Gambling - Sustainable or Unacceptable Financial Risk for States

The house always wins,  but it doesn't always make a  profit, there's real financial risk in gambling.   Now increased competition is cutting into profit margins and the state governments who benefit from legalized gambling face some tough decisions.  Will they make the right call?  Don't bet on it.

 A casino's edge is built into the games, the zeros on the roulette wheel, the blackjack dealers win in a tie.  In running a sports book, the house will set a spread to get equal wagering on both teams, then rely on the fact that you need to bet $11 to win $10 to produce a sure profit no matter which team wins.  In lotteries and slot machines the odds are set to guarantee the operator a sizable long-term return and if you play the ponies or the dogs, you know that the track profit is built into the parimutuel system. When Atlantic City, Foxwoods and  Mohegan Sun first opened, the house edge seemed like a license to print money.  Now New York State has racinos (track plus slots) at Yonkers and Saratoga, with more probably on the way.  The Shinnecock Indians will be opening a casino at a New York location to be designated soon and Pennsylvania is now competing for the NY metro area gaming dollar with The Sands in Bethlehem.  Meanwhile, some casinos are struggling.  Horse racing  in New Jersey is posting large losses and facing the death sentence.  Sagging gambling revenues aren't just the result of a sagging economy, gaming is like any other business – it's a lot easier to make money when you have a monopoly, or at least limited competition.

So what, isn't gaming like any other business?  A few of the weaker operations close, the strong survive and capitalism marches on - financial risk, reward, motherhood and apple pie,  right?  Not so fast. Virtually every form of legal gambling was born  in compromise – a legislature would accept the legality of an historic vice in exchange for revenue.  Sometimes the state actually runs the game (think lottery), sometimes it just gets a share of the house take.  Atlantic City casinos aren't just paying regular income taxes, they are making additional payments that support education and other state functions.   New York and New Jersey were not exactly putting away a surplus during recent boom years, now the recession has left them financially crippled.  Just when they need every dollar they can squeeze from gambling, the gambling dollars are drying up.

What's a poor state or a poor casino operator to do?  Compete for more business? Maybe.  Operators can and do advertise, redecorate, offer higher payouts, more perks, etc.    Lottery ads seem almost as omnipresent and annoying as political ads in October of an election year, but those gambling ads cost money and if everyone advertises, who gains?  From where will this increased business come?  If the racino at Yonkers runs ads that shift business from the lottery to the slots, New York is, at best, breaking even, and someone is paying for the ads by both the racino and the lottery.  Maybe Yonkers can pull some bettors away from Atlantic City, still not exactly a win-win for the universe. 

What about attracting new customers, people who will visit the racino instead of seeing Avatar for the third time?  What about just getting  more betting out of the existing customer base?  There's the rub.  Competitive techniques that succeed in producing new gamblers and higher high rollers take us straight back to the question at the heart of the original vice for revenue compromise - what about the compulsive gambler?  The opportunity to gamble doesn't cause the compulsion, but constant bombardment by gambling ads doesn't make it any easier for the compulsive gambler to resist.    How far should the states go, and allow the private gaming operators to go, to protect gambling revenues?  With profit margins squeezed by competition, that original vice for revenue compromise is looking worse and worse and the issues raised by the compulsive gambler are only going to become more severe if gambling advertising and promotion increase.  Maybe its time for the states to stop promoting gambling in a desparate search for diminishing returns.  Stop buying lottery ads and ban the  ads by the casinos and the tracks.  The savings on ad costs might actually improve profits.  At the very least, the states won't be recruiting more compulsive gamblers from the ranks of their own citizens.