The governor's estimates on casino revenue fail to account for one big issue: other states have cards they've yet to play.
"Together we can" has somehow morphed into "place your bets here," as casino gambling now threatens to become Governor Deval Patrick's signature issue. One can understand why: The lure of hundreds of millions of new state dollars would make any free-spending pol salivate. Yet the whole thing is an illusion, a combination of wishful thinking and bad economics.
I don't say this because of some moral compunction. I once played bingo in a church hall and since I don't want to be thought a hypocrite, I've fallen down that slippery slope of believing that if people want to play slots or spin a roulette wheel, then they should be allowed to. And frankly, unless you've never bet in a sports pool, bought a lottery ticket, or taken a bus ride to Foxwoods, you're in the same position as me. As the old joke goes, we know what kind of people we are. Now we're just haggling over price.
And the price certainly seems right. The governor estimates three new casinos will bring in between $1.5 billion and $2 billion a year. In turn, the state hopes to collect as much as $900 million in upfront fees and possibly another $450 million annually - perhaps $5.4 billion over 10 years. Think of it as a sales tax, a stunningly high one that skims off one-third of the casinos' revenues. It sounds great, but there's a fatal flaw: Massachusetts thinks its casinos will have a monopoly. In fact, it will be just one of many competitors.
Start with this observation: Our capacity to gamble is not unlimited. In fact, it appears we already may be close to it. That explains why lottery sales are stagnant and why, despite heavy advertising, gaming revenues at the five existing New England casinos grew less than 2 percent (after inflation) from 2005 to 2006. (Indeed, imagine the outcry if the governor said that his scheme depended on persuading people who never gamble to now pick up the habit!)
So where will the $1.5 billion to $2 billion in casino revenues come from? Some will come from the lottery, as those playing Keno or MegaMillions switch allegiances to slot machines. That's not new money, of course. It's just spent in a different venue.
But, casino advocates argue, there is a source of new money: Massachusetts residents who now gamble out of state. UMass-Dartmouth professor Clyde Barrow estimates that Bay Staters in 2006 spent about $1.1 billion gambling in Connecticut, Rhode Island, and Maine. Once we build our own casinos, runs the thinking, we'll no longer "lose" that money to other states.
Really? Does anyone seriously believe that Foxwoods and Mohegan Sun will sit idly by while a vast chunk of their business disappears? As the Massachusetts Taxpayers Foundation pointed out recently, like any good competitor, they'll fight back. They'll drop room rates, improve entertainment, and spruce up the buffet tables. Most important, they - and the states they're in - will be compelled to offer gamblers better odds. Think about it. If I were the state of Connecticut, and I saw that gamblers from Massachusetts were no longer crossing my borders, here's what I would do: I'd cut the amount I was skimming so that more of it could end up in my patrons' pockets. You see where this goes. Massachusetts would eventually have to follow suit. Meanwhile, other states - upset at "their" residents going to Massachusetts to gamble - would also start to add new casinos. New Hampshire, in fact, is already talking about it.
It's called competition. It's good for consumers, driving prices down (or, in the case of gaming, winnings up). But it means that revenues won't be as high as the governor hopes and profits - that is, the amount the state can skim off - will be a lot less. My guess is that, over time, our casinos will start to look like most other businesses, generating some jobs and some economic growth, but nothing exceptional. That's been the experience in the rest of the country, as persuasively documented in a 2005 study by Phineas Baxandall and Bruce Sacerdote from Harvard's Kennedy School.
Perhaps we'll look somewhat like Arizona, where casinos generate almost $2 billion in revenue while the state collects $92 million, or about 5 percent. That's not pocket change, to be sure. But this notion of gambling magically paying for property tax relief and rebuilding our infrastructure? No way. It's as real as the jackpot dreams that crowd casino floors.
Originally published in The Boston Globe Magazine, November 11, 2007.