Integrated Resorts

By Andrew MacDonald, Sean Monaghan and William R. Eadington

PUBLIC POLICY AND PERMITTED GAMBLING: THE CASE FOR INTEGRATED RESORTS

All over the world, national governments or their state and provincial counterparts are evaluating what kind of gambling policy they should pursue. Many jurisdictions already have substantial institutions involved in legal commercial or state-operated gambling, including lotteries, sports and horse race betting, casinos, video lottery terminals or other mechanical or electronic gaming machines, charitable gambling, bingo, and internet wagering. Still others are just now moving away from historic prohibitions by allowing some forms of commercial gambling to become established in their societies. Sometimes this process follows a careful and deliberative legislative or parliamentary process, but all too often it moves forward opportunistically, without careful thought and analysis with regard to the implications of current decisions on a long-term evolutionary gambling policy.

The stakes are typically high. On one hand, legal gambling can be an important source of government revenues, either through taxation or through capturing economic profits via ownership or licensing fees. Some gambling industries can attract significant foreign direct investment in the form of private sector capital projects and public sector infrastructure. Some types of legal gambling might be very attractive to foreign visitors and therefore might stimulate the existing tourist industry. Some forms of legal gambling can be highly laborintensive and therefore provide a good source for new employment in a local or regional economy. Finally, many forms of gambling might prove to be highly popular with either one's own citizens or foreign visitors (or both), and thus provision of such gambling will meet the entertainment demands of customers interested in spending their discretionary incomes on gambling and related activities.

On the other side of the ledger, there can be real and significant concerns and problems associated with permitting more and different forms of gambling. Societies around the world have become more aware of, and concerned with, the unintended negative social consequences associated with excessive gambling behavior, especially problem and pathological gambling. The presence of easily accessible gambling of various types might lead to behaviors that contribute to increased stress on household budgets and household relations, resulting in more cases of spousal abuse, divorce, personal bankruptcies, property crimes, and even suicides, than might have occurred in that society without the expansion of gambling.

The economic and business opportunities associated with expanded gambling might lead to corruption and graft involving politicians and public officials; though it must be noted that illegal gambling can also be a major source of public corruption in many societies. As with alcohol, tobacco and illicit drugs, gambling is a commodity that is widely used by a significant portion of the population within any society, but is one that creates a variety of negative consequences associated with its consumption with at least a subgroup of the consumer base. (The extent of such negative consequences, and society's ability to mitigate them, are still actively debated in many parts of the world.)

There are a number of important observations that should be made about the circumstances governments find themselves in with regard to their gambling industries and gambling policy. Those governments that have well-entrenched gambling industries usually have to accept that status quo as a starting point in refining their gambling policies. It is very difficult to eliminate or substantially alter an industry that has been legally constituted and is made up on operating ongoing businesses. As a practical matter, such legal gambling industries often have strong political roots, and are able to resist changes that could adversely affect them. Furthermore, government may already be highly dependent on revenues coming from taxation or other levies on the existing mix of legal gambling activities.

Those governments with limited or non-existent legal gambling have greater degrees of freedom than those with established industries. If they act wisely, they can examine the experiences of other jurisdictions in their regions or from throughout the world, and choose those types of gambling, and regulatory and ownership regimes, that will best fulfill their society's best interests, or the long-term strategic objectives of the jurisdiction's leadership. However, it is not uncommon for a variety of forms of gambling to be permitted and legalized without any clear appreciation of the overall economic and social benefits and costs associated with those particular types of gambling, or for the foregone opportunities for other gambling options that may be foreclosed or limited because of those permissions. In other words, if a government does not have a coherent idea of what it eventually wants to achieve with regard to its legal gambling industries, it may end up with a mix of gambling activities that are not very good with respect to the economic benefits they are creating, with a mix of negative social consequences that are considered regrettable in retrospect.

Japan, China and Mexico all provide interesting examples of this kind of relatively unplanned but opportunistic gambling policy evolution. Each is discussed below in the context of the above arguments.

In Japan, pachinko and pachisuro (or "pachislots") evolved after World War II as a major form of machine gambling (though the Japanese government has avoided considering it as a form of gambling in its more than half-century of legal existence.)4 Total pachinko/pachisuro sales were ¥27.5 trillion (US$250 billion) in 2006, implying the equivalent of gross gaming revenues of perhaps US$40 billion that year. The pachinko and pachisuro sector in Japan is a fragmented competitive industry lacking any significant industry concentration, with very little in the way of excise tax payments to the government, only limited capital investments in the country, no tourism (or "net economic benefit") contributions to speak of, a history of associations with "Yakuza" (Japanese organized crime) and other undesirable segments of Japanese society, and (apparently) relatively serious problems in Japanese society associated with excessive spending on these activities. Furthermore, the pachinko/pachisuro industry has been an active, and so far effective, lobbyist against the permission of true casinos in Japan.

China provides a more recent example. Though gambling is technically illegal in nearly all of China, with the notable exception of Macau, there have been other permissions granted, specifically for the Welfare Lottery, created in the 1980s, and the Sports Lottery, which came into existence in 1994. Interestingly, China has not yet passed a lottery law, so these two lotteries operate without a formal legal or regulatory structure for guidance. Together, the Welfare and Sports lotteries generated gross sales (before payment of prizes) in 2006 in excess of US$10 billion.

Of greater interest, however, is the fact that both lotteries have been introducing electronic gaming devices in the form of electronic slot machines, keno games and other offerings for the past five years. Thus, one of the implications for China's lack of explicit policy regarding gambling has been the proliferation of one of the less economically beneficial and arguably more socially damaging forms of gambling in many parts of the country.

Mexico provides another recent example of such "loophole" legalization. Though slot machines and casinos are technically illegal in Mexico, bingo is legal, and bingo machines, which operate in a manner very similar to slot machines, have increased their presence in Mexico dramatically since 2000. With this opening, the number of "legal" gaming devices in Mexico has risen to approximately 25,000 to 40,000 by 2008.

A strong argument can be made that, on a cost-benefit basis, slot machines or other gaming devices that are permitted in bars, arcades or other non-casino outlets are far less desirable for society than many of the more formalized casino alternatives.5 Prior decisions by Japan, China and Mexico may have fulfilled certain limited objectives for their respective governments or for other special interests in those countries, but the resulting legal gambling industries that have emerged, or are emerging, may be far from optimal from a social and economically desirability perspective or a public policy perspective. The balance of this article looks at one approach that holds considerable promise in positioning governments closer to a reasoned and strategic approach that might indeed prove to be among the best of the available policy alternatives.

4 Ashton, Harry, "Japan: A Regulatory Overview," www.gamblingcompliance.com , March 28, 2008.

5 See the discussion on this issue in William R. Eadington and Peter Collins, "Managing the Social Costs Associated with Casinos: Destination Resorts in Comparison to Other Types of Casino-Style Gaming," in William R. Eadington (ed.), Integrated Resort Casinos: Implications for Economic Growth and Social Impacts, University of Nevada, Reno, Institute for the Study of Gambling and Commercial Gaming (forthcoming)

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