Is Gambling A Sucker Bet?

Does this mean it's sensible for taxpayers to subsidize horse racing?

FATHER McGOWAN: If you think about the gambling industry there are three segments. Horse racing or lotteries, and then casino gambling.... I think the pari-mutuel betting, right now it is down to less than 10 percent of the total, and it will probably be down less than 5 percent, because harness racing in this country is basically going to die off. Lotteries right now they're all in states of decline. And so I would say the lottery is going to be taking sufficiently less money in.


Is Gambling A Sucker Bet?
THINK TANK
FRIDAY, JULY 31, 1999


ANNOUNCER: Brought to you in part by ADM, feeding the world is the biggest challenge of the new century. ADM is promoting soil conservation so history doesn't repeat itself. ADM, supermarket to the world.

Additional funding is provided by the John M. Olin Foundation, the Lilly Endowment, the Lynde and Harry Bradley Foundation, and the Smith Richardson Foundation.

(Musical break.)

MR. WATTENBERG: Hello, I'm Ben Wattenberg. America's gambling industry has been making its numbers. Revenue from legal betting grew almost 16,000 percent from 1976 to 1997. Almost overnight gambling has been transformed from mostly illegal to legal to very legal. Promoted vigorously by the very governments that used to prosecute gambling. Recently, a federal commission examined the industry. Critics say the dice were loaded.

Joining Think Tank to explore the phenomenon of gambling in America are, Richard Leone, president of the Century Foundation and a member of the National Gambling Impact Study Commission; Joseph Kelly, professor business law at the State University College at Buffalo, and co-editor of Gaming Law Review; and Father Richard McGowan, professor of economics and statistics at Boston College, and author of State Lotteries and Legalized Gambling. The topic before the house, is gambling a sucker bet, this week on Think Tank.

(Musical break.)

MR. WATTENBERG: Today you can walk into 47 states in America and lay down a legal wager of some kind, and 68 percent of all Americans did just that last year. What's more, state governments are cashing in. Thirty-seven states and the District of Columbia host their own lotteries. Americans spend close to $500 billion a year on leisure activities. Gambling accounts for one in every ten of those dollars.

In 1976, Nevada was the only state that permitted casino gambling. Now, according to the Gallup Poll, 63 percent of Americans approve of legalized gambling. It is also a booming business, gross gambling revenues, that's dollars wagered minus payouts increased five times from 1982 to 1997. Some applaud the use of revenues from state lotteries for education or other programs. They also claim Indian gaming has provided a much needed economic boost to many tribes.

Opponents argue that the government shouldn't be in the business of promoting gambling, and many worry about the effects of gambling addiction. The federally appointed national gambling impact study commission recently released their report on gambling in America calling for a moratorium on the expansion of gambling, but critics say such a ban is just playing into the hands of the big gambling interests. In any event, the commission's findings are only advisory. How seriously will state governments, who keep 50 percent of the price of each lottery ticket, take such advice?

To answer these and other questions, we turn to our expert panel. Gentlemen, father, thank you so much for joining us.

Richard Leone, you were a member of that commission. I wonder if you could just briefly spell out for us what its general statement was?

MR. LEONE: I think, first of all, the commission made over 70 recommendations, so I'm going to oversimplify. But the bedrock of our findings were basically simple. The country has come very far very fast in the last 25 years, with very few people understanding the full picture of just how much gambling had been added, and with very little understanding of the negative consequences of gambling, the damage done to families and individuals, the costs for communities. Most of the emphasis has been on let's have more gambling, it will create jobs and taxes, or let's have a new lottery game, and we'll use it to pay for some good cause.

So, I think it's fair to say that the heart of our report, which was really supported by all the members, was, hey, we should take a harder look at this before we go forward. Some of us, obviously, would go further and stop the expansion, but even the people who represented gambling agree that we don't understand fully what we're doing in this country.

MR. WATTENBERG: That we don't understand it, and it sort of tilts toward the negative, that this is not a wonderful phenomenon?

MR. LEONE: Well, it has costs associated with it. Like other things that people like to do, there are costs associated with gambling, and they aren't built into the price. You don't pay for the divorce, or the bankruptcy, or the liability that goes with somebody becoming a problem, or a pathological gambler.

MR. WATTENBERG: Father McGowan, what did you think of this report when it came out?

FATHER McGOWAN: Well, I think one of the things that strikes you here is that the industry is well aware of their one weakness, the one argument that they have to worry about is the addiction issue. And the economic issues are really not being debated, and they're not debated that much in the report, which is interesting. But the addiction issue is. And, let's face it, the industry already funds a foundation to deal with the addiction issue, but the industry hasn't dealt with the addiction issue well, and that's what's really going to be -- I think that's going to be the issue as we go along.

