January 21, 2006

The Fundamentals of Casino Economics

Carroll Andrew Morse

Earlier this week, Marc asked why Rhode Island's casino proponents are taking such a convoluted route towards changing the state constitution to legalize gambling...

Instead of writing a clean, concise line or two saying something like, oh, I don't know...."gambling does not have to be state-operated", we have this:

"Approval of this amendment to the state Constitution will authorize a casino gaming facility in the town of West Warwick, to be privately owned and operated in association with the Narragansett Indian Tribe, with tax proceeds from the casino being dedicated to property-tax relief for Rhode Island citizens, and will permit future privately owned and operated casino gaming facilities in this state only upon further vote of the people."

Where's the part that says only Del's Lemonade and Saugy's weiners can be served at the establishment?

For an expert opinion on this matter, I refer you to Richard Posner, currently a judge on the Seventh Circuit Court of Appeals, a faculty member at the University of Chicago, and author of books with titles like Economic Analysis of Law and the Economics of Justice. Judge Posner recently posted to the Becker-Posner Blog (which he hosts along with Nobel Prize winning economist Gary Becker) on The Economics of Indian Casinos.

Posner begins by describing the essential nature of a casino, arguing, in an economic sense, that there is no difference between a casino and any other entertainment business...

A casino is just a retail entertainment establishment, like a restaurant, bar, nightclub, supermarket, or game room. The investment involved in a casino is modest, consisting of little more than a building plus gambling tables, roulette wheels, and one-armed bandits.
So if a casino is just a business, then why are casinos so much more profitable than movie theaters or restaurants? Or, to put the question in local context, why is it believed that a casino in West Warwick will have an economic impact on the entire state of Rhode Island that a multiplex movie theatre will not? Posner answers...
The answer is that gambling is a regulated industry. More particularly, entry is limited by government. This is not just a matter of requiring a license available to anyone able to pay a modest fee and perhaps meet some minimum legal and financial qualifications. In many states entry requires as a practical matter the entrant to prove that it is a bona fide Indian tribe, or, if it is not Indian, to convince a state legislature to permit non-Indians to compete.

The huge profits of gambling and the resulting temptations to corruption, both the quasi-corruption of large campaign contributions and the outright corruption of bribes, could be eliminated at a stroke by abolishing the limitations of entry into gambling. Then entry into the gambling business would proceed until the price of gambling fell to the cost of operating a gambling business.

The high-profitability of casinos is created by an artificially low casino "supply" created by strict government regulation.

So this is my question to Rhode Island's gambling proponents. Government, we agree (at least in public) should not be in the business of protecting artificially high profits of non-essential business sectors. You cannot get any more non-essential than a casino. What, then, is the justification for government being so intimately intertwined with the casino business and carving out monopolies for a group of preferred casino operators and a particular town? If there really is strong public support to bring gambling to Rhode Island, then why not just legalize gambling in general?

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It's just this type of thoughtful and insightful posting that keeps me coming back.

Thank you Anchor Rising for continuing to show the others what a real conservative blog looks like.

Enough of the kudos - on to the issue.

Do you really think that Murphy, Williamson, et al would allow just anyone to play in their state? How would they shake them down for cash and favors? Control is the name of the game.

Legalize gambling across the board and RI would end up like Atlantic City - just another dump next to the ocean.

Posted by: oz at January 21, 2006 8:35 PM

The quoted language is actually not the text of the proposed amendment but the text of a portion of the resolution that explains what the amendment would do. (Not that the language of the proposed amendment is that much better). In any event, as of late in the week, the resolution had not yet been formally introduced so there were still a few unofficial versions floating around.

Posted by: brassband at January 21, 2006 9:55 PM

Why do we even let Harrah's and the indians have rights to a casino. If they are not going to play by the same rules as Lincoln park and Newport. Example: the amount of revenue going back to state, why let them do it?
If the indians want a casino let them put it on there reservation. Oh that is right they can't. If we are going to have a casino in Rhode Island it should be at the convention center with the exact same deal as lincoln park. A casino in Providence would already have hotel's to support it and the easy on and off ramps. In west warwick if it gets built. The surrounding Hotel industry will be greatly affected.

Posted by: Fred on the Blog at January 22, 2006 9:38 AM

Oz hits the nail on the head.

" both the quasi-corruption of large campaign contributions and the outright corruption of bribes"

Now let me add this, I don't see any difference between most lobbying and bribery. Both are a means to an end, i.e., the influence of a special interest on an elected official or body to cause a specific action to benefit the SI effected by the payment of money or some other valuable commodity.

It's the same kind corruption with a different name.

J Mahn

Posted by: Joe Mahn at January 22, 2006 10:16 PM

when did we conservatives start getting in the way of starting businesses.And mind you looking to the GOVT.to regulate against them??!!!!!
So much for "LIMITED GOVT,"eh.
If the Indians can make a go of it GOOD for Them.
Am I reading right that you want this new industry to promise to pay a healthy sum of profits to the state govt?!!!!!!!!!!!!!!!!!!!!!!
I do not understand,or even wish to,the current conservative movement.They now make about as much sense as the liberal movement.
I think i'll opt out for a while. I'm having a hard time telling the difference between the two parties. I guess you have to reserch what businesses each party hates.
Pres. Reagan has to be rolling in his grave.

Posted by: ANTHONY at January 23, 2006 4:40 PM


No offense but yoar english is stinkin up the place.

You needs to go bake to skool and take more classes.


Posted by: Junior at January 23, 2006 8:41 PM


Before you go in to another rampage.
#1 Why should the Indians get a special deal and not Lincoln park or Newport.
#2 You say President Reagan is rolling over in his grave. Why would he? He believed just because I am successful and you are not why should I pay a higher percentage in Taxes.
#3 Is it because we do not give enough money from the Federal goverment already to the Narragansett tribe now?
#4 Casino's are not a new industry. We already have 2 gaming facilities. Finally, Anthony with the outrage you show is it possible you have some ties to the Indians. You probably think affirmative action is a good thing also.
Remember the French and Indian war. And how New Englanders made out in that.

Posted by: Fred on the Blog at January 23, 2006 10:40 PM