Submission to the Department of Justice, Equality and Law Reform Review of Gambling in Ireland Harrah’s Entertainment, Inc.
Statement of Issue
The only forms of legal gambling in Ireland are bookmaking, lotteries and amusement arcades. Casinos operate through what some believe to be a legitimate loophole in the law allowing private members clubs, until recently completely unregulated. The maximum stakes and prizes on amusement machines are controlled but it is easy to find machines with jackpots many times the legal maximum. Some of the laws governing gambling in Ireland have been on the statute books for over half a century and now do not cover many of the technical innovations that have occurred in the intervening time.
These laws do need to be updated and modernised to allow for a well regulated gambling industry. Done correctly, learning from what has and has not worked in other jurisdictions Ireland has, through thoughtful legislation, an opportunity to capture significant economic benefits and at the same time reduce regulatory costs, social impacts and concerns
This submission is mainly concerned with casino gambling, the forms it takes and the differing legislative/regulatory frameworks.
A Useful Casino Taxonomy
All casinos are not created equal. A full understanding of the implications of Ireland’s policy on casinos requires clarification of the different types of casinos and their different impacts. There are many ways to categorize casinos, but perhaps the most useful for policy makers is a taxonomy based on their orientation and primary audience.1
Destination Integrated Resort Casinos are complexes that cater primarily to domestic tourists or international visitors which, among the various types of casinos, offer the widest variety of assets and amenities. They typically feature dramatic architecture; a large gaming space with a wide variety of casino table games and slot machines; a variety of restaurants offering meals at various price points; a large number of hotel rooms and suites, often of very high quality; entertainment outlets such as show rooms, theatre and lounge shows, concert venues, etc.); substantial convention, meeting, and exhibition facilities; indoor and outdoor recreation assets; and retail shopping.
1 The analysis here and following draws heavily upon the writings of three of the world’s leading gambling policy experts: Dr. William R. Eadington from the University of Nevada, Reno; Dr. Peter Collins, University of Salford; and Eugene Christiansen, Christiansen Capital Advisors. It also draws on our more than seventy years of experience operating various types of casinos around the world under a wide range of market and regulatory conditions. Examples of Destination Integrated Resort Casinos in various parts of the world include Bellagio, Wynn Las Vegas, Caesars Palace, Mandalay Bay, the Mirage, and the Venetian (all in Las Vegas); Wynn Macau and The Venetian (Macau); Sun City (South Africa); Jupiter’s (Australia); Genting Highlands (Malaysia); and the Atlantis (Bahamas). Construction and opening costs of Destination Integrated Resort Casinos often exceed US$1 billion.
Destination Casinos are casino/hotel facilities that cater primarily to tourist visitors (domestic or international) and which, in comparison to Destination Integrated Resort Casinos, offer a more limited mix of gaming and non-gaming assets. They differ from Destination Integrated Resort Casinos not only in size and scale, but also because the primary emphasis within a Destination Casino is primarily the casino floor itself, whereas a Destination Integrated Resort Casino is a multi-dimensional coordinated entertainment centre, with the casino still playing a key role.
Some examples of Destination Casinos include the casinos in Lake Tahoe and Reno, Nevada; the smaller Las Vegas Strip casinos; most Atlantic City casinos; the casinos in Biloxi and Gulfport, Mississippi; and the larger casinos in Nova Gorica, Slovenia. The construction and opening costs of Destination Casino is between US$100 million and US$500 million.
Urban or Suburban Casinos are complexes located in densely populated centre cities or suburbs of major metropolitan areas that cater primarily to the areas’ residents. Though they may have some tourist oriented assets, such as hotels and convention facilities, most customers are from the local area. Such complexes can be small or large, and their size is often determined either by legislation or by the size of the market and corresponding competitive conditions. The provision of non-gaming amenities in comparison to Destination Integrated Resort Casinos is generally less because the demand from customers who live close to such casinos is more gaming-centric. Furthermore, other businesses in the metropolitan area often provide many of the non-gaming amenities that would typically be provided at Destination Integrated Resort Casinos.
Examples of Urban or Suburban Casinos in various parts of the world include the American casinos in and around Kansas City, Cincinnati, Detroit, New Orleans, and St. Louis; Casino de Montreal (Canada); Crown Casino in Melbourne and Star City Casino in Sydney (Australia); Sky City Casino in Auckland (New Zealand); the casinos found in London, Manchester and Birmingham (UK); and the casinos in Cape Town, and Port Elizabeth (South Africa). There are also urban casinos in European cities such as Stockholm, Helsinki, Berlin, Venice, and Zurich. Capital costs for an urban casino can range from the tens of millions of U.S. dollars (i.e. most U.K. urban casinos) to billions (i.e. the Crown Casino in Melbourne.)
