Monopolies or Open Markets for Industries?

William N. Thompson Emeritus Professor of Public Administration School of Environmental and Public Affairs University of Nevada Las Vegas Las Vegas, Nevada 89154-4030 [email protected]

And Catherine Prentice Swinburne University of Technology Melbourne, Australia

Prepared for The 15th International Conference on And Risk Taking Caesars Palace, Las Vegas May 30, 2013

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Monopolies or Open Markets for Casino Industries?

1. Introduction: Descriptions—Monopoly, Oligarchy, Open Markets

This paper looks at impacts of the structures of casino industries in 13 American states venues. The legalization of has been a major policy issue in scores of national and sub-national venues over the past 60 years. Among the critical issues in the legalization process has been the subject of whether casino establishments should be authorized as singular, that is, monopoly, entities in a specific location (city, state, or nation) much as public utilities, or they should be licensed in an open market free competitive manner. A middle ground approach find venues allowing a limited number of licenses, ergo, an oligopoly of casinos. (1)

A monopoly enterprise is one that serves its primary market (those purchasing its products) without a competitor who is selling identical or basically similar services or goods within the market. As a practical matter all the customers must purchase the products from the one enterprise if they desire to have the product. There is no competition as the sales of the product are controlled by the single enterprise.(2)

In an oligopoly a few enterprises will control the distribution of the service or good to the market. Oligopolistic situations also arise if several producers work together, or collude, in order to control the supply and the price placed upon the products they sell. Such combinations of sellers may be called cartels.(3)

With monopolies and oligopolies (or cartels), the enterprises control the market, and they typically seek to maximize their profits by setting higher prices that consumers must pay if they want their products. These enterprises may also use practices that preclude other enterprises from coming into and competing in the markets—such as lowering prices to levels with which the others cannot compete, and when these go out of business, then raising the prices considerably.

Open markets occur where there are a sufficiently large number of sellers of services and goods that no one of them can set the prices for the goods.

Monopolies occur naturally or they may be generated by unfair competitive practices (called predatory practices) by the larger enterprises in a market. (4) They may also be authorized by governmental action. Certain industries require massive investments in facilities and equipment before they may offer their products for sale. Sufficient risk is

2 incurred that the industry needs a certainty of sales revenue that they gravitate toward monopoly status. Major enterprises such as utilities (e.g. electrical and water works) seek that certainty by winning governmental approval to operate as monopolies. The enterprise must find capital suppliers to fund the start-up of their projects, yet banks and lenders will be reluctant to fund massive projects if they don’t have certainty brought by monopoly markets. Government licensing provides a needed economic security behind a producer of a product—electricity or water—that is considered critical for the public. When the governments grant monopolies through licensing, they are aware of the power they are granting to the enterprise. Therefore they exercise regulatory power over the activities and specifically the pricing of the products offered by the monopoly. Yet even then, the risk situation may be too much for private investors, and therefore the government itself chooses to become the monopoly supplier of the goods.

On the other side of the equation, governments themselves have set forth laws prohibiting the operation of monopolies and the exercise of predatory practices by enterprises in most markets. The governmental authorities give much favor to markets with free competitive enterprises, as monopolies may offer some advantages, but usually (with notable exceptions referred to above) offer severe disadvantages for society. (5)

The most notable advantage of a monopoly is that it can take advantage of economies of scale. By purchasing large quantities of raw materials for conversion into its products, it can realize low input costs for its operations. In sales it can avoid considerable costs involved with market advertising. By realizing higher profits, the enterprise can invest in technological innovations that contribute to production of higher quality products.(6)

On the other hand, much history reveals that monopolies may do the opposite—they fight innovation. Rather than spending money on improving products, they transfer the money to profits. As long as they control the market, they have no incentive for product improvements. (7) Nor do they have incentives for improving their workforce by offering higher salaries, training, and other factors that improve worker motivation. They do not seek to improve customer service, because the threat of competition is not there. The monopoly company restrains production in favor of unfair higher prices, and by doing so introduces inefficiencies into society, inefficiencies that are considered “dead weight losses” for the entire society. Monopolies transfer wealth from unfortunate customers to monopolists. With monopolies in place, better competitors face overwhelming obstacles—entry barriers—from trying to come in and compete for the market. Monopolies may also be adverse to the public interest as they give great political power to companies especially if they control critical products or if they command economic power by providing large numbers of jobs and revenues which are taxed.

2. Casino Industry Structures

As we examine the structure of the casino industry in many venues, we find that there are some cases of open market competition that approach situations recommended by most economists. But many casino arrangements find structures of oligopoly. And many more, perhaps even a majority of cases find casinos operating as government created

3 monopolies in local markets (defined arbitrarily as geographical circles of 50 or 100 miles, with travel times of several hours to the next casinos). After we review and assess available data on the casino operations, we can return to a vexing question: Why would the government decree that a casino enterprise should operate as a monopoly? There seems to be surface answers, almost obvious without need for independent proofs and support, as to why society would monopolize and regulate an enterprise delivering electricity, gas supplies, the delivery of water. These are critical goods for the survival of a society. Arguments that telephone companies and television stations had to be monopolies or oligarchies seem not to be made anymore. There are even arguments against the notion that governments must have monopoly control over all operations of prisons, fire-fighting services, and police forces. While few argue against the need for a government control over military forces, in the state of Nevada we find that the U.S. Department of Energy has given a private monopoly the function of providing essential security forces to guard the United States’ arsenal of nuclear weapons at the Nevada Test Site. This list can go on, nonetheless, certain government approved monopolies make sense. Does a government approved monopoly for providing casino gaming services make sense? We shall return to this question.

At the mid-point of the 20th century, fewer than one half of the national venues at that time permitted casinos to exist anywhere within their boundaries.(8) The number of casino countries increased to 77 in 1986, and 109 in 1996. Now over 132 (or 67.3%) of 196 recognized nations have casinos. In a majority of these national venues, at least some casinos operate as monopolies for their market region. Only a small minority are in competitive local markets. In the United States, only one state (Nevada) permitted casinos in the mid-century, a second (New Jersey) joined the list in 1978, and a decade later a flood of new states jumped on the casino band wagon with riverboat casinos, Native American (Indian) casinos, and in a few cases land-based casinos. Now casinos of some kind are found in 38 of the states. Canada had no casinos at the mid-century point, but starting in the 1970s casinos have been authorized for seven of the ten provinces plus the Yukon Territory.(9)

A variety of industry structures have been approved for the casino venues. The industry structure has been set forth in specific laws which give legal standing to casinos. Unlike the situation for most other industries, casinos may exist only with a legal authorization. (10)

While the authorization process is usually accompanied with a debate, that debate is almost entirely consumed with a consideration of whether or not gambling activity which takes place within the walls of a casino is moral, appropriate as a form of entertainment, and likely to produce considerable employment as well as tax revenue for a venue. The debate rarely looks at the merits of monopolies vis-a-vis oligopolies and open market structures for the casino industry. There is little research evidence that has been drawn from studies of the effects of the varying industry structures on casino industry performance, e.g. job development, growth and profits, tax revenues and price structures.

3. Purpose of Paper

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The purpose of this paper is to check the credibility of the basic proposition advanced above that monopoly structures in the casino industry are adverse to the interests of casino product consumers. Accordingly it is hypothesized that (1) monopoly casinos will offer artificially higher prices to customers, and (2) that monopoly casinos will offer their customers lower service quality by utilizing fewer employees, and by having fewer amenities at their gaming properties.

Initially the research will categorize thirteen commercial casino venues in the United States along a continuum from the most closed and monopolistic to the most open and competitive jurisdictions. Pricing and quantities of amenities will be compared for the venues. Further analysis will examine individual casinos categorized as local monopoly casinos or casinos located in competitive local areas in four selected state venues.

Price points and service attributes will be explored. These include payout percentages, numbers of employees, and quantities of amenities including numbers of hotel rooms, volume of convention space, and numbers of restaurants and entertainment facilities. The relationship of these factors and the casino industry structures will be examined in order to test the basic hypotheses presented above.

Prior to presenting data and testing the hypotheses, we will present an historical development of casino structures by looking at major venues including Monaco, Macau, and Nevada, as well as other jurisdictions in North America and Asia. Vignettes will be offered for the thirteen American jurisdictions (plus one other) specifically used for the analysis.