MR. WATTENBERG: What about the issue of maldistribution, of taking from poor people in the lotteries, or lower middle class people, middle class people, tossing it into general revenues, where it's used by everyone. In other words, it's regressive tax, in effect.

FATHER McGOWAN: Again, the critics of that would say it's not a tax in a traditional sense. You're free to pay. And how regressive it is, it really depends on what lottery game you're talking about. The daily numbers is an incredibly regressive. That's the game that's really played a lot by the urban poor and the elderly. And the big powerball games, the ones you hear advertised a lot, they're played by everybody. In other words, people play their dreams. In other words, for somebody who is elderly or poor, $500, winning $500 is going to make a significant difference in your life. The typical middle class person, when they hear a jackpot of $128 million or something like that, that's when they play. And it's very fascinating, that's when people play.

MR. WATTENBERG: Joe Kelly, what did you think of the report?

MR. KELLY: Well, I think it was very well done. If you had told me these people, these nine individuals could agree on anything other than the fact that they couldn't agree, I would have been very, very surprised that they came together in the consensus that they did. I think it's going to have its greatest impact in the area of internet gambling. As you know, the report is broken down into a number of different sections. I think it's section five that talks about the Internet, and they make some recommendations that will be listened to very seriously by Congress. It will have its least impact in the area of recommendations concerning Native American gambling simply because, and it wasn't the commission's fault, they couldn't get the evidence, the material they needed.

MR. WATTENBERG: What is your view of Indian gaming, so called, is it good for the tribes?

MR. KELLY: Very positive, very, very positive. There have been some studies that have said that Native American casinos have increased crime in the nearby area, but I think the overwhelming amount of evidence has pointed out that the Native American gaming has certainly benefitted the tribes. Of course, now keep this in mind, a small percentage of the tribes have done the best. And in a lot of areas, for example, in Idaho, a Native American casino that's in a terrible location will get nowhere. But I think, by and large, the social and economic factors found by the commission, and as explained in the report, have been rather positive.

MR. LEONE: But let me just take issue with -- and no so much what you said, Joe, but with the notion that the Native American gambling is a great thing. It's a great thing for a small number of tribal members. The Fox Woods Casino in Connecticut, which is the biggest casino in the world, collects about --

MR. WATTENBERG: Is that one the very biggest?

MR. LEONE: The very biggest, and when you walk through it, bring water and a good pair of walking shoes.

MR. WATTENBERG: Bigger than any of the Vegas casinos?

MR. LEONE: Oh, yes. And it has revenues of $2-1/2 billion a year, and the tribe has less than 500 members. Now, it isn't surprising that it's good for the members of that tribe. On the other hand, none of the extra costs that might be produced with it are logically built into the price. And there's another problem with Indian gambling, which we ran into.

MR. WATTENBERG: The extra costs meaning addiction, divorce.

MR. LEONE: It's sort of a little bit like pollution, too. You know, there's a very successful factory there. It may be many years before anybody totals up exactly whether the costs and benefits were what we thought they were.

In addition, and here I take great issue with the tribes, I understand their feeling, and I understand their desire to have economic development, but the same stonewall we ran into in terms of getting the information we wanted from tribes, Fox Woods was actually more forthcoming than most, is, I think, a danger to them. Nobody knows precisely what's happening to the money, how it's being distributed. While they swear they have strong regulations in place, they're regulated by the tribes, not by independent groups.

MR. WATTENBERG: I went to an Indian gambling casino outside of Santa Fe, and as I recall it the crap table was identical, and the odds were identical to the Las Vegas game.

FATHER McGOWAN: The Indian casinos in general, their payoffs on their slot machines are less.

MR. WATTENBERG: Are less.

FATHER McGOWAN: Yes. Well, they can afford to. They can be less. So, for instance, Fox Woods is certainly less. Now, one of the reasons why --

MR. WATTENBERG: They can afford to because they're in a non-competitive situation.

FATHER McGOWAN: They have a non-competitive situation. And the other interesting thing is, they have to give 8 cents on every dollar to the State of Connecticut. So the State of Connecticut lets them regulate themselves.

MR. WATTENBERG: That gets to the real issue here. Richard Leone, are you against gambling, or are you against government promoting gambling? Isn't that the essence of this?

