one compulsive gambler to range from 13,000 to over $60,000.
(Kindt, 1994; Politzer, 1981; Thompson, Gazel and Rickman, 1996b).
Again, other studies used different factors as well as coming to different
conclusions regarding the cost of specific factors. Rather than arguing over what should or should not be included in a cost analysis, we choose
instead to plow forward with references to the other studies, but also with a complete openness that will allow others to reformulate our cost findings
to their models if they take issue with our model. (See Thompson and Gazel, 1998)
2. The Respondents--Demographics
Seventy persons answered the surveys. Forty-seven were in fifteen Gamblers
Anonymous (GA) groups in South Carolina, and responded to a distribution made through the groups. The state has twenty-five groups and most have not
been in operation for more than five years. An additional 23 interviews were made through the mail with persons suing the machine owner-operators.
Ten of these were also members of GA. They claim that the owner-operators
have cheated them because they are problem or compulsive gamblers. All responses were given in an anonymous manner.
Gender. Sixty-nine respondents indicated gender. Most were male: 46
(66.7%). Twenty-three females responded (33.3%). Sixty-six identified their race. Sixty (90.9%) were white, five (7.6%) were African
American, while one (1.5%) was Asian.
Family Incomes. Income levels among the respondents was moderately high.
Sixty-nine indicated family incomes. The median respondent indicated a
family income between $50,000 and $74,999. Twenty-three percent indicated family incomes of over $75,000. They were also well educated. Only ten had
not graduated from high school. Forty (57.1%) had attended college, while 14 (20.0%) were college graduates.
Marital Status. Most of the respondents were currently married (43) or
living in partnerships (1). Nine were single and had never been married. Fourteen were separated or divorced, while two were widowed. Sixteen of
33 who had been divorced at sometime indicated that they had been separated or divorced specifically because of gambling problems. The median
respondent had two children, while the mean number of children for the respondents was 1.82.
3. Ages and Gambling Careers
The respondents were an average age of 44.63 years old. (68 of the 70 gave
responses to all age questions). We used average ages to determine the chronological extent of gambling careers.
The 68 who responded to all the questions regarding ages of activities,
indicated collectively that they had begun to gamble when they were
28.87 years old. At 32.07 years they were gambling on a weekly basis. They first
borrowed in order to gamble at an average age of 35.25 years old. By their own assessments, they became problem gamblers at an average age of 35.28
years. They had been in Gamblers Anonymous, or alternatively
had not made a wager for an average of 1.14 years.
We determined that their careers as compulsive gamblers were equivalent to
the time between the onset of problem gambling and the time they had sought treatment by joining GA or alternatively had stopped making wagers. This
methodology paralleled that used by one author in the Wisconsin study.
(Thompson, Gazel and Rickman, 1996b). The National Opinion
Research Council in its study for the National Gambling impact Study Commission used the
identical methodology. In fact they actually used the Wisconsin number found by using means in Wisconsin (6.4 years) and applied that specific
number for their national study in identifying the span of a compulsive gamblers career. They did not seek to find a number independently for their
national study.
Here we determine that the compulsive gambler's career in gambling in South
Carolina lasts 8.2 years. (44.63 minus time in treatment-1.14, minus the age of onset of gambling problems--35.28)
4. The Games They Played
As the 23 respondents contacted from the list of plaintiffs in a law suit
against machine owner-operators certainly by definition had problems with
machines, we can only suggest the pervasiveness of machine gaming among problem gamblers by looking at the 47 who responded to our questionnaires
through GA meetings. We asked each whether they had a serious problem, some problem, or no problem with various forms of gambling. Of the 47, 40(85.1%) said they had serious problems with machine gambling. Four
indicated they had "some" problem with machine gambling, and 3 said they had
no problem with the gambling. No other form of gambling commanded such attention from the gamblers (former gamblers). Seven said they had serious
problems with gaming in other commercial land-based casinos; four in Indian casinos; and 4 at tracks, 3 with bookies. and one each with casino boats,
personal games, gambling with friends, and gambling on the stock market.
The respondents were asked what percentage of their gambling was on each
form. Twenty-nine of the 47 (61.7%) responded that 100% of their gambling was on the machines. Six others said at least 75% of their gambling was
with the machines. Overall, by averaging the percentages (not a sound methodological technique) we found that 76.5% of the gambling by the 47 was
at the machines.