Gaming Saloons and Slot Arcades are limited gaming facilities that typically offer only slot machines. They are generally spartan and small in size, with the number of slot machines ranging from 30 to perhaps 250 per location. Capital investment is limited, and the facilities are usually integrated into existing retail or business districts. In some jurisdictions, gaming devices are mixed with non-gambling amusement devices, and sometimes there are no age restrictions. Gaming Saloons and Slot Arcades are almost exclusively oriented to a local market and are sometimes associated with other businesses or offerings, such as being part of a bar or tavern.
Examples of gaming saloon and slot arcade facilities can be found in such countries as the UK, Australia, the Czech Republic and in Slovenia. Pachinko/Pachisuro parlours in Japan are another illustration. Capital costs of opening a gaming saloon or slot arcade are minimal and also the employment created is minimal.
Convenience Gaming Locations are venues engaged in another kind of business (such as a pub, club, hotel or restaurant), but which have a limited number of slot machines or other electronic gaming devices. Typically, the number of gaming devices is fewer than 15 (depending on local laws). There is almost no capital investment associated with convenience gaming beyond purchasing the gaming devices themselves, and the market for such gaming devices is almost exclusively the neighbourhood where the business is located.
Convenience gaming venues can be found in pubs and betting shops in the UK and in bars and taverns in many provinces in Canada, Australia and New Zealand, as well as in several states in the U.S. and in many European countries.
Betting Shops/Fixed Odds Betting Services refers to those betting shops in the UK having up to four fixed odds gaming machines that offer a variety of fixed odds games, with roulette being one of the more popular. Betting shops in the UK began offering these machines in 2001. They might best be considered a subtype of a convenience gaming location, whose “other business” is in fact another form of gaming, in this case betting. The installation of fixed odds gaming machines adds an aspect of the casino environment to the traditional betting shop.
In general, the forms of casino gaming listed first in the preceding taxonomy are associated with the greatest ratios of benefits to costs, when compared with the forms of casino gaming listed at the end of the taxonomy. This is only a general rule, because there can be wide variation within categories, and because a successful facility in a “lower” category can result in greater benefits than an unsuccessful facility in a “higher” category. But the evidence from the various forms of casinos around the world suggests that the greatest ratios of benefits to costs from casino facilities relate to:
– the market and the enabling legislation’s ability (principally though not exclusively through moderate levels of taxation) to incent and re-incent capital investment; – the ability of non-gaming offerings such as restaurants, retail shopping, and entertainment to be attractions in their own right; – the ability of facilities to draw customers from outside the immediate area or greater distances; – the ability to implement effective and pro-active responsible gambling programs and strategies; and – the potential for facilities to be catalysts for tourism and leisure industry development extending beyond their specific assets.
And again, while these are only general rules, economic development principles as well as the real-life track records of various types of facilities around the world suggest rather convincingly that destination integrated resort casinos, destination casinos, and larger urban and suburban casinos are far more effective economic engines than convenience gaming outlets, gaming saloons, and similar facilities.
Global Overview
Each jurisdiction has its own reasons for legalizing casino gaming, and various policy goals are equally legitimate. There cannot be a one-size-fits-all model for casino legislation. Where casino gaming has worked best is where there has been the closest match between clearly articulated legislative goals and structure and the realities of a competitive marketplace.
Virtually no government bodies anywhere choose a laissez faire model for casino gaming, and instead target casino gaming to advance policy goals beyond simply responding to customer demand for the product. In fact, the trend internationally is toward a casino development model featuring a design dimension, requiring large-scale casino entertainment facilities that meet or exceed various investment thresholds, size, or other criteria; and/or a location dimension, requiring that casino sites be well suited to support large-scale casino operations in areas requiring economic revitalization.
This trend is being driven by an understanding of the benefit/cost considerations outlined in the casino taxonomy discussion above. Policy makers have recognized that it is not possible to maximize all of the potential benefits of removing prohibitions on gaming (for example, one cannot maximize public tax revenue or upfront license fee revenue while at the same time maximizing private capital investment and job creation), and therefore have pursued a subset of the possible benefits. This section of the submission provides examples of how several jurisdictions around the world have tailored casino legislation to create a limited number of large casino facilities to satisfy the demand for casino gaming and to generate the benefits associated with the “higher” end of the casino taxonomy, as opposed to a larger number of small facilities that are associated with the “lower” end of the taxonomy and its more modest benefits.
