Evaluating the economic and social impacts, gambling has in society (Atlantic City, New Jersey).

Abstract:

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This study examines the impacts of casino gambling on a social and economic level in Atlantic City, New Jersey society by providing an overview of the secondary data on the economic and social impacts of gambling.
The issues examined include: The economic growth effects of casino gambling, through government tax revenue. Gambling tourism in relation to Total employment and Business Output. Capital gains. The social costs of gambling through entertainment pleasure, bankruptcy, crimes and consequences on personal relationships.
An evaluation using secondary data shared the view that the economic benefits outweigh the social costs in society. As the social costs are the fault of the lack of self-restraint one has, which is not the fault of the government.

Introduction:

The gambling market is based on government decisions as they have determined the size and form of the legalised gambling sector in the United States. Governments determine the types of gambling permitted as well as the number, location, and size of establishments allowed. This is main reason why the gambling sector has always been viewed as different from other sectors of the economy. There is a public debate on gambling being a legitimate form of entertainment; so it would be interesting to find out why and whether or not the negative stigma surrounding this subject is justified.

From thoroughly analysing and evaluating all sources that have been gathered for this study it has come to light the impact of gambling on society has not a straight forward answer. It is subjective, it depends on what one thinks are important factors. In fact, there are many factors and impacts that have to be taken into account and evaluated beforehand to reach a conclusion of what is the overall effect on society.

The research used in this dissertation is based on commercial casino gambling in the USA. Commercial casinos are founded and run by private companies on non-Native American land.

In the USA since 2003 casinos have operated legally in 37 states. However, for this project, we will be focussing on ones based in Atlantic City, New Jersey. Atlantic City is one of the most well-known gambling cities in the country behind Las Vegas. New Jersey was the second state to legalise casinos, with laws being passed in 1976, and the first casino opening in 1978, second only to Nevada.

To answer this project title, this essay will be organised into two categories: social and economic. The impacts will be analysed in order to achieve a better insight as to what has actually occurred.

An economic impact is an effect that an event, policy change, or market trend will have on economic factors such as interest rates, consumer confidence, stock market activity, or unemployment. Events such as regulatory changes, supply shortages or natural disasters can have a significant economic impact due to the way that they affect business activities. A social impact is the effect of an activity on the social fabric of the community and well-being of the individuals and families.

Discussion: Economic impacts

Government Tax Revenues:

Tax revenue is the income that is gained by governments through taxation. Taxation is the primary source of income for any State. Revenue may be extracted from sources such as individuals, public enterprises, trade, royalties on natural resources and/or foreign aid.

Since the early 1990s, casino gambling has become one of the most popular entertainment industries in the United States (US). Politicians in agreement of gambling operations are motivated by one point, to increase the potential economic benefits to society. The primary benefit being the potential revenue-generated for the State and local government expenditure. Furthermore, there is also substantial revenues generated from State and Inter-State lotteries in addition to the money that is gained from the taxation of casino revenues.

The gross gaming revenue at US commercial casinos approximately totalled $41.2 billion last year, according to Reno-based market analyst Ken Adams. He also said states that used casinos played the most substantial role in growing gross gaming revenues, compared to jurisdictions that didn’t as they post smaller gains.

In places where casinos are illegal, unknown revenues are generated which government is not able to tax and collect. Therefore, it can be argued this is lost revenue which the State is missing out on. Therefore, it makes sense to legalise and regulate casino gambling activities. This would then offer the general public a safe and secure way of enjoying their favourite cards games and/or slots, as well as giving them more choice. This competition and choice of legitimate casinos, ultimately benefits the consumer and mean a potential increase in revenue. As a result, it is no surprise that local government tend to favour the legislation and licensing of casino gambling.

The New Jersey Commissions report state that after almost a decade of decline, there are clear signs that New Jersey’s casino industry is on the rebound. There’s been an increase in total gaming revenues which have increased for the first time in years. Tourism and convention business together casino profits are continuing to rise. This means that higher outputs have grown. The New Jersey Commissions reports also state “gaming revenue increased 1.5% in 2016 compared with 2015; and the seven current operators saw a 4% increase in gaming revenue. The improvement in profits by most operators was also notable. For the entire Atlantic City industry, gross operating profits went up by 7.3% in 2016 compared to 2015. When you eliminate the results from the closed casino, profits for the current operators were up 9 percent for the year.”

If governments cannot collect revenue from casinos, which is the main benefit of legalising them, it can lead to an increase in crime rates due to small-scale casinos breaking laws and operating in an unscrupulous manner. This in turn can then lead to State authorities spending more money on local services; examples being with regards to the judicial services and law enforcement. In fact, the average cost of keeping someone in prison is £30,000 – £40,000. Therefore, it can be strongly argued that government can end up losing money overall by not regulating casino gambling activities.