The players indicated gambling losses that averaged $79,434 each during
their careers as compulsive gamblers. They indicated that in their last year the lost an average of $25,903. Their career losses can be annualized
to $9687 each. (It should be noted that one respondent said he lost $10 million gambling. While we wish to accept this response as accurate, we
discarded it from the analysis as it would drastically affect the averages. the above averages are for the other 69 former gamblers).
5. Debts and Borrowed Money and Bankruptcy
At the time that the respondents sought treatment or
counseling for gambling problems they owed an average of $29,586 in debts incurred because
of their gambling problems. Of those debts, $17,350 were incurred during
their last twelve months of gambling. Over their gambling careers they had borrowed $49,781 because of gambling, and in the last twelve months of
gambling they borrowed $16,062. Eighteen of the 70 (25.7%) respondents had been in bankruptcy. It can be assumed that their creditors lost at least
one half of their debts. While we should assume that many more of the debts
of the gamblers were never settled in full, we will only assign 50% of the bankruptcy debts to the social cost figures. Averaged over the group these
social costs represent $3802 for the career, and $464 on an annualized basis.
The bankruptcy actions also carry costs. We have estimated that each court
action carries a cost of $3750. The 18 bankruptcies added a social cost of $67,500, or $964 for the career of each problem gambler which can be
annualized to a cost of $118.
Additionally, the gamblers were subject to many law suits. Collectively the
70 were sued 37 times because of their gambling activity. At a social cost of $3750 per law suit, this represents a career cost of $1982 per gambler,
or an annualized cost of $241.
(The data on court costs is drawn from an analysis made in the Wisconsin
Study by Thompson, Gazel, and Rickman, 1995. The study took the budget for federal court services and divided it by the number of federal cases. The
average case could be assigned a cost of approximately $7500. We simply
assumed that the cases represented in our study cost one-half the cost of federal cases, or $3750 per case. We use this court cost for each kind of
case. Data utilized came from the Statistical Abstract of the United States and the U.S. Department of Justice Source Book.)
The gamblers obtained funds from many sources. Table III indicates that
they sought funds from household accounts and banks first, followed by credit cards. They it appears they turned to relatives for support. Over
one half passed bad checks in order to get funds to gamble, and over one-half sold property. We asked the value of property that was sold. The
respondents indicated values averaging $15,363 over the career of each gambler. In their last year of gambling, the respondents sold $8649 in
personal property. Annualized the sales equaled $1874. As pawn shops and others involved in "fire sales" will give approximately 50% of the value (or
less), we can see that the sales represent a personal annualized loss of $937.
TABLE III
SOURCE OF FUNDS
Household 56 Yes (81.2%) 13 No
Banks-Credit Union 53 Yes (76.8%) 16 No
Credit Cards 51 Yes (76.1%) 16 No
Relatives/inlaws 44 Yes (67.7%) 21 No
Sold Property 36 Yes (55.4%) 29 No
Bad Checks 37 Yes (55.2%) 30 No
Spouse 30 Yes (46.2%) 35 No
Cashed Stocks 25 Yes (39.7%) 38 No
Bookie 10 Yes (15.9%) 53 No
Casino Credit 8 Yes (13.1%) 53 No
Loan Shark 8 Yes (12.5%) 56 No
6. Work
Nineteen of 70 (27.1%) had lost or quit jobs because of their gambling
problems. They were out of work for an average of 3.55 months (averaged over the 70) because of gambling. Over their gambling careers this
represents a lost productivity of $8875 for each gambler. (We assume an annual income of $30,000 for this analysis). This productivity loss can be
annualized to a loss of $1082.
Fifteen of the 19 gamblers who lost jobs were covered by
unemployment compensation. Coverage of 204 months for these gamblers at an estimated
$500 per month was spread over the 70 and averaged. This
equaled an average career cost of $1457, which is annualized to $178.
Fifty of 70 (71.4%) indicated that they missed work because of their
gambling problems. In total, they missed hours which constituted an average 23.9 per month when spread over the 70 respondents. At $15 per hour this
represents a social cost loss of $35,276 over a career and $4302 on an annualized basis.