4. A Look at Casino Venues

Over modern history, almost all the venues with casinos authorized them as monopoly enterprises for either the nation as a whole or for the local communities of a nation. This was the organizational pattern across Europe, epitomized by the establishment of a tourism casino community in Monaco built around the state controlled monopoly of Monte Carlo casino facilities. (11)

A divergence from the pattern was found in Macau, a Portuguese colony along the south China coast. There private casinos were licensed on a free competitive basis starting in 1847. However, in the interests of securing better regulation and more guaranteed government revenues from the operations, a monopoly franchise was given to one company in 1934. The monopoly control persisted as a new company took control in 1962, and held the control until 2002, when it operated 11 casinos. After the colonial regime was ended in 1999, Macau became instead a special region within China. In 2002 the new regime decided to issue three licenses for operators, each of whom could have multiple casinos. The old operator (Stanley Ho) retained one of the three licenses, while new licenses went to Las Vegas entrepreneurs Sheldon Adelson (in conjunction with Lei Chi Woo of Hong Kong) and Stephen Wynn. The new operators opened casinos beginning in 2004. Also in 2004, each license holder was permitted to have a sub-license

5 holder: Adelson and Woo separated into two companies, Ho sold a sublicense to an M.G.M. partnership with his daughter Pansy Ho, and Wynn sold a sublicense to a partnership of Ho’s son Lawrence and James Packer of Australia. Now six companies hold licenses for multiple casinos (35 in number) in an open oligopoly that does not preclude new companies in the future. The dissolution of the monopoly structure in favor of a competitive model was followed with the experience of considerable growth in the casino gaming market as evidenced in casino revenues from year 2000 through 2011. While some of the phenomenal growth in the gaming revenues has to be attached to the fact that mainland China began to allow residents to go to Macau, albeit in a restricted manner, after the venue was integrated with the Chinese nation, there can be little doubt but that revenues were driven by the creation of new competitive casino properties— among which were the largest casinos in the world.(12) . Table 1. Gaming Revenues in Macau: The End of a Monopoly and Prosperity

Year Number of Casinos Revenues

2000 11 $2.0 billion 2001 11 $2.4 billion 2002 11 $2.8 billion 2003 11 $3.6 billion 2004 15 $5.2 billion 2005 17 $5.6 billion 2006 24 $7.1 billion 2007 28 $10.4 billion 2008 31 $13.6 billion 2009 33 $14.9 billion 2010 33 $23.5 billion 2011 34 $33.5 billion

The former monopoly holder, Stanley Ho, was not happy about having to share his business. In 2005 he remarked, “We are Chinese. We should unite against foreign capital. We cannot keep silent. If not the foreign capital will bury us.” His prognostication was way off target. In 2003, before competitive operators opened their doors, Mr. Ho’s premier casino was the 11-story Lisboa. His eleven properties at the time realized revenues of $3.6 billion. He went on a building spree and by 2010 he had 20 casinos, with his flagship casino being the new 57 story high Grand Lisboa. His revenues were now $6.4 billion. For sure, he had lost market share—from 100% to 27%-- but his gaming profits had risen 80%--a respectable trade-off for losing a monopoly. (13)

As casino development swept Europe in the later nineteenth century and over the course of the twentieth century, the monopoly pattern prevailed with one casino being allowed in selected communities in Germany, France, Spain, Portugal, Netherlands, Italy and other states. Great Britain broke the pattern to a degree by allowing oligopolies of small casinos in some major cities (e.g. 20 in London, 6 in Birmingham), but single casinos exist in most cities where they were permitted. (14)

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In the United States, Nevada provided one model as the state by legislative act in 1931 simply allowed any business wishing to operate a casino to apply for a license. Very few restrictions were placed on license applicants. Later as casinos grew in size and became a major tourism attraction, especially in the southern Nevada area around Las Vegas, licensing simply meant establishing credentials of having integrity and some financial ability. Even as mobsters came from other states where they had operated casinos illegally and began operations in Las Vegas, they made a private decision that all applicants for casino licenses would be welcome in Las Vegas, that there would be no monopoly control over the casinos by the mob or any branch of the mob. New Jersey legalized casinos for one city in 1976—Atlantic City. There was no set number of casino licenses, and beginning in 1978, 13 casinos were created. No company was allowed to have more than three facilities. (15)

After New Jersey’s casinos began, pressure mounted for casinos elsewhere. Several states embraced monopoly of oligopolistic casinos along major interior rivers beginning in 1990. Only Mississippi’s boat casinos were in competitive market places. In 1988 and 1989, two western states allowed casinos in selected mountain areas with limited betting and competition among facilities. Tribal casino began to emerge in multiple states in 1989 as well. Almost all Native American casinos operated as local monopolies. The 1990s brought more than one hundred new Native American casinos. These were almost all monopolies for their immediate localities and regions. In 1996 the state of Michigan authorized an oligopoly of three casinos for Detroit. (16)

The debate rages on, but the forces of local monopolies or limited oligopolies seems to reign supreme. In 2006 permitted essentially 14 monopoly casinos in scattered cities, albeit Philadelphia and Pittsburgh had a few dispersed casino locations. In 2011 Massachusetts decided to grant monopoly licenses for four casinos, while Florida is considering a monopoly structure for new commercial casinos. (17)

While some Nevada interests reacted like Mr. Ho, and worried about the new competition across the United States, the impacts on the formerly monopoly venue (with a sole casino owner) were similar to the impacts on Ho’s operations. Statistics on Table 2 reveal that Nevada and Las Vegas casino gaming revenues through the period encompassing a national expansion of casino gaming.

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Table 2. Nevada Survives as Casino Gaming Sweeps the United States (18)

Year State Venues Having Number of Non- Non-Nevada Nevada Las Vegas Casinos Nevada Casinos Revenue Revenue Revenue

1989 7 53 $2.8b $5.0b $3.4b

1990 7 115 $3.6b $5.5b $4.1b

1995 17 300 $14.7b $7.7 b $5.7b

2000 27 384 $24.8b $9.3 b $7.7b

2005 36 861 $52.6b $10.7b $9.7b

2010 37 935 $61.3b $9.9b $8.9b

Casino gambling as states with casino gaming expanded in number from 8 (7 plus Nevada) to 38 (37 plus Nevada). Outside of Nevada the number of casinos expanded from 53 in 1989 to 935 in 2010, and their revenues went from $2.8 billion to $61.3 billion. Nevada casinos existed within a culture of constant competition, and the new casinos in new venues did not destroy the Nevada industry. Quite to the contrary, as the nation expanded with new casinos, revenues flourished and new casinos were developed in Nevada as well. Indeed, for each new casino outside of Nevada, the Nevada gaming revenue increased $5,555,555 per year, while Las Vegas gaming revenue increased $6,235,828 per year. Certainly market share was lost for Nevada, but profits increased.

Canadian Provinces embraced casino gaming in the 1970s tying them to charities or to government schemes. In 1969 national legislation had opened the door for and such “schemes.” Major government owned monopoly casinos were created in Manitoba, Saskatchewan, Ontario, Quebec, Nova Scotia, and Yukon Territory. Charity casinos appeared within a competitive market structure in Alberta and British Columbia as well as the venues with government casinos. (19)

In the 1970s the Australian state of Tasmania opened its first casinos in Hobart. A second in Launceston opened in 1982. The Eighties and Nineties saw monopoly casinos in the other venues, with one each in Victoria, South Australia, West Australia, New South Wales, The Capital Territory, while Queensland had four but it quite separate

8 locations, and the Northern Territory had two that are separately placed. New Zealand authorized four casinos in the 1990s as well.(20)

Singapore created a shared monopoly by authorizing two mega-casinos. Japan is debating legalization with the major plan offered permitting ten monopoly casinos in selected cities. These two new casino venues have latched onto a new (newly used) concept—the integrated resort, with each casino attached to a full resort complex. Local monopoly casinos are also found in the Philippines, Korea, and Malaysia, while Vietnam has a casino oligopoly in Ho Chi Minh City.(21)

Vignettes describing selected venues can give illustrations of the impacts of casino structures on the gaming economy. But the descriptive paragraphs can also allow us to categorize American state venues on a continuum from the most monopolistic to the most least.