Furthermore, a legal environment actually encourages the stable growth of the industry, as it businesses tend to strive in a safe, regulated and secure environment. This will then mean more business investment, stronger economy, increase employment, disposable income and expenditure. This will thereby lead to an increase in GDP growth as businesses have a larger demand for services. In New Jersey, the casinos’ gross gambling revenues came in at $2.66 billion, a small 2.2 percent year-over-year gain.

Another beneficiary of legalised casino gambling is the public sector because of the contributions made to the government through tax revenue. This money can be used to bolster, sustain and in many cases improve public services such as healthcare, transportation links, social security and education. Hence this allows the working force to be more efficient as they would be commuting less if transportation links are better and with better healthcare, the workforce can function better enabling them to work at an optimum level of efficiency. Improved education increases the pool of skilled workers, which has a positive impact on the quality of the supply of labour.

This plays an important role in local State and ultimately, the overall country development. The revenue the government receives does not need to be solely spent on public projects but it can be used to reduce budget deficits, that maybe have been acquired over a number of years. Alternatively, it can be used to add to a budget surplus, which would be amazing! However, in the State of New Jersey, casino gambling revenues are used to support important programs to benefit the State’s seniors and people with disabilities.

However from a strict economic standpoint tax revenue should not be considered as a benefit as technically speaking it is not a net economic benefit. This is despite the fact that the portion of ones disposable income spent in the casino will be collected by the government and redistributed into society; to increase their welfare for potential problems caused by the legalisation of gambling. These potential problems could be symptoms of addiction and relevant addiction treatment therapy.

So that, in spite of all of these positive aspects, there is a public sector cost due to gambling. A public sector cost is where a portion of government expenditure is allocated for problem gambling treatment, education, and prevention. This includes problem gambling therapy, treatment and counselling cost as well as persons affected by these problems being eventually unemployed. An example being The Council on Compulsive Gambling of New Jersey, Inc. They provides information, education and referral services for people affected by a gambling problem. These are a few of the many expenses government can face due to gambling, with expenditures such as public gaming institutions, ministries, and commissions, including marketing and regulatory cost.

These costs are due to the negative externalities of gambling such as addiction and damaging effects to the psychological, physical and social areas of a gambler
This expense might lead to the government revenue gained from gaming to be redundant if the overall impact to society is negative. It would be deemed as negative as it is not spent directly back into the society of the given area, but on prevention methods for the problem, gamblers to exercise their addiction.

Gambling tourism (in relation to Total employment and Business Output):

Gambling tourism is a combination of the travel and gaming sectors, covering those players who visit places specifically to gamble as well as the industries which support those players.

The Gaming industry benefits from being a producer surplus. This means that it can lead to additional revenues being generated by other industries in which gambling is directly or indirectly linked to, like leisure, hotel, restaurant, and traditional gambling spheres. This obviously adds to the overall tax revenues, economic and social benefits in that State or country.

Therefore, in our case, Atlantic City, New Jersey is known as a “destination resort casino”. This is a strategy to increase the primary economic benefits casinos would provide, which is mainly an increase in employment levels and increase in tax revenue. This can be seen in broad-based economic development at a local level, with the specific sectors that benefit most consistently being hotels, restaurants and other types of entertainment due to the enhanced the number of visitors is large relative to the population of the local area.

“According to the Atlantic City Tourism Performance Indicators report published by Stockton University’s Lloyd D. Levenson Institute of Gaming, Hospitality & Tourism (LIGHT), the last six months have been a positive period for the city’s economy.” “Stockton researcher Brian Tyrrell and LIGHT Executive Director Rummy Pandit based their findings on taxes generated by hotel stays at casinos, parking fees at resorts, and non-casino spending. Between October 2016 through March, all three classification areas reported year over year growth. Atlantic City tourism statistics indicate that the region’s seven remaining casinos are benefiting from the October closure of the Trump Taj Mahal.” (The former Trump Taj Mahal property will be transformed into a rock ‘n’ roll-themed casino resort. Hard Rock, owned by the Seminole Tribe of Florida, purchased the shuttered Taj Mahal in March for just $50 million.)

In the first eight months of 2017, Atlantic City casino revenue is ahead two percent when compared to 2016. From January through August, casinos have won $1.8 billion.

The Trump Taj Mahal property will be transformed into a rock ‘n’ roll-themed casino resort. Hard Rock, owned by the Seminole Tribe of Florida, means that there has been an investment that is expected to be better than the previously built casino. The betterment of casinos means there are a higher quality and variety of services which appeals to more clientele (appealing to more clientele through having differently themed casinos in this case). Both factors, quality and variety of services, contribute to customer satisfaction making it a positive externality.

