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

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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.

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.

But comprehensive data on the effects of legalized gambling are still scarce. Last July, Congress approved the formation of the National Gambling Impact Study Commission to conduct a two-year study of gambling’s political, social, and economic effects. It is the first federally sponsored study on gambling since 1974.

The fight over the commission was the first major political engagement for the gambling industry, and Washington’s newest player did a textbook job of buying influence. Three months after the House voted to form the commission, industry fundraisers raised $500,000 each for the Clinton and Dole campaigns. (It is one of the great ironies of the 1996 campaign that the day after candidate Dole gave his celebrated “Hollywood speech,” in which he excoriated movie executives’ values, he was in Las Vegas pocketing $500,000 in gambling money.)

The results started to show immediately. Dole used his influence as Senate majority leader to ensure that the commission would not have the ability to examine, or even bring up, the question of levying new taxes on the industry. The president—shortly after playing a round of golf with Mirage Resorts chief Steve Wynn—announced that he thought the commission’s subpoena power should be limited. (Speaker Newt Gingrich had already stated his opposition to the subpoena-powers provision—the day after returning from a private dinner with Wynn in Las Vegas.)

In the end, the gambling lobby proved victorious. Congress sharply narrowed the commission’s subpoena powers. There will be no embarrassing public inquisitions. And an addendum to the legislation gave the gambling business one more advantage by requiring that the nine members of the commission—chosen by the president and by the House and Senate leaders—each must have “some knowledge” of the industry. That provision enabled Newt Gingrich to appoint J. Terrence Lanni, CEO of MGM Grand, to the commission. House Minority Leader Dick Gephardt appointed John Wilhelm, treasurer of the gambling industry’s largest union. And Clinton’s picks included a top Nevada regulator.

In any case, the federal commission will probably have little impact. Two years of study and hearings will produce a report that most will no doubt ignore. There is no requirement for the states to adopt or even consider any of its recommendations.

It’s not likely that the explosion of legalized gambling will slow any time soon. Today, all but two states (Utah and Hawaii) offer some form of gambling—riverboat casinos, Indian casinos, racetracks, jai alai frontons, lotteries, etc. Gambling has emerged from the criminal shadows to become a widely sanctioned pastime.

Ten years ago, it probably would never have occurred to a mom or dad to plan a family vacation in Las Vegas. Today, you’ll find baby strollers gridlocked at intersections up and down the Strip. Suddenly, going to Vegas is not a whole lot different from going to Disneyland.

And what difference there is may blur more and more as the gambling giants expand into other forms of entertainment. MGM’s Lanni says he expects a major consolidation in the industry over the next five years, resulting in five or six megacorporations that can use their economic leverage to buy established theme parks, movie and television studios, and related businesses. “Is there any reason, if you’re in the hotel/ casino entertainment business, you couldn’t have a movie studio also?” Lanni asks. “We are in the entertainment business. Why not expand on that? Why not be those destination resorts where more people are going to travel?”

Lanni believes that casinos, with their phenomenal cash flow, have the economic muscle to become the heart of the entertainment industry. “Ten years from now,” he predicts, “the issue of gaming won’t be an issue.”


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