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The Cost of Gaming

The debate on the social costs of gaming continues, as researchers strive to study it

It’s been hotly disputed for years, yet no clear answers have emerged. The issue: social costs of gambling. Why good data remains so elusive was the subject of a recent white paper by Douglas M. Walker, Ph.D., professor of economics at the College of Charleston, which was posted on the American Gaming Association website in January: “Challenges that Confront Researchers on Estimating the Social Costs of Gambling.” The paper was also the topic of a February article in Global Gaming Business.

It’s worth another look as to why there is still “little consensus on the validity of any of the numbers,” as Walker points out. What stance do casino operators take on the issue, especially when entering new jurisdictions or during relicensing hearings? And are there any clear solutions in sight? We’ll look at these questions and more as a follow-up to Walker’s white paper.

It’s not hard to see why the debate rages on. With pressure from policy-makers and communities for hard numbers and accurate statistics, and with pro- and anti-gamers marshaling their forces on either side of the issue, researchers feel compelled to provide information. But here’s where it gets tricky.

It’s been difficult to agree on a definition of the term “social cost,” much less measure actual hard costs in dollars and cents. For years, Bill Eadington, professor of economics and director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada, Reno, has recognized the complexities inherent in the issue: “Estimating the social costs of gambling is no simple task; rather, such an undertaking is fraught with conceptual and empirical difficulties.”

As Walker points out in his white paper, the task hasn’t gotten any easier. In a follow-up conversation about his paper, he comments: “Many researchers seem to downplay those fundamental problems in estimating social costs. It appears that, since politicians want cost estimates (this is understandable-they need something on which to base their policy decisions), there are researchers willing to provide them, no matter how baseless they are.”

The social cost question is rendered even more volatile because the nature of the industry tends to polarize opinions: “The casino issue remains highly controversial and political, especially where it is still under consideration for legalization or liberalization,” says Eadington. “Thus, both sides have a lot of reason to exaggerate their positions.”

In addition, fuel has been added to the fire by the media, notes Eadington, in that “the media has provided a willing outlet for a controversial issue.”

Casino operators find themselves frustrated by the lack of consensus on estimates of social costs and sometimes sketchy research methodology. “There just isn’t any solid data,” says Dean Hestermann, director of public affairs at Harrah’s Entertainment. “Most of this research simply shows that when you multiply one imaginary number by another imaginary number, you get another-really large-imaginary number.”

Rob Stillwell, vice president of corporate communications at Boyd Gaming, agrees that the lack of consensus on the data is a source of concern for the industry: “In order to set public policy, lawmakers need accurate data-not figures that might be inflated in order to support a writer’s personal biases or beliefs. That has been an ongoing problem in research on this topic, and public policy has often suffered as a result.

“Obviously, there are some social costs associated with pathological gamblers. We want and need to know what those costs really are. But it doesn’t help anyone to exaggerate or inflate those costs. If many factors are at work, addressing just one of those factors doesn’t solve anything.”

Commenting on Walker’s white paper, Stillwell says, “Dr. Walker makes a very good point-how much of the ‘social costs’ attributed to problem gambling are costs incurred directly because of gambling problems, and how much are linked to other issues, including smoking, drinking or drug abuse? Saying that every nickel of estimated cost is directly related to legalized gambling is dishonest and simplistic, yet many reseachers try to do just that.”

Real-Life Evidence

Hestermann explains that Harrah’s has chosen to take a different tack on the cost/benefit debate. “We don’t argue the issue in in the languages of economics or social science, but we point out real-life examples and the actual track record of casinos in scores of communities that have welcomed and lived with casino gaming for more than a decade.

“Debates are hot where facts are scarce,” he observes. But there’s no denying the facts as they exist in communities across the country, Hestermann notes: “Jobs are real, capital investment is real, absence of crime is real, the lack of impact on social services is real.”

Hestermann turns the tables on the debate, and squarely places the burden of proof on those opposed to gaming: “The burden should be on the anti-gamers to prove if the social costs exist on this order of magnitude. If in fact they did, there would be an outcry from all over the country. If social costs were on the scale that they are alleged to be, we would have seen a huge backlash from communities with casinos. But look at states like Iowa, where the public voted an overwhelming 80 percent ‘yes’ to continue to keep casinos. That says clearly the benefits far outweigh any social costs.”

It’s also enlightening to take a look at Indian Country for their experience on the issue. Jonathan Taylor, president of the Taylor Policy Group, provides economic and public policy research to tribal governments, corporations and consortia, and has authored a number of studies on the effects of gaming on Indian tribes. Taylor puts the social cost issue in a quadrant consisting of economic costs/economic benefits and social costs/social benefits. “A lot of times the debate focuses on only part of the quadrant-on economic benefits vs. social costs-but it’s important to consider the social benefits as well,” he explains.

Taylor has witnessed some dramatic social benefits in his work in Indian gaming. The “destination effect” of casinos is discernible in the data, he says, and translates to a rising economy and rising fortunes of the tribe. In his paper “The National Evidence on the Socioeconomic Impacts of American Indian Gaming on their Non-Indian Communities,” published in 2000 and co-authored with Matthew Krepps and Patrick Wang, he found: “Indian casinos have substantial beneficial economic and social impacts on surrounding communities. … No evidence of harmful economic or social impacts due to Indian casino introduction is discernible in our 30 indicators of economic and social health.”

In Indian country, he explains, “The economic and employment benefits that come with casinos also extend to social phenomena.” So positive economic forces can help create positive social trends and bring social benefits as well.

The Debate Continues

With studies disputed by counter-studies, is there an end in sight to this debate? Not according to the research community. Eadington notes: “Regrettably, the social cost issue is inherently difficult to measure, so there is not going to be a resolution to this issue. You will instead see some very clever posturing on both sides to reinforce their positions.”

In his paper, Walker proposes some alternative methodologies to measure social costs (see table). But he’s still not entirely satisfied, describing them as only a “slightly less imperfect way” to evaluate the issue. The next step, he says, is “to try to develop some ways around the problems I’ve discussed in the AGA paper. That is very important, but also very difficult.”

The costs of illness literature for substance abuse or alcohol abuse related to cost/benefit analysis may show some promise when applied to problem gambling. Walker comments, “It may be a way we don’t have to reinvent the wheel-but researchers have been looking at those issues a lot longer than we have in gaming and still haven’t come to a resolution on the social cost problem.”

From an operator’s perspective, Walker’s paper again reiterates the challenges in measuring social costs and provides a call to action for solid methodological approaches. Hestermann notes, “As Doug Walker indicates in his article, the notion that we are going to get consensus that social costs equal X dollars is just not reasonable. Any progress we can make in the direction of better estimates is good-if we can’t arrive at a consensus, perhaps we can narrow the range of reasonable estimates.”

From Stillwell’s point of view, “Yes, there are social costs associated with pathological gambling. We are committed to helping them and minimizing the costs they incur on our communities. While we know that we’re talking about a very small percentage of the adult population-less than 1 percent, according to the National Center for Responsible Gaming-we have always embraced the idea that one pathological gambler is one too many, and anything we can do to address this issue directly, we wholeheartedly support.”

Is there a perfect methodological approach to measuring social costs? Eadington describes what it could look like, but is less than optimistic it will happen: “It would be ideal to have disinterested social scientists working toward methodologically clean analysis on this controversial question, but that is hard to achieve. I think that is what Walker is advocating, but both sides have the tendency to evaluate information based on how they support their pre-determined positions, rather than based upon its validity in an objective sense.”

With no resolution in sight, Walker can only predict: “The debate will go on for some time.”

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