The positive externality stems from the growing success of a regulated environment. As it incentivises additional investment in the industry and ultimately leads to even money coming into the economy; which then further contributes to healthy balance of payments which moves towards a trade surplus. Therefore, New Jersey being known as a destination for resort casinos, provides an impetus for the State to specialise in this service. Specialisation in gambling allows for the State to have lower costs in comparison, that increases profits margins; meaning higher tax revenue resulting in a higher GDP.

So that the closure of the Trump Taj Mahal and its subsequent re-vamp, is an ideal example of how gambling tourism causes a positive impact on society.

Furthermore, this re-invention of the Trump Taj Mahal will have a multiplier effect. As Casino Reinvestment Development Authority, Chairman Robert Mulcahy celebrated Hard Rock’s commitment to Atlantic City by saying, “The planned renovations will transform the 4.2 million square feet of defunct casino hotel space into a state-of-the-art casino, hotel, retail, dining, and entertainment facility, increasing employment opportunities and strengthening Atlantic City and New Jersey’s economies.”

This means more locals will have jobs which will further reduce unemployment and increasing economic activity, resulting in positive economic growth. With the positive economic growth, it will increase consumer/investor confidence, which will then result in an increase in the circular flow of money of Atlantic City and New Jersey’s economy. All these impacts are positive for society, as the money generated from this simple act will allow the government to better the overall welfare of Atlantic City, New Jersey’s society.

Bear in mind, it can be argued this strategy contributes mainly to the tourism sector which can have a negative impact on other recreational industries in the State. The main reason being, as more and more consumers gravitate towards gambling and its associated services, it may to other forms of entertainment and leisure activities losing income. Subsequently, in the long run, the State may see the actual range of leisure activities decrease and thus lead to a decrease in the types of tourists that would visit Atlantic City, New Jersey (whether or not it is made up of the consumers for casino gaming is unknown).

So for example, maybe visitors will not be focussing on the beautiful beaches and thus businesses dependant on this will suffer and not be able to survive in the long run. Increasing unemployment is these areas can then have a negative impact on the specific local venues and a downturn in that local area and/or business in general. This can also lead to a reduction of opportunities in the job market as there is only gambling related careers available and very little opportunities in the job market for very little else.

Capital Gains:

Capital Gain is profit derived from the sale of property or of an investment, which can not only benefit business but the general public as well.

The 2016 annual report of the New Jersey Casino Control Commission has stated “Capital investment in Atlantic City casino industry on a Commutative basis since 1978 including the initial cost of construction for each property and subsequent capital improvement has been $17.5 billion. Examples of 2016 capital improvements included: the new indoor pool at a Gatter and hotel room renovations of Caesars and Resorts.”

As mentioned prior the Hard Rock, which is owned by the Seminole Tribe of Florida, purchased the Taj Mahal in March for $50 million.

Hard Rock a company that has been infusing casinos and hospitality together, the result being a rise stock market prices on Atlantic City. “With total gaming win up over 11 percent year to date, with 2016 Taj revenue subtracted.”
“The economic instability Atlantic City underwent over the last 10 years is what the $2.4 billion resort serves a reminder of. Five casinos closed between 2014 and last fall.”

This is just one example of how better capital investment, which includes the buildings can attract consumers. Having a better hotel means more business being generated by that specific facility. Although there has been fluctuation in the casino market, it shows that through increase investment in the right sector, be it capital investment for a new indoor pool or hotel room renovations, attracts a larger audience. One needs to remember that gambling may not be the first thing that some of us may think about, however, by making other associated activities and interests attractive can generate an increase in the level of spending in casinos, leading to an increase in the profit margin it would increase the GDP.

In addition to this, it should be noted that businesses need an increase in infrastructure to encourage more tourists visiting the area. The outcome in the demand for infrastructure is that we see an increase in employment; such as structural employment, for instance, construction workers to build pools, extensions to hotels and renovations etc. Due to rising employment levels, it means there will be an increase in spending, which results in the local government receiving more revenue through income tax. More people being employed means the local State can dedicate less money to unemployment services and other related social security programs.

However, the local government will need to utilise or carefully decide where to invest in order to effectively gain from the positive effects of gambling services. An example of this is deciding whether or not it is worthwhile to focus on more schools or improving transportation links. The government investing in any given area would then have a multiplier effect, as whatever they invest in would have various gains like an increase in property values, a more mobile labour force and even less crime.

Both investments would be a step in the right direction which would benefit the casino industry as a whole. However, there would have to be careful consideration as to which one should take precedence. So for example, improvements in transportation links would have a relatively immediate impact on the supply of labour and even the amount of visitors to casinos. Whilst, investment in education is a more long term strategy, where the benefits will only be seen in years to come.

