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Easy Money

Americans are betting more than $550 billion a year. With corporate ownership, a new mainstream image, and political clout, the gambling industry is on a roll

| Tue Jul. 1, 1997 10:00 AM EDT

To many people, talk of the "gambling industry" still conjures up visions of Bugsy Siegel and the wise guys who turned a remote oasis in the Nevada desert into a mecca of forbidden pleasures. But Las Vegas' founding fathers are long gone, and so, to a large extent, is the stigma that used to be attached to their business. Today, gambling is setting up shop on Main Street. Thanks to its phenomenal profitability, the corporate establishment, along with a number of state and local governments, has welcomed it with open arms.

Over the last five years, gambling has quietly become one of the nation's favorite forms of entertainment, generating more revenue than movies, spectator sports, theme parks, cruise ships, and recorded music combined. Last year, Americans sank more than $550 billion in legal wagers into casinos, racetracks, lotteries, and other gambling operations.

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The most visible sign of gambling's rocketing popularity is the rapid expansion of casino gambling. In 1978, only two states had casinos; now 27 states do, though some have been mired in legal disputes. In the past five years, the number of Americans visiting casinos has doubled.

As a result of casino gambling, Las Vegas is now the fastest-growing city in America, boasting 11 of the 12 largest hotels in the world. Another $6 billion worth of facilities are slated to open within the next two years—including a $1.3 billion Italianate casino, Bellagio, that will feature $50 million in original paintings by masters such as Picasso, Manet, and Renoir.

These casino palaces are run by mainstream corporations such as Hilton, ITT, and MGM Grand and are financed by top Wall Street investment banks. Institutional investors as savvy as Harvard University and the California public employees' pension fund have bet heavily on gambling industry stocks.

The industry has worked hard to shed its seedy reputation. It's not even called gambling anymore—it's now "gaming." And "gaming" resorts are being billed as suitable for the whole family. The newest Vegas addition, New York, New York Hotel & Casino, which anticipates 25 million visitors per year, has a "Coney Island" amusement park complete with roller coaster conveniently located above the gambling floor. The kids can play laser tag and video games while Mom and Dad bet their college nest egg at the tables in "Central Park."

As the economic power of the gambling industry has grown, so has its political clout. The industry had generally avoided the political limelight until 1994, when President Clinton shook the beast awake by suggesting a 4 percent gambling tax to help pay for welfare reform. Almost overnight, a new political force arrived on Capitol Hill—albeit one with plenty of familiar, connected faces. The American Gaming Association (AGA), for example, is represented by Frank Fahrenkopf Jr., the former chairman of the Republican National Committee, and Ken Duberstein, a former Reagan adviser and political fixer. After strenuous lobbying by the AGA and others, Clinton dropped the proposed gambling tax.

A 1996 study by the Center for Public Integrity found that between 1991 and 1995, gambling contributions to federal politicians and soft money accounts amounted to $4.5 million. And gambling contributions are growing dramatically. The industry ponied up nearly $5 million for the 1996 election alone, a sum evenly distributed between Democrats and Republicans.

But gambling money going to federal elections is only a small part of the story. Gambling is primarily regulated by the individual states (rather than the federal government) and that is where the industry has handed out the bulk of its influence money. A Mother Jones investigation has found that over the past five years the gambling industry has spent more than $100 million in political contributions and lobbying fees to influence state governments.

In addition to political contributions, the industry makes local governments an offer that is hard to refuse: easy money. Gambling generates a very healthy cash flow, and that means not only jobs but also tax revenues.

But state governments have not contented themselves with the tax revenues from gambling—they've gotten into the game themselves. The modern lottery started in New Hampshire in 1964, but lottery fever did not strike until the state cash crises of the 1980s. Now 37 states and the District of Columbia sponsor lotteries, which bring in more than $30 billion each year. These revenues have become essential to state government operations. In order to keep the lottery money flowing, the states advertise their games aggressively to potential gamblers; the lottery usually ranks among a given state's top advertisers. The states spent $382 million on lottery advertising and promotional expenditures in fiscal 1995.

And the states aren't alone in their addiction to gambling revenue. In 1988, Congress passed a law permitting American Indians to operate casinos on their sovereign lands. Within a matter of years, the fortunes of many tribes, previously mired in poverty, changed completely. Indian casinos have produced so much revenue that some tribes can now provide new housing, modern medical and dental services, educational scholarships for children, and incomes of $50,000 or more to each tribe member as a share of the gambling profits. There are already more than 150 Indian casinos in the country. Foxwoods Resort & Casino, operated by the Mashantucket Pequot tribe in Connecticut, is now the largest in the world, reportedly bringing in $1 billion in gross revenue each year.

But what is the easy availability of gambling doing to us? One macroeconomic problem is the industry's voracious appetite for cash; it's a black hole that eats money without returning a socially useful product to the community. Take Joliet, Illinois, home to riverboat gambling since 1992. Unlike Las Vegas, where the vast majority of the gambling take comes from out-of-staters, in Joliet, 82 percent comes from the locals—who can then no longer spend that money in area stores buying clothes or furniture or groceries. Because Illinois state law limits the casinos' expansion, the casinos can't reinvest those fat profits in Joliet.

According to Rachel Volberg, president of Gemini Research, a Pennsylvania firm that studies compulsive gambling, having a casino nearby has been shown in at least one state to increase the number of people with compulsive gambling problems from about 1 percent of the general population to 5 percent.

The industry's need for big losers contributes to personal bankruptcies, broken marriages, and even suicides. And then there is the crime—burglary, extortion, loan-sharking, prostitution, drugs—that persistently accompanies legalized gambling. John Kindt, a professor of commerce and legal policy at the University of Illinois, argues that for every $1 in tax revenue that gambling raises, it creates $3 in costs to handle such scourges as economic disruption, compulsive gambling, and crime.

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