MR. LEONE: Look, while I'm personally against gambling, and always have been, I think it's a bad idea, I am outraged by the leadership government has shown in spreading gambling in this country, in advertising it, and it's a classic bait and switch activity. And promising people they can fulfill their dreams in something that's $12 million to one, or $15 million to one. In addition, government has broken down the door. The guys in the casino business, I understand. I was on Wall Street. They're trying to make a buck. I may not approve of what they're doing, but they operate according to the rules of capitalism. Where is it written in the rules of democracy that you should find a way to raise money that basically fools people, and preys on their worst instincts. And that's what states around the country have done, and that's even what's happened with the spread of Indian gambling, where campaign contributions and other things have influenced Congress, I believe.

MR. WATTENBERG: Campaign contributions influencing politics?

MR. LEONE: It's a wild guess on my part.

FATHER McGOWAN: It's very interesting to see what parties. In California, when it happened in California, it was fascinating. There were the Vegas casinos going against the Indian tribes opening up. So they've spent millions to beat that referendum. And it is pretty humorous. They were actually subsidizing ads saying how bad casino gambling was.

MR. WATTENBERG: And they lost two to one.

FATHER McGOWAN: From an economist point of view, it's the classic, I want the government to erect entry barriers. I just think it's outrageous the way the government erects entry barriers into the industry, and basically, because the government wants to maximize revenue, it's the first time where the government blatantly says, I want to maximize revenue.

MR. WATTENBERG: But that referendum passed two to one in California.

FATHER McGOWAN: Sure, it passed, which is the amazing thing.

MR. WATTENBERG: And cutting into Nevada revenues.

MR. KELLY: Let me just back up, it's not the first time that Nevada interests have opposed Native American gaming. When it first began, Nevada and New Jersey did everything possible to make life difficult for Native American gambling, and then, of course, you have IGRA, the Indian Gaming Regulatory Act, passed in 1988, which satisfied nobody, but was basically a compromise favoring the states rather than Native Americans, more than anything. But you do have a three-person federal administrative agency supervising Native American gaming. It's called the National Indian Gaming Commission. The problem with the commission is that the statute creating it is Kafkaesque, it's something out of Orwell. For example, the chairman can do certain things without the approval of the other two members, and it's a highly unusual situation.

It has an obligation to review certain parts of Native American gaming. So, it is there. One other thing about the odds, of course, New Jersey, which has very strict laws calling for minimum slot payouts, I think it's 83 percent, has many other grandmotherly type laws that are getting better, they've been loosened somewhat, doesn't pay back as much in slot machines as Nevada, which doesn't have such high payback requirements.

MR. WATTENBERG: Richard Leone, that's your home state, New Jersey, you came down for this show from New York, for which we thank you for. Father McGowan, you came down from Boston. Joe, you came down from Buffalo. I'm living in Washington. All four of those cities, before legalized state lotteries, had bookies running numbers, is that right?
FATHER McGOWAN: Sort of.

MR. WATTENBERG: Did they give a better payout?

FATHER McGOWAN: No. Lotteries are definitely for the mathematically disinclined. I mean, the states right now --

MR. WATTENBERG: To answer the question, that is a sucker bet.

MR. LEONE: To be fair to the numbers, the people, as I understand it, didn't pay income tax on it. So, it isn't clear to me that the net payout was worse. But, in addition, I am certain that more people gamble than when it was confined to an illegal activity. There are many illegal activities we could make legal, and states would benefit, they could collect taxes on them, they could operate prostitution directly. We make choices. This is a democracy, and if people's choice is to have gambling, my position is then government's role should be to regulate it and keep it fair, not to exploit it.

MR. WATTENBERG: Let's just examine that. Father, Richard Leone seems to regard the activity itself as immoral. Do you regard it as immoral?

FATHER McGOWAN: No, not necessarily.

MR. WATTENBERG: I mean, the church has a long history of bingo games.

FATHER McGOWAN: I knew you were going to bring that up. The church basically looks at it as a morally neutral act. In other words, there are certain people who can gamble with no problems, there are some who cannot. And for those people, gambling is bad. But the church's position also is going to look at what is good for the common good, and I would probably say when you add everything up, the common good suffers from all this gambling.

MR. WATTENBERG: Let me just go to Joe, I want to come back to that common good, because that's really at the essence of this.

Do you regard gambling the same way Richard Leone does, as sort of an immoral activity?

MR. KELLY: I would rather watch paint dry than gamble. I just have no interest at all. People have a right to determine their own form of recreation. But, I think one of the things, Ben, that you have to think of is that it's not just the United States that you have the gambling explosion. You have it almost everywhere in the world.

MR. WATTENBERG: Is it against the common good, as Joe Kelly said, to let people do what they want?