The examples provided are illustrative as opposed to prescriptive. We recognize that European Union law and particulars of the Ireland gaming marketplace and cultural landscape may prevent Ireland from implementing various statutory and regulatory controls in place in the various jurisdictions discussed below. A framework for how Ireland may achieve the maximum benefits from the casino gaming industry is provided in the “Limiting the Number of Casinos” section of the submission below.
United States
Casino policy in the United States is a matter entirely in the hand of U.S. state governments, as opposed to the federal government. Some states restrict casino developments to particular towns or cities. For example, the 1976 amendment to New Jersey’s constitution that authorized casino gaming limited casino development to Atlantic City, the beachside resort whose popularity peaked in the 1930’s. By the time casinos became a serious policy option, Atlantic City had become practically a prototype of the decayed resort area.
The overriding policy goal for legalization of casino gaming in New Jersey was the economic revitalization of Atlantic City and the attraction of the kind of resort investment that would restore Atlantic City to its former place as a hospitality and convention centre – accomplished not only by limiting casino development to that area, but also by requiring each casino to offer a minimum of 500 hotel rooms.
Other states followed New Jersey’s lead in limiting casino development to specific, typically economically depressed, locations. These include South Dakota, which authorized casino gaming only in the historic Gold Rush town of Deadwood; Colorado, which authorized casinos in three small, economically-depressed former mining towns; Michigan, which is using three casinos to revitalize downtown Detroit; and Louisiana, where full-scale casino gaming is restricted to a single site in downtown New Orleans.
In Illinois, casino gaming legislation specifies that two of the ten licensed casinos must operate in East St. Louis and Will County, two particularly distressed Rust Belt locations. In determining where to award the remaining licenses, the regulating agency was to “give favourable consideration to economically depressed areas of the State, to applicants presenting plans which provide for significant economic development over a large geographic area.”
Legislation in Indiana is similar to legislation in Illinois, reserving some licenses for operations in economically depressed Gary, Hammond, and East Chicago, and requiring the remaining licenses to be located in communities along the Ohio River and Lake Michigan. Regulators in Indiana, too, give preference in licensing decisions to projects in economically depressed areas of the state.
Mississippi places no limit on the numbers of casinos but limits the areas where they can operate. Only counties along the Mississippi River and on the Gulf of Mexico can host casinos, and gaming regulators can deny licenses for any location deemed unsuitable because of its proximity to a residential area, church, school, hospital, or playground. The requirements here are similar to those in Missouri, which limits casino gaming operations to locations along the Missouri and Mississippi Rivers.
Even Nevada has rules in place that limit casino development in residential neighbourhoods.
In addition, a number of states target casino development to locations where pari-mutuel wagering takes place. Such “racino” states include Delaware, Iowa, Maine, New Mexico, New York, Pennsylvania, Rhode Island, and West Virginia.
Why limit the locations where casinos may operate and/or their number? By limiting the number of competitors, states direct development where they determine it best meets jurisdictional objectives. By-and-large that has meant economic development for communities that need it desperately. Such action ensures licensees a better-than-average chance of success in exchange for locating in difficult areas. In exchange, the states get high levels of investment and job creation as well as substantial tax receipts.
Canada
Casino gaming policies in most of the Canadian provinces also demonstrate a preference for a very limited number of relatively large-scale casinos over a large number of smaller facilities. Manitoba, for example, permits only two casinos in Winnipeg; Nova Scotia permits only two casinos, one in Halifax and one in Sydney; Ontario has single large casinos in Niagara Falls, Rama, and Windsor; and Quebec permits large casinos at single facilities in Montreal, Hull, and Charlevoix.
Australia
In each Australian state and territory, policymakers have awarded casinos exclusive rights to operate in particular geographic areas. In four states and in the Australian Capital Territory, only one casino is permitted. Where more than one casino is permitted, governments prevent competing casinos from being established in proximity to an existing casino for a set time period.
