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Gaming Guru

 

Casinos and Bankruptcy

18 August 2004

A popular argument frequently used against the gaming industry is the notion that access to casino gaming leads to an increase in personal bankruptcies. Like many of the other myths about the industry, close examination of the issue by those unattached to the industry has suggested that this correlation may not be very strong.

In the 2002 Journal of Social Economics, two economists reported on their close examination of the issue. Lynda de la Vina, former Deputy Assistant Secretary to the Office of Economic Policy in the U.S. Department of Treasury, and David Berstein, an economist in the Office of Economic Policy, undertook a study utilizing county data from 100 counties in 36 states utilizing National Opinion Research Center ("NORC") data.

The study opens by noting that some studies have suggested that there is a correlation between the availability of casino gaming and an increase in personal bankruptcies. However, they noted that the methodology used in the previous studies lacked scientific controls. In contrast, they noted that previous studies by the U.S. Treasury Department (in 1999) and a previous study by NORC did not find a relationship. Thereafter, the economists factored into the analysis information relating to unemployment rates and pari-mutuel wagering in the jurisdictions involved.

The conclusions reached by these two governmental economists deal a major blow to those who further perpetuate this myth.

"These results suggest that for communities in the NORC sample unemployment rates appear to be more closely related to the bankruptcy rate than the introduction of gambling."

In reaching this conclusion, the researchers pointed out a compelling reason why some previous studies based on cross-sectional data may have been able to correlate the introduction of casinos in a community to bankruptcy rates.

"Analysis of the relationship between gambling and bankruptcy based on cross-sectional data is limited in several important respects. Reported statistics do not hold constant other factors like unemployment or divorce that could also contribute to bankruptcy problems. The decisions of casinos to locate in Gary, Indiana; Atlantic City, New Jersey; Detroit, Michigan; East St. Louis, Illinois; three mining towns in Colorado; and Deadwood, South Dakota; were largely motivated by a desire to stimulate economic activity in distressed areas. The tendency for distressed areas to seek casinos might explain a correlation between gambling and bankruptcy. Furthermore, high bankruptcy rates for states that allow gambling do not suggest a causal relationship between gambling and bankruptcy unless the introduction of gambling coincided with an increase in the state bankruptcy rate. Time series regressions presented in Treasury Department (1999) reveal that neither the introduction of casino gambling in New Jersey nor the introduction of casino gambling in Mississippi in 1992 coincided with an increase in the state bankruptcy rate. The bankruptcy rate in New Jersey remained on par with the national bankruptcy rate until the 1990s, and the bankruptcy rate in Mississippi rose above the national bankruptcy rate until the 1990s, and the bankruptcy rate in Mississippi rose above the national average in the 1990s prior to the introduction of casino gambling. Other examples providing little evidence of a relationship between gambling and bankruptcy can be observed by examining state bankruptcy rates."

Despite this logical and factual information, the detractors of casino gambling will continue to beat the drum to make their arguments to try to eliminate casinos or to justify outlandish 33 percent tax increases on the industry. It is up to the industry, and this means the entire industry from executives on down to the janitorial staff, to learn the facts and help dispel the myths.

David Waddell
David Waddell is an attorney for Regulatory Management Counselors, P.C. (RMC), which assists businesses in navigating the legislative, regulatory and licensing systems governing Michigan’s commercial and tribal casino industries. He is the co-author of The State of Michigan Gaming Law Legal Resource Book and one of the founders of The Michigan Gaming Newsletter.

David Waddell Websites:

www.michigangaming.com
David Waddell
David Waddell is an attorney for Regulatory Management Counselors, P.C. (RMC), which assists businesses in navigating the legislative, regulatory and licensing systems governing Michigan’s commercial and tribal casino industries. He is the co-author of The State of Michigan Gaming Law Legal Resource Book and one of the founders of The Michigan Gaming Newsletter.

David Waddell Websites:

www.michigangaming.com