The Role of the Dice: Governments in the Southeast Have Seen a Welcome Revenue Stream from Gambling. but as the Industry Mature and Government Budgets Become Increasingly Strained, Can Gambling Remain a Safe Bet?

By EconSouth | EconSouth, Spring 2010 | Go to article overview

The Role of the Dice: Governments in the Southeast Have Seen a Welcome Revenue Stream from Gambling. but as the Industry Mature and Government Budgets Become Increasingly Strained, Can Gambling Remain a Safe Bet?


EconSouth, EconSouth


For the last two decades, one of the surest wagers in the Southeast was that lotteries, jai alai arenas, racetracks, and casinos were going to make more money in the coming year than the year before. And nobody was more eager to make that bet than state legislators who had promises to keep and payments to make.

The economic downturn that began in late 2007 cast that wager in a whole new light, leaving the gambling industry feeling squeezed and states fighting over every available gambler.

According to Stateline.org, a Web site that covers state-oriented political matters, only three states had legalized gambling in 1980. Now every state except Utah and Hawaii rely on some form of gambling for revenue as one of the means to avoid tax hikes. Certainly, state legislatures both nationwide and in the Southeast are battling with budget deficits. According to the National Conference of State Legislatures' figures for fiscal year 2009, Florida faced a $3.2 billion deficit, followed by Georgia ($2.9 billion), Tennessee ($1.1 billion), Mississippi ($406 million), Louisiana ($341 million), and Alabama ($269 million). Increasingly, those budget gaps pose a bigger void than gambling revenue can fill (see the sidebar).

Where can states turn?

Where do these developments leave the states who have bet some of their future funding on gambling proceeds? Where are the untapped gambling dollars?

"The short answer is that some regions of the country probably have reached what's truly called a saturation level," said Earl Grinols, a distinguished professor of economics at Baylor University who has testified before the U.S. Congress and in numerous state capitols on the economics of gambling and authored the book Gambling in America: Costs and Benefits. "Most of the country has not yet reached a saturation level."

Quoting the 1999 National Gambling Impact Study, Grinols notes the average American adult could spend between $400 and $600 annually if located reasonably close to a Class III gambling facility. (According to the Internal Revenue Service, Class III refers to facilities where gamblers bet against the house, such as casinos or parimutuels.) Using the study's formula and adjusting for inflation, Grinols estimates the nation's potential gambling market to be between $120 billion and $150 billion annually. According to a 2009 report by the Rockefeller Institute for Government, the total revenue from gambling in the United States was $24 billion. "From that perspective, the market is not saturated. But there are portions of the market that are," he said. "What you're observing is that in those portions of the market where saturation has been achieved, when total income goes down, gambling is one of the places people turn to reduce their spending."

How to harvest more

A couple of Southeastern states have begun devising ways to chase some of those unharvested gambling dollars. The Mississippi House Gaming Committee has been reviewing a bill to bring a lottery to that state, according to the Memphis Commercial Appeal. And in February, the Alabama Senate Tourism and Marketing Committee approved legislation to let voters decide whether they want to allow electronic bingo machines at 10 locations around the state. Georgia, on the other hand, has resisted expansion of its gambling operations. The state has opposed efforts by the Atlanta City Council to convert the city's Underground shopping area into a $450 million casino complex with a new 29-story luxury hotel.

One approach suggested for increasing gambling tax revenue in Georgia in 2009 was to reduce the percentage of revenue for payouts to winners and increase the cut to the state, as reported in the Atlanta Journal-Constitution. However, Margaret DeFrancisco, head of the Georgia Lottery Corporation, said the short-term benefit of giving a higher percentage of revenue to government has the long-term negative impact of chasing away players. …

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The Role of the Dice: Governments in the Southeast Have Seen a Welcome Revenue Stream from Gambling. but as the Industry Mature and Government Budgets Become Increasingly Strained, Can Gambling Remain a Safe Bet?
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