For example, in New South Wales, the Star City casino in Sydney has the exclusive right to operate in the state until 2007. In Victoria, the Crown casino had exclusive rights until November 1999 and within a 150 kilometre radius of Melbourne until November 2005. And in Queensland, Sheraton Townsville had exclusivity over a radius of 400 kilometres (excluding Cairns) until 2001; the Treasury casino in Brisbane had exclusivity within 60 kilometres until 2005; and the Reef casino in Cairns had exclusivity within 120 kilometres until 2006. The Jupiters casino at the Gold Coast had exclusivity from its opening in 1985 until 1995.
The Queensland government has explained its rationale, which presumably applies to the other Australian states. In a submission to the Australia Productivity Commission’s (APC) national review of gambling policy, it indicated that given the large up-front capital requirements to build casinos and the large ongoing costs, the Government granted defined geographic exclusivity arrangements for limited period to the casino license to allow casino operators sufficient time to develop commercially viable casino operations. In part as a consequence of these exclusivity arrangements, casinos could then be marketed as a special ‘destination venue’ for tourists and locals alike.
New Zealand
Casinos in New Zealand also tend to enjoy monopoly status within their regions. There currently are five casinos operating in New Zealand, with facilities in Auckland, Christchurch, Hamilton, Queenstown (two casinos), and Dunedin. The number of casinos in New Zealand is limited by a statutory moratorium.
Singapore
Singapore, which granted licenses for two multi-billion dollar, full-service gaming/entertainment “Integrated Resorts” in 2006 and 2007, decided to permit gaming for the specific purpose of attracting substantial capital investment in destination resorts that are designed for long-distance tourists. The terms of the Singapore licenses limit casinos to being only one component of diversified resort properties and thereby effectively limit the percentage of property revenue that will be contributed by gaming, demonstrating an understanding of the cost/benefit components of our casino taxonomy. Singapore’s conservative government was concerned about the potential adverse impacts from casino gaming but at the same time recognized the significant economic benefits and catalytic effects that significant resort casino development could have on the Singapore economy and society.
After careful study and consideration, the Singapore Government decided that the risks were overshadowed by the economic benefits for two Integrated Resort Casinos, and that the Integrated Resort Casinos could be justified not on the tax revenues that would be generated, but rather on the other economic benefits that would accrue to Singapore. Thus, the tax rates for Singapore are set at comparatively low levels (15% of Gross Gaming Revenues for general play and 5% of Gross Gaming Revenues for premium play.) The amount of capital investment that will go into Singapore’s two Integrated Resort Casinos will exceed US$7 billion (5 billion Euros.)
United Kingdom
In the wake of the 1963 Betting, Gaming and Lotteries Act small casinos proliferated (it is estimated that more than 1,000 “spielers” were operating in Great Britain in the mid 1960s) and many were operated on the fringes of legality. The 1968 Gaming Act was brought in to reduce the number of casinos in Great Britain and prohibit criminals and undesirables from operating casinos. The Act restricted casinos to fifty three “permitted areas” (the West End of London and cities with a population greater than one hundred and twenty five thousand) and in order to obtain a casino license the applicant had to “prove that existing demand was not already satisfied.” In addition, casino owners and senior management needed to be certificated by a Gaming Board, and one of the main criteria was that the applicant had to prove they were “fit and proper” to operate a casino. This was extremely effective in removing criminals from the industry and reducing the number of casinos. Between 1970 and 2005 the number of casinos remained reasonably constant with approximately 20 casinos in London and 100 in the remainder of England, Scotland and Wales.
However, in the years since its enactment the 1968 Gaming Act’s deficiencies have become apparent. Populations of cities have changed, new cities have grown up and gambling has become much more of a mainstream activity. Technological changes could not be accommodated by the 1968 Act. The courts put a different interpretation on the demand test and the Gaming Board no longer found they were able to control the number of casinos. The regulator was put in the position of a “policeman” who saw its role as preventing change and taking an adversarial role towards the industry.
In 1999 the UK began a review of its gambling laws and tasked an economist, Sir Alan Budd, to head a review body to make recommendations for modernising Britain’s laws. Broadly the recommendations were embodied in three principles: to ensure gambling remained crime free, that the games were operated fairly (consumer protection) and that the vulnerable should be protected.
The main thrust of Budd’s recommendations was that where possible gambling should be removed from “ambient” locations (where people might encounter gambling opportunities in the ordinary course of everyday activities) and be placed in locations where people had to make an active choice to gamble (i.e. removed gambling machines from fish & chip shops and taxi offices but proposed larger scale casinos with more slot machines and unlimited prizes than ever before).