MR. LEONE: Look, one of the -- I may have --

MR. WATTENBERG: Are you one of those big government regulators?

MR. LEONE: No, I may have a position that I take on moral grounds, because I think this is not for the common good. On the other hand, I would be preaching to a room of Catholic priests here about what morality is. And that's what --

FATHER McGOWAN: There are a lot of people who do that.

MR. LEONE: That's what makes it difficult. And I'm not trying to impose that code on the American people, or even small segments of them. What I do think is an obligation of government is to make sure that people not only have a right to choose, but they make an informed choice, not to encourage them to think the wrong -- to think in the weakest possible way about a big decision like gambling. Right now we have governments encouraging people to believe that the lottery is a good bet.

MR. WATTENBERG: At the end of these little radio --

MR. LEONE: It's a dumb bet.

MR. WATTENBERG: It's a terribly dumb bet. I mean, the pass-don't pass bet on a Las Vegas craps table is, what, 51-49, something like that? It's a pretty close bet. These things are --

FATHER McGOWAN: The average pay out is 54 percent. So in other words, if you put a dollar in a lottery game, the average bettor gets back 54 cents. Forty-six cents goes back to the state.

MR. WATTENBERG: And if you put a dollar on a Las Vegas crap table?

FATHER McGOWAN: It's around 91 -- a crap table? Around 93 cents goes back to the bettor. Um, I mean, it's a God-awful bet.

MR. KELLY: In England, the then labor government in 1968 passed...

MR. WATTENBERG: Did you say a God-awful bet, Father?

FATHER McGOWAN: Yes, it was a God-awful bet. Thank you. I think God really would...

MR. WATTENBERG: Right.

FATHER McGOWAN: (laughter) Right.

MR. KELLY: In 1968, Parliament passed a law allowing for casinos only if there is un-stimulated demand. The casino owners weren't even sure that they could have a matchbook, no advertising, no credit at all, you could simply cash a check, that's it. You could only have one zero in roulette, instead of the double zero that exists in so many places.

MR. WATTENBERG: The double zero gives the house an extra 1/36th of a --

FATHER McGOWAN: One-thirty eighth.

MR. WATTENBERG: One-thirty eighth.

MR. KELLY: And a maximum of two slot machines, no more. And it was just a desire only to cater to the un-stimulated demand of the gaming establishment. On the other hand, book makers have a field day.

MR. WATTENBERG: Speaking again of the common good, I mean, the argument is, Richard, that the states use this money for good causes, typically for education.

MR. LEONE: Money is fungible, first of all. I don't believe that more money is spent on a particular activity because of the lottery than would be spent in the absence of a lottery.

MR. WATTENBERG: But, it's an easy way for political people to raise revenues, even fungible revenues.

MR. LEONE: Let me put it a different way. In New Jersey, the state treasurer is responsible for the state budget, he's also the budget director, at least was in my time. And I had to put together four budgets --

MR. WATTENBERG: You were the State Treasurer of New Jersey?

MR. LEONE: I had to put together four budgets, and balance them, during difficult times in the 1970s. And there were nights when we'd stop the clock at the end of the fiscal year and try to find a way to put together a package to make the budget work. Now, that's when I think it's fair to judge people. Do they in that extremity, and I understand how extreme it is, decide to exploit human weakness, to prey on the poor, to come up with regressive taxes that take from those least able to pay, or do they hold to their standards even when they're under pressure? Now, what happened is, because of the general culture, not because of any particular character people had in those days versus now, gambling wasn't on the table most of the time, as an issue. It didn't occur to people that that would be the way to do it, to slap in another game, or join the Powerball or something, or allow video machines in truck stops and diners. Today, that would be on the table. And I think in that desperate situation people say, well this is painless, this is free money, no one is even going to get mad at us.

MR. WATTENBERG: So what you really are for, in the first instance, as a small step, is truth in labeling?

MR. LEONE: I think you can affect behavior, I think cigarette truth in labeling began to affect behavior. I also believe that we ought to deal with the liability, with the costs associated and have a mechanism for beginning to recover those costs. And the commission recommended a gambling privilege tax on all sorts of gambling, including state operated games, which I recognize an uphill political gamble -- political battle.

MR. WATTENBERG: But, if you had truth in labeling, wouldn't that drive the lottery people to play blackjack?

MR. KELLY: When you look at the lottery, who plays the lottery, by and large it's a poorer type of person. When you look at who goes to a casino, the average income of somebody going in a casino is considerably higher than the average income of the United States. I'm not so sure that somebody who buys lottery tickets would suddenly be interested in playing blackjack or roulette in a casino. I think it's an entirely different appeal to a person.