7. Stolen Money
Twenty-six respondents (37.1%) indicated that they had stolen money from
their employers. Many stole from others as well. As indicated above 37 had passed bad checks in order to get gambling funds. Thirty-seven gave a
financial value to their thefts. They gave values that could be averaged (over all 70) to career thefts amounting to $84916515, and thefts of $3209
over the last year of gambling. Annualized, the thefts averaged $1035 per gambler.
8. Criminal Actions
While the clear majority of the gamblers were involved in criminal actions
as evidenced with the data reported above, only a few indicated that they had been arrested and subject to the criminal justice system. The 70
reported 56 arrests, however only 23 of these were attributed to gambling causes. Each arrest may be cost out at $2900 (this figure is utilized in
the NORC national study). This represents a career cost of $953 for each problem gambler, and an annualized cost of $116 each.
The gamblers were put on trial 19 times; they were convicted 16 times. At a
trial cost of $3750 each, this represents career gaming social costs of $1018, and annualized costs of $124.
The respondents spent 96 months in jail as a result of gambling related
crime convictions. This represents 1.37 months for each surveyed gambler.
At a cost of $2000 per month, this is a career cost of $2743 per gambler,
and an annualized cost of $334. Seven were placed on probation. At a cost of $9600 (4800 a year for two years) for each this represents a social cost
per gambler of $960 over the gambling career, or $117 for one year of that career.
Fifteen of the respondents indicated the amounts of money they paid for
attorneys. These are personal losses, but they also represent lost productivity for society. Much more is spent on legal services, however,
these are the only costs that can be documented through our methodology.
While we cannot assign the cost to the burdens placed upon society, they
should be identified. Averaged over the 70, they represent a loss of $910 per career gambler, and $111 for each year of compulsive gambling per
gambler. (Actually we averaged the figures over 69 gamblers, as we discarded
one who reported attorney costs of $100,000 as this diverged considerably from other reported costs).
9. Welfare
Four of the 70 indicated that they accepted food stamps because of gambling.
For cost purposes, we assume that the stamps were received over four years
(one-half of the gambling career). At a one year social cost of $2000 for each of these we find a collective career social cost of $457 for each
gambler, and an annual cost of $56. Two of the gamblers were on welfare.
Assuming again a four year cost at $500 a month, each imposed a $24,000
career burden on society. This is a collective career social cost of $685 for each of the 70, and an annualized cost of $84.
Seventeen of the 70 indicated that they had undergone divorce actions or
separations because of their gambling. The National Commission's study on problem gambling (made by the National Opinion Research Council) indicated a
cost of $20,000 for each divorce action. This would translate to a career cost of $4857 for each of the gamblers, and an annualized cost of $592. To
be sure these costs are for the most part absorbed directly by the gamblers themselves. However, we can assume a public cost of one trial for each
divorce. At $3750, this translates to a collective career gambler social cost of $911, and an annual cost of $111.
10. Medical and Therapy Costs
Twenty-five of the gamblers had seen a doctor or therapist because of
gambling problems, and 15 were hospitalized due to gambling
problems, while 13 indicated they took medication as part of their treatment. Seventeen
identified costs of treatment. The career costs averaged $1368 over the 70, with annual costs of $167. Most indicated that costs were covered by
insurance. Assuming that one-half of the costs were, we have career costs to others of $684 and annual costs of $83.
11. Summary and Totals
We have placed each of the cost factors into a category: cost to South
Carolina society as a whole, cost to government, and cost to specific others
(creditors, employers, victims), as well as costs to self. The figures are totaled on Table IV. We find that one compulsive gambler cost the full
society $1682 each year, government $1479 each year and specific groups of others $3137. Collectively, therefore, they each imposed costs of $6299
onto other people each year. They also impose costs of $13,566 upon themselves.
We have calculated the costs imposed by problem gamblers as well. Quite
simply, we have used the ratio discovered in the NORC study: the problem gamblers' social costs equal 53% of those of the compulsive gambler. Hence
we conclude that one problem gambler imposed costs of $891 onto society as a
whole, $783 onto government, and $1663 onto specific others. This represents a total of $3338 imposed upon other people. They personally
incur costs of $7189 each year because of their gambling.