Budd saw no harm and did recommend expanding gambling, mainly casino gambling. However, gambling in most countries is regulated by sector; each sector is allowed a certain type or types of activity and so a liberalization of one sector is seen as an increase in competition by another. This regulatory framework sets sectors against each other. Budd’s proposals would have allowed casinos, subject to minimum size/investment criteria to offer all forms of gambling, including betting, bingo and many additional slot machines with higher stakes and unlimited prizes. The betting, arcade and incumbent casino industry foresaw a landscape dominated by well capitalized, big international casino operators and turn their guns on destroying any attempt to revise/update the gambling laws.
New casinos were categorised as small, large and regional based on the minimum size of the gambling area, non gambling area and minimum number of table games. Each category was then allowed a ratio of slot machines to table games, with the regional casino being allowed to have an unlimited number of “unlimited prize” slot machines.
The Government’s proposed legislation went through a cross party scrutiny process before being delivered to the floor of the House of Parliament. All stakeholders were asked to give evidence and consensus was achieved between all members of the committee (made up of members of all parties and both the Lords and the Commons). The scrutiny process reduced the number of slot machines allowed in a regional casino to 1,250.
Unfortunately, when the Bill hit the floor of the lower House of Parliament all the various vested interests weighed in against the Bill. The media have always been hostile to the gambling industry and saw an opportunity to bash the Blair Government, already deeply unpopular due the UK’s involvement in the Iraq War. The number of casinos allowed was reduced to eight of each category.
Rather than looking at the detail of the new Bill the media focused on the regional casino and called it a “Supercasino”, when in reality it is smaller than many of the casinos allowed throughout the world. Under a withering attack from MPs of all parties, the media and all sectors of the incumbent gambling industry the Blair Government gave way and in a last minute deal with the Conservatives to save the Bill before the General Election they reduced the number regional casinos to one.
Whilst one of the main principles of the 2005 Act is to “allow gambling” the UK regulator has applied the three regulatory principles with no consideration of the impact of the regulations on the economic health of the industry. The health of the industry is not within the remit of the Gambling Commission. Harrah’s believes there should be a sensible balance struck otherwise the three objectives could be perceived to be achieved by closing the gambling industry down in its entirety.
The Differential Impacts of Large-Scale Casinos Compared with Other Forms
Regardless of the specific policies and tactics used to bring it about, a reliance on fewer numbers of larger casino facilities, as opposed to larger numbers of smaller facilities to capture consumer demand for gaming services has numerous significant advantages:
First, large-scale casinos avoid several problems associated with unlimited number of gaming operations in many disparate locations. The worldwide proliferation of casino gaming demonstrates that where casino gaming has historically been undersupplied, there is a pent-up demand for legal casino gaming which, under some circumstances, can transform the character of entire towns and cities and critically stress the local infrastructure.
The experience of Deadwood, South Dakota, is a case in point. While South Dakota policymakers did limit the location of casino gaming to one town, they permitted unlimited numbers of casinos to operate throughout the entire community. As a result, casinos overran the downtown district and increased the demand for city services enormously, and generally overheated the economy causing a rise in prices in many goods and services. Property tax revenues increased dramatically in Deadwood due to inflated appraisals associated with a speculative real estate market. The increase in property values drove most existing retail establishments out of existence, or forced them to add gambling devices to their businesses.
Atlantic City experienced a similar phenomenon. Although the city's master plan generally specified that casinos would only be permitted immediately peripheral to the boardwalk, the zoning board allowed changes in use designations that encouraged speculators to believe that casinos might be permitted throughout the city. The failure to place specific geographic restrictions on casino location resulted in rampant real estate speculation after casinos were legalized.
Casino gaming in Colorado provides additional evidence that overall negative impacts result from inattention to the economic carrying capacity of a region relative to the number and scale of potential new casino developments. Here again, the market determined the number of casino projects and there were no minimum size requirements. In Blackhawk, one of the three casino host communities, gaming took over almost every commercial building and many residences, driving out the ‘mom and pop’ stores and many of the retail services provided to the residents. The early years of gaming development have brought dependence on a single industry, a loss of business diversity, a polarization of community feelings, and threats to the natural and cultural environments cherished by local people. Gaming development has certainly fostered gaming industry evolution, but the communities now are remarkably different from the communities prior to gaming.