5. Vignettes and Descriptions of Casino Industry Structures in American State Venues (22)

(a) Colorado: In Three Mountain Towns by Accidental Design

In 1990 Colorado voters approved “limited” casinos for three remote mountain towns— Central City and Blackhawk—twin towns about 30 miles from Denver, and Cripple Creek, an historic town 50 miles from Colorado Springs. Why the these three towns? It was simple. Some entrepreneurs came up with the idea. They asked all the small towns of Colorado if they would help finance the campaign. Three towns said “yes,” and so the proposition voted upon limited casinos to the three towns. Each location could have as many casinos as could win licenses—no limit. However, the casinos could only offer games of and as well as slot machines. The maximum single bet at a game was $5. This limit has been increased to $100. The state gaming board was empowered to license the casinos and also to set taxes for gaming each year. In 1991, over eighty casinos won licenses and opened. The market was immediately saturated. Within a year, over 20 casinos closed their doors. The state exacerbated the economic struggles of the casinos by doubling taxes from ten percent to twenty per cent for the second years of operations. Few new applicants sought licenses. There are now 40 active casinos. As each casino had to be located within a building with another business, the town became saturated with souvenir shops with gaming. Instead of economic growth the towns experienced severe traffic jams, and the accident rates on the few winding mountain roads into the towns soared with many cases of drunk driving deaths.

(b) Illinois: Let’s Put the Casinos by the Poor People—Let’s Help Them out a bit!

Illinois was not intending to create windfall profits for casinos when the legislature passed its in January 1990. Their goals were much more benign. They were seeking much needed tax revenue for the state coffers, but also economic development for its poorest communities. The economic development would come to the

9 economically depressed communities such as East St. Louis, Joliet, Peoria, Rock Island and Galena as the new casinos in the communities would attract tourists from long distances away, and the tourists would be served by casino employees drawn from unemployed local residents. They would also be served by local merchants who would be expanding their businesses. Ten river boat casinos were authorized for the entire state. They had to be located in depressed communities located on major waterways in the state.

In order to assure that there would not be windfall profits, each casino boat could offer only (up to) 1200 gaming positions (slot machines or seats at gaming tables). The boats would have to be on open waters and in the act of cruising during casino playing times. Gaming would stop when the boats would come to their docks to let players off or to let new players on board. As the boats were in depressed communities, it could have been anticipated that the persons in the communities were poorer people, and it might have been expected that these poorer people might well become the main customers of the casinos. They did indeed. With the exception of Joliet, the casino communities each had one boat. Joliet had two boats (in actuality they were allowed four, as each one had only 600 gaming places, and this meant that one of the two—for the casino--could be operating at all times). The locations (listed above, plus Elgin, Aurora, Metropolis, Alton) were isolated from each other. With the exception of the two Joliet properties, each had an Illinois monopoly. However, the East St. Louis casino shared (within four years) the immediate local region with four St. Louis Missouri area casinos. From its first days, the Rock Island casinos shared the local market with an Iowa casinos operating from Davenport and Bettendorf.

The Illinois hopes that the casinos would attract customers from long distances and that their spending would create local jobs was a pipe dream. By limiting the size of each boat, the authorities created a situation in which the casinos did not have to even advertise. They just had to open their doors, and they were full. They certainly did not have to build hotel rooms for the customers. One survey found that 54% of the players lived within 25 miles of the casino they attended. Eighty-six per cent of the players lived in Illinois—even though five of the ten casinos were on rivers that were state boundaries with Iowa, Missouri, or Kentucky. Only 17 out of 740 players interviewed (2.3%) stayed at a hotel or motel, and several of these were not visiting the area in order to go to the casinos. Rather than bringing money into the community, a preponderance of the players were taking money that they would otherwise be spending on other activities in the community, and instead spending the money at the casinos.

The limit on the number of casinos along with the restrictions on the size of their gaming areas precluded any expansion of the casino businesses, and kept the properties from advertising their properties to potential tourists. The Chicago Better Business Bureau sent a survey team to Joliet, Illinois. They went door to door visiting 100 local businesses. They had a simple question or two. Did the introduction of two casinos (with four riverboats) into Joliet help or hurt your business? And, if it helped how did it help. Approximately one half of the businesses said that they had seem no effect on their business. However, almost one half found that their business had suffered—gone

10 down—with the introduction of casino gaming in their town. Two business leaders just glowed when the question was asked. Both asserted that business had never been better. “Thank God for the Casinos.” One of the businesses purchased used cars for cash. The supply of cars offered by owners for sale at fast and low prices was phenomenal. Turn- over profits were great. The other business that witnessed improvement was a travel agency. Ah! Ha! Thought the survey team. Here we find the benefits of tourism coming to Joliet because of the casinos. The notion was offered to the director of the travel agency, who responded with laughter. (Kind laughter). “No” No” “You don’t understand, our many new clients are not people who have chosen to come to Joliet. They are people who live in Joliet. Since the casino doors have opened, they have rushed our doors, seeking our services. They are booking flights to Las Vegas.” Joliet casinos certainly did affect tourism.

(c) Indiana: Following the Neighbor, But Bigger

The governor of Indiana vetoed legislation to allow riverboat casinos for his state. However, on July 1, 1993, the legislature overrode his veto, and In December 1995, the first of eleven casino boats opened its doors. Five boats operate as an oligopoly along the shores of Lake Michigan. Each is permanently docked. Three boats constitute an oligopoly in southeast Indiana operating within the Cincinnati, Ohio, metropolitan area. There is a single monopoly boat on the Ohio River just north of Louisville, and another on the Ohio River in Evansville. The eleventh boat is on a southern Indiana lake by French Lick. A researcher was engaged to analyze the economic impacts for a proposed boat seeking the single for a location near Louisville. His intent was to show how the boat could result in an overall economic benefit for the entire Louisville metropolitan region. Louisville is in another state—Kentucky. The company proposing the boat emphasized to the researcher that the state of Indiana was not concerned about the economic benefits for the region, but only two things—how many jobs would the boat need, and how much tax revenue would the boat provide for Indiana. In a sense greater tax revenues for Indiana would in and of itself be adverse to economic benefits for the region—of both southern Indiana and the Louisville area as the taxes would be going to a government hundreds of miles away in central Indiana. Back to the drawing table, the researcher reduced the size of a hotel to a minimum, and cut back on restaurants and showroom activities. He added gaming area to the equation. So the numbers were changed and projected tax revenues increased. Didn’t really change the bottom line. His company had hired the former lieutenant governor to lobby their proposal. A rival company hired a former governor—and they proposed a bigger boat with a bigger casino and more projected tax revenue. They won the license.

(d) Iowa: The Original Image, Crap Shooting With Huckleberry Finn

Iowa was first to put the boats on water. Riverboat gaming began in Iowa in 1991. Twelve casino boats plus five race track casinos have been licensed. New casinos may be permitted but local jurisdictions must approve their presence. Along with three Native American casinos, the facilities stand as local monopolies except for three in the Council Bluffs area and four in the Davenport area. Originally patrons were limited to a $200

11 loss for each cruising session, and they were not allowed to have a single bet of more than $5 at a time. These limits have been removed.

(e) Louisiana: Boats and The Blues

In 1992 Louisiana law authorized one land-based casino for New Orleans and 15 riverboat casinos. Racetracks, truck stops, and bars are also authorized to have slot machines. Advertising was also strictly limited. The New Orleans casino was designed to cater to tourist traffic; however, so that it would not compete with existing entertainment venues in the city, it was not permitted to have a hotel or even a sit down restaurant or café, or live entertainment. A tax of 18.5% on gaming was added to a required annual fee of $100 million. The fee was later reduced to $50 million. Five of the riverboat casinos are in the New Orleans metropolitan area, five in the Shreveport- Bossier City area, three in Baton Rouge, and two in Lake Charles. There are also three Native American casinos in the state.

(f) Michigan: To Stop Gaming Dollars Going Over the Bridge

Voters in Detroit were given opportunities to approve advisory referenda on casinos on several occasions. They voted in the negative in 1976, 1981, 1988, and 1993. However, shortly after the 1993 vote, two things happened. The governor of Michigan approved casino compacts for seven Native American tribes. (There are now twenty tribal casinos-- all well outside of the Detroit Metropolitan area). Then on May 17, 1994, the government of Ontario, Canada, opened a casino in Windsor, just one mile (over the Detroit River’s Ambassador Bridge) from downtown Detroit. Detroit voters could see the constant line of traffic over the bridge taking Detroit (and other Michigan) dollars across the international boundary to be gambled in a foreign casino. In November they approved an advisory vote calling for legalization of casinos in Detroit. Legalization, however, required a change in the Michigan constitution.