TABLE IV
ANNUALIZED COST OF ONE COMPULSIVE GAMBLER
SOCIETY GOVERNMENT OTHERS TOTAL SELF
DEBT $464 $464
LOST WORK $2156 $2156 $2156
UNEMPLOYMENT COMP $178 $178
PRODUCTIVITY $1082 $1082
THEFT $517 $517 $1035
ARREST $116 $116
TRIALS $124 $124
JAIL $334 $334
PROBATION $117 $117
CIVIL CASES $241 $241
BANKRUPT CASES $118 $118
DIVORCE $111 $111 $592
WELFARE $84 $84
FOOD STAMPS $56 $56
THERAPY $83 $83 $83
ATTORNEYS $111
SOLD PROP $937
GAMBLE LOSS $9687
TOTALS $1682 $1479 $3137 $6299 $13566
TABLE V
ANNUALIZED COST OF ONE PROBLEM GAMBLER
(53% of ABOVE)
SOCIETY GOVERNMENT OTHERS TOTAL SELF
$891 $783 $1663 $3338 $7189
12. Real Costs that are not included in the analysis
The numbers that are presented above do not represent the total social costs
brought upon the citizenry because of problem gambling. Quite frankly, it is difficult to put specific money value on many of these costs. That does
not mean that the costs do not exist. They do. The 70 gamblers indicated that they had an average of 1.82 children each. The divorces cause by
gambling will have major costs in child development. Broken homes will carry costs into schools and onto the streets as the consequences of these
actions unfold over future years.
We have not factored in costs of suicides that certainly arise out of
gambling problems. The April 24 edition of the Las Vegas Review Journal reported that Clark County (Las Vegas) suicides rose to a record level in
1998. There were 286 such deaths in the county last year. The article reported that "experts say the causes of suicide are complex, but generally
gambling, depression, drug and alcohol abuse are significant contributing factors to people's decision to kill themselves." The survey respondents
indicate that suicides in South Carolina may be related to gaming too.
Twenty-five of 47 (53.2%) indicated that as a result of gambling
problems, they had felt so low that they wished they could die. Fifty-one of 69
(73.9%) had entertained thoughts of suicide; while 49 of 69 (71.0%) reported
they had made plans to take their lives. Twenty-one of 69 (30.4%) indicated
they had actually attempted suicides. Eleven of 68 (16.2%) had made more than one suicide attempt. We were not able to survey any who made
successful attempts. The thought and the attempt carries costs. The costs may be in the work place in terms of lower productivity. They may be in
medical costs not considered gambling related. Society loses financially when productive people die.
We have not considered work place costs incurred as employees give less than
full attention to their job duties even if they do come to work. Also we have cut the employer's lost value of work due to absentee employees in
half, to be conservative in general, but also in recognition that some of the lost time was by those in self-employment.
We have also neglected to include many dollars that have been lost to
creditors because we cannot discern specific numbers. We have only included lost debts from gamblers who underwent bankruptcy protection from creditors.
And here we have cut the reported debts in half for our analysis. Certainly other creditors were also "stiffed" by their gambling debtor.
Also it should be noted that we have taken a non-response to any question to
mean zero for purposes of assuring that we do not overestimate any factor.
Of course, some gamblers who did not cause costs in some area left the
response blank and the response should be interpreted as a zero. However, others who might have imposed costs onto others may as likely have chosen
not to answer the question, either by direct choice, or because they simply do not recall the information requested. Again we are taking a very
conservative approach to the data, if they did not respond, we assume a response of zero.
13. Projecting the costs to the total society
The cost of compulsive gambling can be projected to the society if we can
assess how many compulsive gamblers there are in the society. We did not have the opportunity to have a prevalence study of the South Carolina
population. Other prevalence studies have determined that the portion of compulsive gamblers in a general society ranges from .6% to over 5%. Our
Wisconsin survey found that .9% were serious problem gamblers. (See Thompson, Gazel and Rickman, 1996b) An analysis of all studies made by
Harvard University Medical School researchers on behalf of the American Gaming Association--the number one lobby group for gambling in
America--concluded that 1.29% of the adult population in America could be placed into the pathological gambling category. The most expansive national
survey was recently conducted by the National Opinion Research Council. The study determined that .8% of the adult population of the United States,
while 1.3% were problem gamblers. (NORC, 1999). We offer to use these very conservative NORC numbers for the South carolina analysis. Projected to
the South Carolina population this represents 19,200 compulsive gamblers, and 31,200 problem gamblers.