These negative effects are not the result of casino gaming per se, but rather of particular models for casino gaming. The Council of State Governments, a national, non-partisan public policy organization in the U.S. serving the executive, judicial and legislative branches of state government, identified the important lesson for jurisdictions considering casino legislation: “Gaming states with legislation allowing an unlimited number of casino licenses may experience a rapid and unexpected proliferation of casinos throughout the community unless controls are put into place.” Instead, states should “establish specific casino zones in advance of, or concurrent with, legalization of casinos.”
Second, reliance on larger casinos allows a jurisdiction to target the economic benefits of gaming to disadvantaged or other strategic locations. Targeting casino development to areas of chronic high unemployment and low economic production is a hallmark of much of the developed world’s casino policy – as is, generally, prohibiting such development in areas where the casino-related boost is not needed. The economic benefits of casino gaming have been especially powerful in economically depressed communities where opportunities for economic development are otherwise scarce. While there is ample evidence to indicate that casino gambling operations can contribute substantially to state and local economies, the positive benefits appear to be most pronounced in sluggish economies.
Other jurisdictions may choose to use casino gaming as an anchor for an existing tourism district, as a magnet to create a new tourism destination, or as a way to revitalize an urban core. What these approaches have in common is using casino gaming as a means to an end that is distinct from merely satisfying consumer demand for gaming, instead using casino gaming as a tool to advance fundamental social and economic policy goals.
Third, reliance on larger casinos can incent investment in non-gaming amenities that will attract regional tourists, meetings and conventions. Smaller casinos cannot economically justify investing in such non-gaming amenities because they do not attract the crowds to support them, and because their facilities have no unique draw that can tap into demand for gaming by tourists and meeting planners. All other things being equal, a casino that attracts more business from tourists has a more positive impact on its local economy than a casino that attracts less business from tourists. A casino resort that appeals to tourists will be a qualitatively different product than a casino whose appeal is exclusively local. At one extreme is a facility that only offers gaming machines. At the other end of the spectrum is the destination resort casino development which offers for sale diverse bundles of complementary goods related to casino gaming. Locals’ casinos, which typically draw their customers from within a 25 or 50 mile radius, tend to attract customers who are much more focused on gambling, and so the bundles purchased – and the offerings of such casino facilities – are more concentrated around gaming and have less variety. Whether legal casinos will benefit a jurisdiction by increasing tourism depends upon many factors, including proximity to large populations, the extent to which those populations have a demand for casino gambling, distance to these populations versus other tourist-casino destinations, ease of access, quality and quantities of tourist accommodations, and other tourist amenities. In addition, offering casino games in a large number of disparate locations can make it difficult to achieve the benefits of destination casino gaming within the same regional market. While both types of facilities may differentially appeal to various customer segments, convenience gaming facilities will to a certain extent reduce the demand and economic viability of destination-oriented casino facilities because by definition they are more “convenient.”
Fourth, larger casinos are more likely to attract customers who are middle-income and above. As the review of casino economics for the U.S. National Gambling Impact Study Commission concluded, “The socioeconomic profile for larger, more attractive enterprises is that of better educated and higher income customers. On the other hand, smaller, less elaborate operations are in the category of ‘convenience’ casinos, as opposed to tourist draws, and simply recirculate local dollars primarily from customers that are most prevalently minorities with low incomes.” Fifth, a model encouraging larger casinos generates widest variety and greatest number of jobs. This benefit tracks closely on the arguments in favour of casino resorts that offer a wider array of non-gaming benefits, as well as on the economic benefits that accompany tourism and facilities that are less gaming-centric than others in the casino taxonomy. These facilities will support – and to a certain extent will be defined by – their non-gaming amenities.
As the larger casino resorts around the world demonstrate, they create not only large numbers of casino jobs, but also additional jobs and investments throughout the community relating to the resorts’ many functions, such as hotels, restaurants, outdoor recreation, and retail shopping. These benefits are widely recognized. The U.S. National Gambling Impact Study Commission, for example, concluded that “Within the casino industry, destination resorts tend to create more and better quality jobs than other kinds of casinos.”
Fifth, larger casinos deliver economy of scale benefits to casino operators that also accrue to governments and regulating agencies, including reduced regulatory costs and better regulatory compliance. Economists have demonstrated that a minimum efficient scale of operations exists at about 6,000 square metres of casino floor space. The advantage of size in terms of cost efficiency gains momentum from the fact that there exists a marked negative correlation between casino floor space and average total cost, i.e., the greater the floor space the lower the average total cost.