The authors of the 1994 proposal put together a petition drive to have a statewide vote to change the state constitution and permit three casinos for Detroit. The proposition was put on the state ballot in 1996. It contained a lot of fine print that did not even appear on the summary that was on the ballot in front of the voters. All they saw was that Detroit was to have three casinos, and taxes would go to the state and the city of Detroit for good causes. They approved the proposal with a majority of less than 52%. They had also approved the fine print that stated that licenses for two of the casinos had to go to two companies which had supported the 1994 referendum campaign. The Atwater Group combined with Circus Circus Casinos to win one license, even though in the process almost all the principals in Atwater (which was a 1994 sponsor) were found unsuitable for licensing.

Greektown, another 1994 sponsor, combined with a northern Michigan Native tribe and won the second license. In competition with eight other non-1994 sponsors, the M.G.M.

12 company won the third license. Each of the three companies found existing properties in decaying downtown Detroit areas and constructed appropriately large parking garages and interior casino floor areas. Promises of completing hotel structures were delayed for over 6 years, and in 1999 the gaming began. The casinos were full, but the players were almost all from the local metropolitan Detroit area. A promise that the competition would help defeat the existing gaming in Windsor was not realized. The Canadian authorities approved a second casino in Windsor, and added almost one thousand slot machines to the race track facilities also in Windsor. Casino Windsor constructed 390 hotel rooms after the Michigan legalization, and in 2001 they approved a $90 million expansion with an additional 200 hotel rooms.

(g) Missouri: Regulation or Grabbing for the Big Dollar Sign

Riverboat casinos were first licensed on rivers of Missouri in 1993, and they began full scale operations in 1994. At first the boats imposed a $500 loss limit on players during each cruising session. Later the limit was dropped. Initially the casinos were allowed for any county where voters had indicated approval of the gaming. In 2008 the state indicated that there would be no more licenses than thirteen. In the early stages the state was eager to find operators and they tended to overlook factors which might have disqualified certain applications. Casinos applicants hired local attorneys who used what some considered inappropriate influence over regulators to secure licensing. One such applicant was a major Nevada firm, Stations. They won approval for licenses in Kansas City and in St. Charles in 1997. However, their operations did not meet all state standards, as they were fined over one million dollars and had their license suspended for activities such as allowing persons as young as thirteen years old to make wagers. They were permitted to sell their interests to Ameristar Casinos. After the state decided there would be a permanent oligopoly with just thirteen casinos, the state regulators decided that a qualification for a casino would be its size of operations. They applied this new regulatory standard retroactively, as they withdrew a license from the President casino which had operated as one of Missouri’s first with a boat that was underneath the Arch in St. Louis. While the boat was making profits, they were not sufficient to satisfy the Missouri Gaming Commission, who’s members also feared that the boat was in a state of decay and its owners were not prepared to upgrade it. A new license was awarded to a casino in Cape Girardeau which promised to bring in greater revenues.

(h) Mississippi: From the Coast to a Ditch, to the Shore

Next to Nevada, Mississippi comes the closest of any states to offering an open market situation for casinos. There are 32 casinos, and like Nevada, casinos came to Mississippi in an almost natural progression from an existing reality to a licensed phenomenon. Several ships had offered cruises to nowhere from ports in Mississippi. There was a debate over whether the ships could offer games while in waters of the Mississippi Sound inside a line of outer islands in the Gulf of Mexico. The courts wrestled with the issue as did the legislature. One ship was permitted to operate games during the dispute, and after several tries the legislature granted permission for the games. However, the ship was not sufficiently profitable and it ceased operations. The legislature in the meantime

13 witnessed the legalization of riverboat casinos in Iowa and Illinois and in the Summer of 1990 they also approved casino boats for ports on the Gulf of Mexico and along navigable areas of the Mississippi River. The licenses, however, did not require that boats make cruises, only that the gaming areas be above water below. Each casino boat became a permanent structure containing a barge area with the casino floor. After Hurricane Katrina devastated the Gulf Coast and all the casinos there, Mississippi allowed them to be rebuilt on solid ground, but within 800 yards of the Gulf. Open licensing found three casinos in Gulfport-Bay St. Louis and nine in Biloxi along the Gulf Coast, eleven near Tunica in the north within an hour of Memphis, Tennessee, and eight along the River in Greenville, Vicksburg, and Natchez. There is also one Native American casino. While the licensing process is an open one, with the only restriction being that the location of the casino boats must be in river or Gulf water counties where voters approve the gaming, in 1996 the Casino board did reject a license for a fifth boat in Vicksburg on the grounds that the boat would represent damaging competition to the existing Vicksburg boats. In 2012, a license application for a new casino on the Gulf Coast was held up so that architects could redesign the facility to accommodate a much larger gaming floor.

(i) Nevada: The Reigning American Title Holder--Persisting

Nevada has an open licensing process with over 300 casinos in addition to 2000 gaming locations with only a small number of slot machines (15 or under). The gaming is permitted in all counties and cities with the exception of Boulder City which until 1960 was controlled by the federal government—the city had been established as a residential area for workers on the massive Hoover Dam. While the casino gaming was legalized in 1931, it did not become the state’s dominating industry for a dozen years after that. In the 1940s casino operators (of illegal establishments) from all over the United States gravitated to Nevada to set up shop where it was legal. Prominent among them were members of organized crime families. These “mobsters” met together and made a critical decision. Las Vegas (and Nevada) would welcome anyone who wished to come and start a casino. They did not have to be members of this crime family or than crime family, or even any crime family at all. From the start, the casino entrepreneurs of Nevada determined that their industry was to be open and competitive—there was to be no monopoly in Nevada.

And so today, the casinos of Nevada, especially those of Las Vegas are very competitive. In an interview Stephen Wynn, a major casino entrepreneur, stated that the Las Vegas Strip was the essence of free enterprise. He had competed openly and vigorously with other casino owners such as Sheldon Adelson, owner of the Venetian. “He would offer a room deal, then I would have to offer a better deal, he would match me and offer better odds on a game, and I would have to follow—it was cut throat, we were at each other’s jugulars—AND I LOVED IT!” He offered that this competition was wonderful for the players as they received the best deals and the best customer service. (23) The notions of monopolies had been raised before as the federal anti-trust authorities had started actions against Howard Hughes as he was buying up properties on the Las Vegas Strip in the 1960s. After he owned seven casinos, they suggested he own no more as he would be

14 controlling too much of the casino activity. Robert Maheu, aide to Hughes, found this to be ironic in that he had arranged with federal officials for Hughes to buy Las Vegas Strip properties as a means to end the influence of organized crime interests in Las Vegas (24). Wynn was also upset in 2004 as The M.G.M-Mirage corporation had purchased Mandalay Bay Casinos and was about to control over 50% of the rooms on the Strip and 70% of the non-gaming entertainment operations. While that came to be, both Adelson and Wynn continued their growth activities on the Strip, and the competed against M.G.M. operations very well.

A case of competition off the Strip is illustrative of Las Vegas activity. Three major casinos ring the southern urban core of Las Vegas. Each appeals to gaming patrons living in Henderson, the largest suburban city in the Las Vegas metropolitan area, and the second largest city in Nevada. The casinos are the Green Valley Ranch (Constructed in 2001), the South Point (Built in 2005 as the South Coast, purchased by Michael Gaughn, renamed South Point in 2006), and the “M” Resort (2009). The three are very competitive (being within a fifteen minute drive of one another) and they look at each other as their competition. They market their facilities primarily to local residents, while they do have hotels and restaurants that appeal to tourists as well. Each has a sports book.