MR. WATTENBERG: We have to get out. Let's go around the room, Joe, Rich, Richard, tell me ten years from now what the gambling situation is going to look like in the United States?

MR. KELLY: I think that there will be a dramatic increase, rightly or wrongly, in Internet gambling. I think that more tribes will have Indian gambling, because there are always attempts to become a federally recognized tribe.

MR. WATTENBERG: Okay. So you're saying more gambling.

MR. KELLY: I think so, yes.

MR. WATTENBERG: Father.

FATHER McGOWAN: If you think about the gambling industry there are three segments. You have the pari-mutuel betting.

MR. WATTENBERG: Horse racing and --

FATHER McGOWAN: Horse racing or lotteries, and then casino gambling. I think the pari-mutuel betting, right now it is down to less than 10 percent of the total, and it will probably be down less than 5 percent, because harness racing in this country is basically going to die off. Lotteries right now they're all in states of decline. And so I would say the lottery is going to be taking sufficiently less money in. And so the form of gambling that's really going to take off is casino gambling.

MR. LEONE: Well, I think that the battle ground is electronic gambling, and gambling through your television, through the wide band cable, and I think that could go either way. I suspect we're poised on a nice edge. We could make gambling, which has now become familiar in neighborhoods, familiar in the living room, and familiar to kids from their earliest years, or we could draw a line as a society and begin to pull back. Personally, I hope we do that, but I couldn't predict which way that will go.

MR. WATTENBERG: That would mean, an opponent would say, Richard Leone wants to put censorship on the Internet.

MR. LEONE: I want to ban gambling on the Internet, absolutely.

MR. WATTENBERG: But, the argument is that -- I mean, when I said at the beginning that people said, your commission the dice were loaded, if you ban Internet gambling, that's terrific for the casinos.

MR. LEONE: No, some of them are in the business already of trying to get on the Internet.

MR. WATTENBERG: Was that commission sort of a put up job in the way it was appointed?

MR. LEONE: I don't think so. First of all, it would be -- the way it was appointed was haphazard, there wasn't any coordination among Lott and Gingrich, and Clinton and other people. The group, I didn't know anybody on the commission when I got there. A lot of us surprised each other in where we stood. I think that the representative of the industry, Terry Lannie (sp), he and I obviously -- let me put it this way, he is the head of MGM Grand. We disagree on a lot of things, but he agreed on some things that surprised me, including a ban on contributions to state campaigns, including a ban on the Internet. I think we could have gotten other major people from the industry who would have fought on those issues. So we made some progress. I mean, it was not the answer, it's not a perfect report.

MR. WATTENBERG: Okay.

MR. KELLY: Ben, could I just say one other thing?

MR. WATTENBERG: Sure.

MR. KELLY: Like Australia already has legalized Internet gambling. And unless we're going to send the Marines into Sidney Harbor, we're going to have some difficulty trying to stop -

MR. LEONE: We could stop paying our bills. We could say banks and credit card companies can't honor those.

MR. KELLY: That's the interesting thing about the commission report, and that's going to result in things such as e-cash or devices to get around.

MR. WATTENBERG: A special key on the keyboard, gamble.

MR. LEONE: Let me just mention one thing, most states gambling debts are unenforceable now, and if I could leave your viewers with anything that would undermine gambling in this country is, take advantage of those laws.

MR. KELLY: And in California, a woman who owed $70,000 because of Internet gambling debts, apparently she's just won that case.

MR. WATTENBERG: There is a history, just to close, we might note there is an unfortunate history in this country for people who don't pay their gambling debts.

Thank you very much, Joseph Kelly, Richard Leone, and Richard McGowan.

And thank you. We encourage feedback from our viewers via email, it's very important to us. For Think Tank, I'm Ben Wattenberg.

ANNOUNCER: We at Think Tank depend on your views to make our show better. Please send your questions and comments to New River Media, 1150 Seventeenth Street, Northwest, Washington, D.C. 20036, or email us at thinktank@pbs.org. To learn more about Think Tank, visit PBS Online at www.pbs.org. And please let us know where you watch Think Tank.

This has been a production of BJW, Incorporated, in association with New River Media, which are solely responsible for its content.

Brought to you in part by ADM, feeding the world is the biggest challenge of the new century. ADM is promoting soil conservation so history doesn't repeat itself. ADM, supermarket to the world.

Additional funding is provided by the John M. Olin Foundation, the Lilly Endowment, the Lynde and Harry Bradley Foundation, and the Smith Richardson Foundation.

(End of program.)