But the benefits of economies of scale extend well beyond casino operators. They include:
• Casinos experience cost savings that free capital for reinvestment that ultimately result in larger long-term returns and larger public revenue streams.
• Monitoring and containing social impacts can be made more effective through, for example, better targeting of problem gambling services, more consistent and effective delivery of responsible gaming training for gaming facility employees, and more effective arrangements for self-exclusion and self-restriction.
• Regulation is made less expensive and easier to implement and enforce.
Economists have also found that large casinos also take advantage of what have been termed “economies of scope,” such that size provides benefits which go beyond the realm of gaming and into other forms of entertainment and recreation. This is entirely consistent with the notion that only larger casino facilities can be expected to generate significant non-gaming amenities like convention space, recreational facilities, shopping boutiques, and a wide array of restaurants and lounges.
Finally, larger casinos may result in reduced actual and perceived social costs, including those related to problem gambling. While the research-based findings related to problem gambling are tentative, they generally suggest that fewer large facilities, as opposed to large numbers of small facilities, is a risk averse policy choice.
The evidence concerning the relationship between changes in the availability of gambling and the prevalence of pathological gambling is inconclusive, in part because of the paucity of repeated surveys in the same jurisdiction during time periods when there have been changes in the availability of gambling. Some view this evidence as suggesting there is a background level of problem gambling in society that is relatively unaffected by changes in the availability of gambling. Others view this evidence as suggesting there is a relationship between availability and problem gambling. If such a relationship exists, gambling availability in a model concentrating casino games to a relatively small number of discrete facilities would be lower than in models distributing casino games throughout local communities. According to some observers, this means not only that customers will gamble less frequently and therefore be less likely to experience problems, but also that such customers are less likely to gamble on impulse and more likely to decide in advance how much they can afford to spend when they visit a larger, less accessible casino. A related issue is that larger casinos tend to support a wider array of non-gaming amenities than smaller casinos. Customers of convenience gambling locations are said to be far more single-minded in the purpose of their visits than customers of larger casinos – their primary motivation is to gamble, not have a multi-faceted entertainment experience. As some observers put it, larger casinos relate to their surrounding communities in “softer” ways than smaller facilities that are more gaming-centric.
That a larger casino model could reduce problem gambling was recognized by the Australia Productivity Commission in its national review of gambling policy. The APC explained that “(a)n alternative way of controlling access is to have a few large venues as destination gambling sites. Access to casino table games is controlled in this way, as most states have a single venue where these games can be played. Isolating access to a few venues is an extreme form of licensing restriction, but it need not require any cap on machine numbers. By cutting the visibility and easy accessibility of gaming machines, it would be likely to reduce the incidence of problem gambling more effectively than state- wide or venue-based caps. It might also have relatively small adverse impacts on the pleasure of recreational gamblers.”
We would underscore the point made earlier that there is no consensus on the nature of the relationship between gambling access and problem gambling rates. To the extent that there is “conventional wisdom” in the treatment and social service communities, the wisdom is that access and problem gambling are directly related. Concentrating gaming opportunities in a few locations, as opposed to widely distributing them, is generally perceived within these communities as sound policy to mitigate problem gambling.
Some additional comments on the perceived effects of various forms of gaming are appropriate here. Smaller numbers of large facilities may be easier to justify than large numbers of small facilities to constituents who are uneasy about liberalization of gaming laws. Such a model may also be ultimately more conducive to a stable regulatory environment that advances industry, government, and consumer interests. Irrespective of actual social impacts, there is considerable evidence that convenience gaming can be a lightning rod for political opposition to the industry. Various experts have suggested that larger casinos, in particular those that cater to non-residents will experience less visible negative social and political impacts than other casinos, and that therefore larger casinos will meet with stronger political acceptance. Again, this relates to the notion that multi- faceted casino properties relate to communities in “soft” ways in addition to their provision of gaming services, and the fact that they would not be ubiquitous.
Empirical evidence validates these perspectives. For example, a study funded by the U.S. National Institute of Justice evaluating whether and the extent to which community leaders approve of the presence of casino gaming within their communities found that “one of the major determinants of community leader attitudes was the degree of economic impact the casino had on the community. In communities where the casino had a major economic impact, the leaders tended to be more positive in their evaluation of casinos generally. In communities where the economic impact of the casino was more minor, the leaders tended to be moderate in their assessments and more likely to find some problems accompanying a casino’s presence.”