Bradley Wimmer is a sports gamer as well as being an Economics professor at UNLV. He seeks out friendly haunts of the casino sports books during football, basketball seasons, as well as for major horse race events. He went to the Green Valley Ranch shortly after it opened. There he could bet on basketball games, but on half-time results for only selected games—a handful of the major games of the day. When Gaughn took over control of the South Point, Wimmer found his seat at its sports book. He loved it, as he was able to make bets on winners and on the total points for a game during the half- time of EVERY game.(25)

The Green Valley Ranch took notice, but by the time they had changed their rules and allowed half-time betting on each basketball game, the “M” had opened with its sports book operated by Cantor Gaming. It offered both half-time bets as well as bets on game outcomes and total points scored during any timeout throughout the entire game for all games. Wimmer found his car steering him a little further west and south to the “M” Resort. This path to happiness lasted for but a short duration as both the Green Valley Ranch and the South Point adjusted and also began taking bets on game outcomes during timeouts throughout the course of the games. These changes gave the player more in terms of gaming product and gaming enjoyment. However, they came with a cost to the properties as each had to hire more staff to analyze all games, not just at their beginning, but through their entirety, and the staff were thus exposed to more and greater dangers of making mistakes, or simply not being as skilled in game analysis as the best gamblers. The “best” gamblers in terms of skill started coming to the three casinos as major sports books on the Las Vegas Strip were not willing to take the risks and lower profits realized by the Green Valley Ranch, the South Point, and the “M” Resort. (March 21, 2012 Interview with Bradley Wimmer, Associate Professor of Economics at UNLV.)

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(j) New Jersey: The Open Market Experiences the Power of a Monopoly.

New Jersey casinos, established by a vote of the people in 1976 and subsequent legislation passed in 1977, are structured for free and open competition. However, the casinos must be based upon land within the boundaries of Atlantic City. The high price of land and construction costs in Atlantic City, along with a requirement for having 500 hotel rooms or more renders the local casino industry an oligopoly of 13 properties. The casinos are permitted to have up to 50,000 square feet of gaming space along with their 500 room hotel. If they want more gaming space they must have at least 1000 rooms (and an additional 500 for each additional 50,000 square feet of gaming space).

The New Jersey gaming law prescribes specific rules that must be followed for each game that is played—each casino follows identical rules. The rules set minimum bets made for each game. The government also places four regulators inspectors within the casino during times of play—which originally was 18-20 hours a day, but now is 24 hours every day). This requirement was dropped in 2011. The license application process is quite costly and labor intensive. As New Jersey had affirmed to the world that its casinos would the most strictly observed and regulated in the world, they set out to have stringent requirements which even included the décor and color combinations inside the casinos.

While the state wanted to have such close regulations, a reality struck the regulators with a vengeance in 1978 as the license application process was opened. Only one single company stepped forth seeking to be licensed: Resorts International. Not only had the New Jersey authorities promised very tight regulations that would keep out “bad people” as casino operators (The governor had loudly shouted out to an audience of organized crime mobsters that were quite likely not present as he signed the 1977 legislation— “Keep your dirty hands out of Atlantic City.”), but they had also promised that the new casinos would bring vitally needed jobs, urban renewal, and considerable tax revenues. But these promises demanded that there would be many casinos, and here only one applicant stood in line to get a license. (26) Resorts had been the largest financial donor to the referendum campaign that won voter approval in 1976. But the newly created Division of Gaming Enforcement (DGE) within the New Jersey attorney general’s office investigated Resorts and found that close associates of the company had ties to organized crime, and that the company exhibited many serious defects in the way they operated a casino in the Bahamas. Moreover, the company had been notorious for bribing government officials in the Bahamas. The DGE recommended that the final decision maker on licensing—the newly created New Jersey Casino Control Commission (NJCCC)—deny the license application.

The NJCCC had a dilemma. Either they could choose the squeaky clean path and deny the license and thereby postpone (and no one knew for how long) the job creation activity of a new casino along with its promised tax revenues, or they could fold to reality and grant a license to a party recognized as an industry “bad actor.” They tried to follow a middle path. They granted Resorts a temporary six month’s license. Resorts finished

16 remodeling an old hotel as a casinos, they bought equipment, and they hired staff. For six months they operated as a complete monopoly in the field of casino gaming in the eastern two-thirds of America. During those six months they made lots and lots of money, but they did not clean up their corporate act. They offered abysmal customer service and they sought to raise game limits skirting the regulations wherever they saw the chance to do so, and they set payout percentages at the lowest levels allowed. They were found to have been violating many regulations on a constant basis. Six month lapsed, and the DGE again recommended that a permanent—or even a continuing— license be denied to Resorts. But then, Resorts had hired over two thousand workers, and they had given millions and millions of dollars to the state in casino taxes. The legislature had calculate future tax revenue into the state budget. Money they had. What the state did not have was a line-up of other companies seeking a casino license. They only had Resorts. They gave Resorts a permanent license. For another eight months Resorts operated their casino as a monopoly until the second casino opened its doors in Atlantic City. Their profits were phenomenal.(27)

(k) Pennsylvania: Just Make it Bigger

The legislature of Pennsylvania studied the question of having slot machine casinos in 2003. In a hearing a researcher examined potential revenues of a projected 35,000 slot machines which were to be placed at fourteen separate (monopoly) locations. Actually Philadelphia and Pittsburgh could have multiple locations in separate parts of each metropolitan area. He looked at revenues based upon what slot machines won from players in New Jersey and Delaware, but he also looked at the source of the players— mostly Pennsylvania residents, and he looked at where casino winnings would go—to out of state casino owners in most cases, to out of state suppliers of slot machines (manufacturers located in Nevada), and other suppliers, some in and some out of Pennsylvania. He also looked at the path taxes would take as they left the casinos—to Washington, D.C., and too Harrisburg, Pennsylvania. The final conclusion he offered was that even if Pennsylvania could rescue a good share of current gambling dollars going to New Jersey and Delaware, the overall equation found that more money would leave Pennsylvania than come into Pennsylvania as a result of having the machines.

A month after the testimony the research received a call from the governor’s office—the governor supported the idea of having the casinos. His staff wanted the research’s opinion. If they had 35,000 machines, could the state retrieve over one billion dollars in taxation? Taxation was one item in his analysis. He agreed to apply the analysis for this single factor with the understanding that standing alone this would not be a conclusion in favor of or against the casinos. He plugged the numbers in. Assuming a tax of 33 1/3%, the answer was “yes.” 35,000 machines could make $90,000 each, meaning that each would produce $30,000 a year in state taxes or $1,050,000,000. The governor was happy. He told his legislative colleagues to revise their bill. The legislation was passed. On July 5, 2004, he signed the bill authorizing fourteen casinos (seven at horse race tracks and seven “free standing”), each with up to 5000 slot machines, with a maximum of 61,000 machines for the state. The first casinos opened in 2006. By 2009, after all were opened the state was realizing over $1.3 billion in casinos taxes, with a third more

17 coming into local governments. In 2010, the state began allowing the casinos to have table games. One thing motivated all state activity on gaming—tax revenue.(28)

(l) Ohio: A Monopoly Created by The Monopolists

(Not considered in analysis, as the casinos are just beginning to open in mid-2012) In 2010 voters in Ohio approved four monopoly casinos for Toledo, Cleveland, Columbus, and Cincinnati. In actuality, the Cincinnati casino must share its local market with three casino boats under Indiana jurisdiction. Somehow the sponsors of the Ohio vote were able to sneak by the details of their proposal to the voters with a promise of economic benefits such as jobs and taxes. The little detail that went almost unnoticed until the votes were counted was that the proposition determined just who was going to own the casinos. They were put out to bid. One party—the owner of sports teams in Cleveland, was given ownership of two of the casinos. Post vote protests led to a legislative approval of slot machine casinos at each of seven horse race tracks in the state. The first casino opened in May 2012 in Cleveland.

(m) South Dakota: Reviving Wild Bill Hickok

The town of Deadwood South Dakota gained a “Wild West” reputation in the Nineteenth Century. It was noted for offering “sin” opportunities for cowboys and fortune seeking miners. Wild Bill Hickok was shot in the back during a poker game in 1876. In the Twentieth Century Deadwood exhibited its historical roots as it appealed to tourists. An attempt to win more tourist trade, casinos were proposed. However South Dakota voters defeated a casino vote in 1982. The tourist activity took a major hit after a fire destroyed much of the downtown area in 1987. City fathers responded by sponsoring another casino referendum in 1988. This time South Dakota voters said yes, and in 1989, after local voters gave a second approval, casinos opened. Now there are 30 small gaming halls offering Blackjack, poker, and slot machine activity. Each casino is limited to having 30 slot machines or table gaming seats. Originally bets were limited to $5, but there is now a $100 bet limit. The state imposes an 8% gaming tax, with the money going to support gaming regulation and to tourism development for the local Black Hills region. Other areas of South Dakota have eight Native American casinos, while bars, restaurants and hotels across the state are each permitted to have a limited number of slot machines. When Deadwood was open to casinos, bets were limited to five dollars per play. The limit is now one hundred dollars.