The collective social cost of compulsive gamblers for South Carolina then
are $0120,940,800, while problem gamblers add an extra $104,145,600 in social cost. Personal costs represent $260,467,200 for compulsive gamblers
and $224,296,800 for problem gamblers.
TABLE VI
COMPULSIVE GAMBLER COSTS
SOCIETY GOVERNMENT OTHERS TOTAL
$32,294,400 $28,396,800 $60,230,400 $120,940,800
PROBLEM GAMBLING COSTS
SOCIETY GOVERNMENT OTHERS TOTAL
$27,799,200 $24,429,600 $51,885,600 $104,145,600
The data we gathered from the gamblers indicates that approximately 76% of
these costs can be assigned to machine gaming, while other costs should be assigned to other forms of gambling. Such being the case we can hold that
compulsive gamblers cost the South Carolina society $91,915,008 each year because of the presence of machines in the state, while problem gamblers add
another $79,150,656 to this cost burden because of machines. In addition the gamblers incur another $265,090,410 in personal gambling losses because
of the machines. (Gambling losses times .76). Essentially this says that 43.5% of the machine gambling ($610 million) in South Carolina is by 2.1% of
the adult population who are compulsive and problem gamblers. (In fact these are conservative numbers--very conservative, as we are considering an
annual gambling figure that has extended over eight years, while the machine
revenues of $610 million are revenues for the current year. Averaged over eight years machine revenues are much less. Indeed, the figures of the last
year of gambling losses from the players--$25,196 for compulsives with $19,686 at machines; and $13,354 for problem gamblers with $10,434 at
machines constitute an amount equal or exceeding machine revenues.
Compulsive gambler and problem gambler losses to machines would exceed $700
million if the problem gamblers acted as they did in their final year of gambling. Certainly if this is the case, some of the problem and compulsive
gambling on machines takes place in other states. But the suggestion can still be made that a considerable portion of the machine gambling in South
Carolina is by persons who are if not compulsive gamblers, serious problem gamblers. Those with compulsive attributes, less than one per cent of the
population, put $377 million into the machines--based upon their last year play. This is over 61% of the amount gambled on the machines.
E. Costs of Crime
Not all gambling crime can be assigned to compulsive gamblers and problem
gamblers. Gambling enterprise adds to the criminal burdens of societies in many ways. Non-problem gamblers steel to cover losses. And non-gamblers
engage in criminal activities because of the presence of "easy" money around
gambling. Also other activities such as drunkenness are associated with gaming. We have not done a close analysis of crime statistics in South
Carolina. One should be made. As a point of reference here we shall project the Wisconsin costs onto the South Carolina population. The summary
statement from the Wisconsin study concludes:
"The survey of serious criminal incidents and Part II crime arrests in all
Wisconsin counties for more than a decade leads to the firm conclusion that the introduction of casinos has had a pronounced effect upon the safety and
security of Wisconsin residents. We have concluded that an additional 5,277 serious crimes per year cost the public $16.71 million, while an additional
17,100 arrests for Part II crimes cost the society $34.20 million each year.
The data indicate the sad conclusion that casinos may be responsible,
directly or indirectly, for nearly $51 million each year in societal costs due to crime generated as a result of their existence." (Thompson, Gazel and
Rickman, 1996c).
We can note that Wisconsin had 14 widely dispersed casinos, while South
Carolina has 31,000 gaming machines that are located in all cities and counties and are widely accessible to the total population on a daily basis.
It is not unfair to suggest that the crime impacts in South Carolina should
be as great per capita as those in Wisconsin. The population of South Carolina is 2/3rd that of Wisconsin (1990 Census). If we consider the crime
ration to be the same, we can suggest that the cost of gambling related crime in South Carolina is $34 million per year.
It must be stated that there is some overlapping costs between the
compulsive/problem crime and the general crime related to gambling. We identified for compulsive gamblers that there were $691 in governmental
costs related to crime. ($366 for problem gamblers.) If these costs are totaled they constitute a large portion of the crime costs identified
($24,686,400 of $34,000,000). The overlap is greater when we factor in theft costs. Rather than adding significantly to the social costs
identified for the compulsive/problem gamblers, the crime costs interpolated
from the Wisconsin study only serve to strengthen the numbers we have established above through our surveys.
F. Other Overlapping Problems
We have not assigned costs for criminal activity as some of the activity
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