A political backlash to gaming is most evident with respect to forms of gaming that bring the least benefits in terms of employment, capital investment, and tourism. In Australia and Canada, where casino gaming devices are widespread in non-destination resort casino environments such as hotels, clubs, and taverns, regulators are responding to this backlash by micromanaging – typically without empirical investigation – the design of gaming environments (ambient light requirements within gaming facilities in the Australian state of Victoria, for example) and the features of gaming machines (prohibiting currency acceptors, requiring clocks on machines, slowing game speed, requiring mandatory cash-outs after continuous game play exceeds certain thresholds, etc.). Many of these proposals will not only be ineffective in reducing harms associated with problem gambling, but they also will render the gaming product less attractive and enjoyable for the vast majority of players whose gaming behaviour is not problematic.
Offering a smaller number of larger facilities is arguably then the model for casino development least vulnerable to political backlash and ill-conceived regulations that such backlash might prompt.
Slot Machines in Casinos
Slot machines are extremely important to large scale casino developments; their economic returns support the significant capital investment. However, concerns have been expressed about the alleged inherent addictiveness of slot machines, such that slot machines are more problematic than other forms of gambling. These concerns appear to be unfounded. As a team of researchers from Harvard University recently summarized with respect to recent innovations such as electronic game machines and associated technologies, "Although some advocates claim that new gambling technology is more harmful than older gambling technology, at this time there is no empirical evidence to support this assertion."
Some have claimed that since more problem gamblers report more problems related to slot machines than other forms of gambling, slot machines must be particularly problematic. But these claims fail to account for the sheer popularity of slot machines compared to other forms of gaming. The percentage of slot machine players with problems tends to be about the same as the percentage of players of other games who have gambling problems. Moreover, the stability of problem gambling prevalence rates in western nations around the world, despite the recent enormous increase in the availability of slot machines and other electronic forms of gambling, similarly suggests that particular concerns about slot machines might be misplaced. The fact is that slot machines are simply the preferred casino game in much of the world. In a typical Las Vegas casino, for example, slot machines can account for 70 percent or more of all gaming spending. The demand for slot machine gaming translates to economic benefits: purchases of machines from manufacturers, manufacturing jobs, software development, technician and service jobs, etc. Policies that limit the number of slot machines in a casino do little to mitigate problems, but they do temper the economic benefits of casino development and operation.
Limiting the Number of Casinos
We have discussed how limiting the number of casinos can be desirable if a policy objective is to maximise jobs, investment and returns to Governments. However, EU law can prove problematic if an “arbitrary” maximum number of casinos is selected.
The concept of “Freedom of Establishment” under EU law means that if an activity is an “economic activity” within the meaning of the Treaty of Rome and legally allowed then natural persons, who are nationals of a Member State, and Community companies may take up that economic activity in any Member State in a stable and continuous way and cannot be discriminated against based on nationality or the mode of incorporation. The European Court of Justice (ECJ) has interpreted the meaning of “economic activity” widely and determined that casino gambling is an “economic activity” within the Treaty. In essence, this means that Member States’ governments cannot easily restrict the number of casinos through legislation. The ECJ has said that “economic activities” can be restricted on social grounds (i.e. negative social impact) but negative social impacts would have to be proved and the restrictions would have to be proportionate.
An example; having set the minimum size of the regional casino too small, the UK government found itself with a problem of how to restrict the number as the new law provided and not fall foul of EU law. In the end they settled for a convoluted and highly flawed process whereby a “Casino Advisory Panel” was empowered to invite submissions from local authorities and determine which local authority was to be given the right to award the single regional casino license on the basis that the local authority’s location, demographics, etc would offer the best test of the social impact. Note that the restriction on number could be temporary; after three years of operation a study of the actual social impact had to be undertaken. If, as expected, no negative impact was found the restriction on the number of regional casinos would have to be removed. Although the Act came into force in 2005 none of the 17 local authorities (8 large, 8 small and 1 regional) has started the process to award any of the licenses. In fact, the House of Lords scuppered the legislation for the regional casino by voting against the Casino Advisory Panel’s recommendation of Manchester as the preferred location.
One of the problems the UK Government faced was the perception that the country would be overrun by regional casinos, based mainly on the numerous public announcements by casino operators and property developers. We believe this problem was of the Government’s own making. Had the Government increased the minimum size of the regional casino and removed the other categories (small and large), the number of casinos would have been significantly reduced by the reality of the commercial marketplace.