(n) West Virginia: From Racino to Casino

The West Virginia legislature authorized an experimental installation of video gaming machines-- machines, poker machines, and machines with symbols--at Mountaineer track beginning on 9 June 1990. At first, only seventy machines were installed. During the experimental time the number grew to 400 in 1994, most of them being keno machines. The first machines had payouts of 88.6 percent. During a three-

18 year experimental period the lottery agreed not to put machines in other locations. Now machines are at the three other tracks as well: Charles Town, Wheeling Island, and Tri- State—the latter two being dog track facilities. The tracks keeps 70 percent of the revenues, and 30 percent goes to the state. There are now over eleven thousand machines at the tracks. Lottery machines are also permitted in over a thousand bars and taverns. In response to the expansion of gaming in Pennsylvania, in 2007 the state legislature approved a measure allowing casino table games at the four tracks if they receive local voter approval. The approvals were secured, and four full casinos operate in the state.

6. Classifying and Ordering American State Venues

For analysis of effects, it is necessary to classify the 13 American venues in order going from the most monopolistic to least—ergo most competitive. To do so we look at the numbers of casinos permitted, their locations vis-à-vis one another, and to whether new casinos may seek licenses.

At the top of the list will be the seven casino venues which have determined that there is a set limit on the number of casinos and that no more will be permitted. These will be arranged by the number of casinos permitted and by their geographical spread.

Table 3: The Order of States—Most Monopolistic to Most Open (29)

Closed numbers of casinos

West Virginia 4 monopoly casinos Pennsylvania 14 monopoly-oligopolistic casinos Michigan 3 oligopolistic casinos Illinois 10 monopoly-oligopolistic casinos Indiana 13 monopoly-oligopolistic casinos Missouri 13 monopoly-oligopolistic casinos Louisiana 16 monopoly-oligopolistic casinos

The six remaining venues do not limit numbers of casinos:

Iowa 17 monopoly-oligopolistic casinos New Jersey 13 limited location-competitive casinos South Dakota 30 limited location-competitive casinos Colorado 40 limited location-competitive casinos Mississippi 30 competitive casinos with some limits on locations Nevada 300+ competitive casinos

7. Measures of Impacts of Monopoly on Industry Outputs

The literature on monopolies suggests that their major impacts are upon pricing and providing quality services to customers. The general theory advanced is that a monopoly industry structure will burden the customer with artificially higher prices and also lower

19 quality goods and services. It is difficult to measure these factors in relation to the casino industry as there are not many price points on a casino gaming floor that can be accurately assessed across large numbers of casinos. Players do not pay a set fee to play games. And while the games offered do return benefits to the player in terms of wins according to odds on each game, most games are played with the same rules and odds over many casinos, and where differences exist they are not such that they can be easily determined and used in analysis. Also where there are differences, they are as likely to be found within the same casinos as to be found across several. Ergo, a blackjack game may offer slightly different rules if the game is for low stakes ($5) as opposed to high stakes ($100 and over) the subtle, or if it is dealt from a shoe, and automatic card shuffler, or from a single deck. wheels may offer a house advantage of a single zero, or they may offer double zeros. Yet in America, wheels with single zeros are extremely rare so as to make comparisons not fruitful. Within some foreign casinos wheels or both types may appear on the same gaming floor.

There is one measure that can be used to assess the value of one gambling offering. Slot machines make random payouts to players. However, the odds that exist over long terms of play are amazingly consistent for specific casinos and venues. They are also reported in official records. Of the thirteen state venues only Michigan makes no report of payoff percentages. While five cent, twenty-five cent, and dollar and others vary, the reports typically report machines for each denomination as well as the rates for all machines together in a casino.

Of the thirteen casino states in this analysis, four (Illinois, Indiana, Iowa, and Missouri) report payout percentages for individual casinos. These and eight others make reports for all machines in the venue.

(a) Monopolies and Slot Machine Payouts

The theory of Monopoly Impacts will be first tested with the hypothesis that “Monopolistic Casinos Industry Structures will demonstrate lower slot machine payout percentages than will Open Competitive Structures.”

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Table 4. Monopoly Structures and Pricing: Slot Machine Payoff Percentages

States (from most monopolistic and limited--closed--casino numbers to most competitive and open for new casinos). Closed means no more casinos will be allowed. (30)

Closed States Slot Machine % Payoff (median casino) West Virginia 89.78 Pennsylvania 90.76 Michigan ------Illinois 91.58 Indiana 91.28 Missouri 90.85 Louisiana 90.90

Open States Iowa 90.86 New Jersey 91.28 South Dakota 90.99 Colorado 92.32 Mississippi 92.56 Nevada 93.80

(Median—all states: 91.09 7 closed states-minus MI: 90.88 6 open states: 91.80)

The hypothesis presented is accepted. Monopoly structured casino industries in state venues have a tendency to suppress slot machine payouts, hence raising the price of gaming for the players. The casinos in the closed states hold 9.12% of the money played in machines, while 8.20% was held by the casinos in the open states. The 0.92 difference represents a hold for the closed casinos that is over 9% higher than the hold in the open states. Clearly, open competitive venues offer higher payouts, ergo better prices for the players.

(b) Service Quality Attributes

As mentioned above, it is difficult to find price points on casino floors, at least prices that can be compiled for comparisons among large numbers of casinos. However, there are attributes of casino operations which have may major impacts upon the service quality of casinos, and also to the values that casinos add to their communities, and to their player base. Data were collected on several of these attributes, namely job numbers, numbers of hotel rooms, convention space, and numbers of restaurants and entertainment venues in casinos.

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For each attribute, casino revenues were examined so that we can assess the amount of casino revenue associated with one casino job, one hotel room, one square foot of convention space, one restaurant, and one entertainment venue in the casino. The data were accumulated for each state, and also for individual casinos in four selected states. The data are presented on tables 5, 5a and 6. The data are used to test the hypothesis that Open Competitive Casino states will offer better service quality than will closed monopolistic casino states. (31)

Table 5 Casino Revenues, Jobs and Amenities (2009) Closed States

STATE Revenues Jobs Hotel Rooms Conv Space Restaurants Entertain Ven. (Closed) WVA $906m 4688 663 37,800 29 10 Revenue Per Unit $193,171 $1,365,852 $23,957 $31,241,379 $90,559,000

PA $3549m 14,925 488 38,500 62 7 Rev. Per Unit $237,453 $7,262,295 $92,052 $57,161,290 $506,285,710

MI $1339m 8122 800 32,735 13 10 Rev. Per Unit $164,861 $1,673,750 $40,904 $103,000,000 $133,900,000

IL $1429m 7083 1116 50,100 40 13 Rev. Per Unit $201,751 $1,280,466 $28,523 $35,725,000 $109,923,070

IND $2799m 15,857 4028 179,050 70 25 Rev.Per Unit $176,515 $694,886 $15,633 $39,985,714 $111,960,000

MO $1730m 10,961 2567 184,550 57 24 Rev.Per Unit $157,832 $673,938 $9374 $30,350,877 $72,883,333

LA $2456 17,610 4523 119,940 74 19 Rev.Per Unit $139,466 $543,002 $20,477 $33,189,189 $129,263,150

TOTALS FOR 6 CLOSED MONOPOLY-OLIGOPOLY STATES $14,208 m 79,246 14,185 642675 345 108 Rev.. Per Unit $179,290 $1,001,621 $22,108 $41,182,608 $131,555,556

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Table 5a Casino Revenues, Jobs and Amenities (2009) Open States

STATE (Open) Iowa $1381m 9241 1627 101,320 55 23 Rev/Per Unit $149,443 $848,801 $13,630 $29,109,090 $60,043,478

New Jersey $3943m 36,377 16406 768,669 151 57 Rev/Per Unit $108,392 $240,339 $5130 $26,112,582 $69,175,438

South Dakota $102m 1765 1148 29,850 44 2 Rev/Per Unit $57,734 $88,763 $3414 $2,315,909 $50,950,000

Colorado $735m 8821 1392 61,928 75 10 Rev/Per Unit $83,277 $527,723 $11,862 $9,794,533 $73,459,000

Mississippi $2465m 25,739 12,936 346,875 130 47 Rev/Per Unit $95,769 0,554 $7160 $18,961,538 $52,446,808

Nevada $10,393m 177,397 148,975 11,683,792 1283 375 Rev/Per Unit $58,586 $69,763 $890 $8,100,546 $27,714,666

TOTALS $19,019m 259,340 182,484 12,992,434 1738 514 Rev/Per Unit $73,336 $104,223 $1464 $10,943,037 $37,001,945

------TOTALS WITHOUT NEVADA------$8626m 81,943 33,509 1,308,642 455 139 Rev/Per Unit $105,268 $257,423 $6592 $18,958,241 $62,057,553

The information of Tables 5 and 5a suggest that we may initially confirm the hypothesis presented. Data shown consistently reveal that the open market states offer more employees to serve their guests, as well as having more amenities—hotel rooms, convention space, restaurants, and entertainment offerings. While the hypothesis may be confirmed, a note of the persistence of an outside variable must be mentioned. The taxation element is discussed along with the same data set in a previous study cited in note 31. The monopoly states have higher gaming tax rates, and these are also associated with lower job numbers, as well as lower levels of amenities.

The six “closed” states have a total of 79,610 jobs in their casinos. With gaming revenues of $14.2 billion dollars a year (2009), it can be seen that it takes $179,290 in gaming revenue to produce one job. However, the seven states with open casino

23 competition have 259,340 jobs produced by revenues of $19.0 billion—or only $73,336 for each job. For each dollar spent by gamers, and for each single gamer, there are more employees in the open market states. This impacts upon quality. Very recently the state of New Jersey took a license away from one of the Atlantic City casinos. There was a litany of abuses which contributed to the casino’s disqualification. However, high on the list was the fact that the casino had engaged in the practice of wholesale employee layoffs. In turn the casino had established a record of having unclean and unhealthy facilities along with many complaints about customer service. Job numbers made a difference. It can be noted on the tables (5, 5a) that the differences between closed and open venues held firm even when Nevada was removed from the equation.

Casino amenities off the gaming floor have the capacity to add value to the casino community and to the base of casino players. Hotel rooms add attractions to a community as do convention facilities, restaurants, and places of entertainment. The seven closed states have 14,185 rooms, or one room for each $1,001,621 in gaming revenue. The six open states have 182,484 hotel rooms or one for each $104,223. Taking Nevada out of the equation, the five other open states produce one room for $257,423.

One square foot of convention space was associated with $22,108 of casino revenue in the seven closed states, but only $1464 in the six open states ($6592 in five open states, without Nevada.) One restaurant (there were 345 in all) in the closed states was tied to $41,182,608 in gaming revenue in the closed states, but only to $10,943,037 for each of the 1738 restaurants in the six open states ($18,958,241 in the five states minus Nevada).

There were 108 entertainment venues in the six closed casino states. Each came along with $131,555,556 in gaming revenue. In the six open states had gaming revenues of $37,001,945 for each of 514 entertainment venues, and without Nevada $62,057,553 for each of 139 entertainment facilities in the five open states.

8. Price Points and Service Quality and Monopolistic Casinos in Four Selected States

A further analysis takes us to four states, all of which are monopolistic-oligopolistic venues. Three states—Illinois, Indiana, and Missouri—are closed venues, with no more casinos permitted, while the other—Iowa—maybe open to new licenses. The individual casinos in these states (with two exceptions for new casinos) provide information on their slot machine payoffs as well as the service quality attributed examined. Of the 51 casinos in the states (that were opened for all of in 2009), 20 were monopoly facilities in that no other casino was within 50 miles. Thirty one were in oligopolistic settings having competing casinos within fifty miles.

If we advance the same two hypotheses for these sets of casinos we should expect that the Monopolistic set of 20 casinos will have higher slot prices—meaning lower payout percentages to the players, and that they will be less likely to have the service quality factors than top competitive casinos.

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The data may reject these hypotheses. Slot machine payoff percentages were not distinguishable—the 20 Monopoly casinos had a slot payoff percentage (median) of 91.08%, while the 31 Competitive casinos had a payoff (median) of 91.07%.

On the service quality factors the evidence was directly contrary to the hypothesis. Jobs in the monopoly casinos came with gaming revenues of $124,900, but in the competitive states with $173,200. Hotel rooms: monopoly unit price $591,300, and with competitive casinos, $828,500. Convention space: monopoly unit price $6.6 square foot, competitive casinos, $$16.2 square foot. The monopoly casinos had a restaurant for each $22,448 in gaming revenue, and an entertainment venue for each $49,517. The competitive casinos had a restaurant for $31,760, and an entertainment facility for $each 103,223 in gaming revenue.

Before we suggest that the evidence offers a rejection of the hypothesis, we might suggest another explanation. All of the casinos are in states with monopolistic and oligopolistic casino industry structures. While Iowa could allow new casinos, it is unlikely to do so in the short run. The casinos whether monopolistic or in in local oligarchies, they can expect an artificial market stability not present in the other open states. Perhaps in these venues, monopoly casinos can experience greater levels of profits, and can use these to hire extra staff and invest in amenities which improve service quality—however, the evidence suggests this spread of factors only in the selected states, and not across all casino states where opposite findings are in evidence.

Table 6. Price and service factors of individual casinos—in monopoly settings and in competitive settings in selected states

(Casinos in Iowa, Illinois, Indiana, and Missouri—Monopoly casino defined as only casino w/in 50 miles and Competitive as a casino with another casino(s) w/in 50 miles. *Slot Payoffs are collective medians)

CASINO REVENUES, JOBS AND AMENITIES (51 casinos in IA, IL, IN, and MO) Revenue Jobs Hotel Rms Rest. Entert. Conv. Space Slot Venues Payoff*

MONOPOLY (20) $l.7 b 13469 2847 75 34 256,357 91.08 Rev. per unit (thousands) $124.9 $591.3 $22,448.0 $49,517.6 $6.6/sq.ft

COMPET’VE(31) $5.4 b 30,987 6479 169 52 332,098 91.07 Rev.per unit (thousands) $173.2 $828.5 $31,760.9 $103,223.1 $16.2/sq.ft.

9. A Summary Note: Future Research

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While data presented on tables 4, 5a, and 5b support the hypotheses advanced that monopoly-state casinos will both offer higher prices for their products and yet offer fewer amenities suggesting they give customers fewer benefits overall, this is not a definitive report, but rather should be seen as exploratory and preliminary. The findings (or non- findings) on table 6 did not support or reject the hypotheses. The suggestion at this bottom line stage of this report is that more research in this area could be valuable. We need to aim at making definitive findings. Casino gambling legalizations may have reached a “tipping point” and many new states will soon be setting forth industry structures for their casinos, the matter deserves more research. Replications of the approaches taken here would be valuable. So too would cross-venue studies that utilized sample surveys of large numbers of players regarding their perceptions of service quality in casinos they have visited.

10. Parting Discussion—Of all Industries, Why Should Casinos Be Monopolies?

The literature suggests that some industries are appropriate ones for having monopoly enterprises. Do casinos fit the bill as part of such industries?

(a) Monopolies may be established if authority figures are concerned that society’s need for the product of the monopoly is critical and that the monopoly may not be successful if confronted with vigorous competition. Ergo, as electric power is vital, the power producers should be monopolies. The same may be offered for utilities producing drinking water and services for cleaning waste water. In Sweden the government has a monopoly over sales of alcoholic beverages, limiting consumption, and keeping prices high. They do this with notion of protecting the public.(32)

However casino gambling is simply not a product or service that is vital for society. At best it is a recreational service that may be enjoyed by many with potential but not necessary economic benefits. At worse, as its moral critics may assert, it involves activity that can become addictive and quite harmful to the individuals involved in gambling and also to the general society. No reasonable assessment would offer that casino gambling fulfills such a critical need for society that its institutions need the special protection of monopoly status. The special protection that Sweden feels is necessary for alcoholic beverage sales is manifested with limited consumption. Governments as well as private casino monopoly owners do the opposite. They seek to raise levels of consumption in order to realize higher profits as well as taxation levels.

(b) Monopolies are supported with the notion that certain businesses need especially large capital investment. (33) Accordingly they find that investors (banks, etc.) are reluctant to furnish capital funds without the assurance that the businesses will achieve a high profit level—levels that only monopoly businesses can achieve. It is also recognized that if competitive enterprises seek to offer the same product there will be major inefficiencies with duplicate investments such as multiple telephone poles on the same street, or duplicate sets of train tracks over the same

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pathways. Certain modern casinos may carry costs approaching several billions of dollars, however, such high costs are not necessary to produce casino facilities. Casinos historically have been created as side rooms off of other facilities. In the not too distant past (and yet even today) some casino gaming facilities are but temporary locations for playing of games simply using decks of cards or pairs of dice. Such were the nature of the riverboat casinos of Nineteenth Century America. Moreover, it can be noted that the most extravagant casinos today--ones with investments over a billion dollars each, are found in very competitive market places such as Las Vegas, Atlantic City, Macau, and Singapore. Casinos do not need monopoly protection in order to attract capital investment funds.

(c) Monopoly protections are supported with the hope that profits guaranteed by monopoly status may be used to develop new innovative products that will be beneficial for society. (34) While casinos are constantly tweaking their games with rules changes and graphic appeals, the level of innovations in casinos is minimal. The games in casinos are very old and the equipment of the games has been around for centuries. Casinos do not sell products; they sell services. The innovation in their service delivery is not capital intensive. Most casino innovations have come either from suppliers who sell to all establishments, or from the minds of entrepreneurs who likely as not are located in competitive casino facilities.

(d) Efficiency is often offered as a reason to support monopolies. (35) One scenario holds that many competitive establishments operate with the same customer base, then one performs more effectively and with greater efficiency. Their costs are reduced, and subsequently they reduce the prices they charge and expand their facilities. Their competitors are unable to meet their prices, and they lose their customers, and the most efficient enterprise forces the others out of business. Hence the most efficient wins a monopoly position in the economy. This rationale for monopolies—to the most efficient go the spoils—cannot apply to the casinos in this study. These monopoly casinos did not earn their monopoly standing. Their standing was given to them by the government. Some did earn their governmental gift through a competitive bidding process, but many did not even do that—being the sole qualified bidder for a casino license in a particular location.

(e) There is an argument that monopolies may exist, if they are subject to strict government regulations. (36) Some may even suggest that monopolies are good because they necessitate strict regulation. Does the rationale fit the casino industry? Hardly. Strict gaming regulation was first applied to casinos in the state of Nevada, at a time—the 1950s—when the industry had already developed along the lines of open competition. More strict regulation came to the casinos of England in 1968, after the casinos had been operating on a competitive model. Atlantic City, New Jersey, casinos were hailed as the most strictly regulated, after licenses were granted to a competitive number with more licenses welcomed.

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Rules that casinos had to have a certain level of amenities (such as a number of hotel rooms) came to Nevada, New Jersey, and Mississippi—all competitive and open casino states. The opposite occurred in New Orleans where a monopoly license for a land-based facility came with a restriction—the casinos could not have hotel rooms or even sit-down restaurants. Nor could it have a show. So much for the argument!

None of the rationales supporting monopoly status for a business enterprise applies to casinos.

Notes

1. See Dombrink, J, and Thompson, W. The Last Resort. Reno: University of Nevada Press. 1990. 2. J. Roper and D. Zin, “Monopolies, Duopolies, and Oligopolies,” pp. 1401-1405, in Kolb, R., Encyclopedia of Business Ethics and Society. Los Angeles: Sage, 2008; Massel, M. Competition and Monopoly, Washington, D.C.:The Brookings Institution, 1962, chapter One; Mansfield, E. ed., Monopoly Power and Economic Performance. New York: WW Norton, 1968; Dewey, D. Monopoly in Economics and Law. Chicago: Rand McNally, 1959; W. Adams, “Public Policy in a Free Enterprise Economy,” pp. 475-502, in Adams,W. ed., The Structure of American Industry, 6th ed., New York: Macmillan, 1982. 3. See Roper, Ibid., p. 1404. 4. Ibid. 5. Massel (note 2, supra) , pp. 42-82. 6. Dewey (note 2 supra), pp. 37-41. 7. Roper, Ibid., p. 1401. 8. Thompson, W. “Casinos de Juegos del Mundo: A Survey of World Gambling.” In Gambling: Socioeconomic Impacts and Public Policy (special volume of the Annals of the American Academy of Political and Social Science), edited by James H. Frey, 11-21. Thousand Oaks, Ca: Sage, 1998. 9. Named venues in Cabot, A., Thompson, W., Tottenham, A., and Braunlich, C., eds., International Casino Law, Reno: Institute for the Study of Gambling, University of Nevada, 3rd ed.,1999. 10. Ibid. 11. Thompson, W. International Encyclopedia of Gambling, Santa Barbara: ABC- Clio, pp. 455-457. 12. Thompson, W. “Two Countries—One System: Las Vegas and Macau—Sharing the Future,” Gaming Law Review and Regulation, March 2012 (#3), pp. 81-90. 13. Ibid. 14. Cabot, A., Thompson, W., Tottenham, A., Braunlich, C., (op cit., note 9), pp. 323- 480. 15. Thompson, W. International Encyclopedia of Gambling, Santa Barbara: ABC- Clio, 2010, pp. 553-571; 573-576. 16. Ibid., 39-148; 546-550. 17. Ibid., 584-586.

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18. Thompson, W., “Casinos in Las Vegas: Where Impacts are Not the Issue,” pp. 104-106, in Hsu, Cathy, ed., Legalized Casino Gaming in the United States, New York: Haworth, 1999. 19. Thompson, W., and others “Canada and Mexico, et. al,” in International; Casino Law, 1999. (Supra Note 9), pp. 169-216. International Encyclopedia of Gambling, pp. 386-404. (Supra Note 15). 20. Bennett, P. , Leyshon, K., Horne, P., Caillard, P., Falvey, R., Nagel,T, “Australia and South Pacific,” pp. 543-593, in Cabot, Thompson, Tottenham, Braunlich, op. cit., note 9; and entries in the International Encyclopedia of Gambling,(op cit, note 15), pp. 382-385. 21. See entries under each country, International Encyclopedia of Gambling(Ibid.), pp.361-381. 22. Ibid., see entries, pp. 524-596; also entries in International Casino Law(Note 9), pp. 17-153; and Thompson, W., ed. International Casino Law and Regulation, 2008-2012; Boulder Co: International Masters of Gaming Law. 23. Interview with Stephen Wynn, Las Vegas, September 21, 2004. 24. Interview with Robert Maheu, Las Vegas, June 7, 2007. 25. Interview with Bradley Wimmer, Las Vegas, March 21, 2012. 26. Interview with Richard J. Codey, Center on the American Governor, Eagleton Institute of Politics, Rutgers University, March 23, 2010. http://governors.rutgers.edu. Retrived May 6, 2012. 27. Lehne, R. Casino Policy, New Brunswick, NJ: Rutgers University, 1986, pp. 89- 93. 28. Thompson, W., “Gambling Taxes: The Philosophy, the Constitution and Horizontal Equity,” Villanova Sports & Entertainment Law Journal, v. 17 (issue 2), 2010, pp. 389-420. 29. See entries in International Encyclopedia of Gambling (Supra note 15), pp. 524- 595. 30. American Casino Guide, Slot Machine Payback Statistics. www.americancasino guide.com/slot-machine-payback-statistics.html. Retrieved May 6, 2012. 31. The data is utilized in a previous article: Thompson, W. “Casino Taxes: Accentuating the Negative,” Gaming Law Review, v. 15, #7, September 2011, pp. 599-608. Sources for data include American Gaming Association, State of the States 2010; North American Gaming Almanac, 2010. 32. “What is a Government Monopoly?” eHowmoney. www.ehow.com/about_5471337_government-monopoly.html Retrieved May 7, 2012. 33. Dewey, op. cit. note 2, p. 50. 34. “Firm Size and Innovation.” www.pauklein.com/monopoly/monopoly.htm Retrieved May 7, 2012; “Potential Benefits from Monopoly.” tutor2u www.tutor2u.net/economics/content/topics/monopoly/benefits of monopoly.htm Retrieved May 6, 2012. 35. Dewey, pp. 50, 66; Walters, S. Enterprise, Government, and the Public. New York: McGraw Hill, 1993, p. 218; See Slichter, S., “In Defense of Bigness,” in Mansfield (see note 2), pp. 13-18. 36. Adams, W., op. cit. note 2, pp. 488-492.

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