Discussion: Social Impacts

Entertainment Pleasure:

Social costs are a result of extreme cases, it stems from whether or not someone is a compulsive gambler. Compulsive gambling, also called gambling disorder, is the uncontrollable urge to keep gambling despite the toll it takes on your life. Gambling means that you’re willing to risk something of value in the hope of getting something of even greater value. All compulsive behaviour stems from social, psychological and/or biological origins.

Gambling changes how we feel psychologically as wells as socially. It creates an escape from normality. When one is gambling their mind is occupied with thinking about the outcomes of their bet, in other words, they are distracted. Being distracted means not having to think of the struggles they may have to encounter in their everyday lives, which they want to escape from.

Biologically, compulsive behaviours have a direct impact on the brain’s dopamine reward system. This system regulates ones responses to natural rewards an example being food and social interaction. Repeated compulsive behaviours use this system with the power of persistence that changes our cells chemically and structurally. This can have an effect on the well-being of a person . People may no longer respond normally to rewards for instance food, and instead may depend on gambling for that sense of reward.

The enjoyment gambling provides to someone, causes one to become a compulsive gambler in extreme circumstances. As they become addicted to the feeling it provides them. Gambling addiction is a serious problem which New Jersey is battling to overcome. In fact, The National Council on Problem Gambling claims that approximately one in five gambling addicts attempts suicide, which is the highest rate for any type of addiction.
Furthermore, the Council on Compulsive Gambling of NJ claims that gambling addiction tends to increase instances of domestic violence, bankruptcies and issues at work. Like any other addiction, most of the people who are gambling addicts do not readily recognise and/or seek the relevant treatment; in order to get back control of their lives. This is in spite of the clear social impacts of their plight possibly leading to instances of mental health problems, suicide, family/relationship problems, divorce, and the potential for intergenerational modelling of excessive gambling.

The casino industry, to its credit, has faced up to these issues and real steps have been taken to deal with this negative side of the pastime. So for example, there are already dedicated organisations, the details of which, are readily available at casinos; both land based and online. More recently, the American Gaming Association stated that their member casinos are planning to explain more clearly the real chances of winning and losing in August 2018, in an effort not to mislead customers that gambling is sound method of attaining financial or social success.

The casino industry and how it deals with addiction is an on-going process, which can only become more effective as we learn more about the problem and actively seek solutions. This is something which is already happening in the marketplace and hopefully will go a long way in helping those adversely affected by this form of entertainment.

Bankruptcy:

Bankruptcy is a legal status of a person or entity that cannot repay debts to creditors. Personal bankruptcy rates have been linked to problem gambling. There are many types of bankruptcy, in this case, the most common type of bankruptcy one would file for in result of gambling would be Chapter 7 bankruptcy.

Empirical studies show that “problem gamblers consistently have high rates of debt and declare bankruptcy at much higher rates than lower-risk gamblers and non-problem gamblers (Hayward, 2004:134). Problem gamblers typically exhaust their personal financial resources by selling possessions, acquire multiple credit cards that are often used to their limit, and often “borrow” from family and friends to fund their gambling habits. These habits often lead to bankruptcy in the case of problem gamblers, resulting in a cost to creditors attempting to collect and cost to the legal system in court time and resources.”

When the compulsive gambler reaches this point, bankruptcy or crime becomes the last resort.

Although it is apparent that most compulsive gamblers experience grave financial problems, there is not a clear indication as to how this affects the bankruptcy rate in a community. Some research indicates that casinos do increase the bankruptcy rate. For example, research conducted by “SMR Research Corp (1997) found that the spread of legalised gambling in 298 counties was positively related to an increase in bankruptcy filings in those counties. SMR notes that the bankruptcy rate was 18% higher in counties with one gambling facility and 35% higher in counties with five or more gambling establishments”.

There are many implications when one files for bankruptcy. In the case of Chapter 7 bankruptcy, it means to clear the debt through selling one’s processions.

On the assumption, that the person’s credit score is already low declaring bankruptcy means banks would be less inclined to grant any loans as well as the fact that all credit cards the person possessed would be stripped.
Declaring bankruptcy remains on their credit report for 7-10 years, which when applying for jobs in most cases is seen in a highly negative light. Thus, this state of bankruptcy can lead to being unemployed indefinitely, which in turn, does impact on local state bodies having to deal with the financial and social issues which then ensues. The financial implications are all about unemployment benefits and work programs that are provided to help the person in this dire situation.

The social impacts can be mainly seen at home, where families and loved ones are the first to see and feel the effects of unemployment. Furthermore, there is a loss of work productivity through human capital depreciation for the individual worker, workplace, and employer. These costs associated with gamblers of all types can be estimated based on the time spent out of work for being unemployed and playing games of chance during productive work hours. In a U.S. study, Grinols and Mustard (2001) showed “from previous studies of lost productivity at work and the value of lost time and unemployment, which included an average annual cost of $2,913 for lost work time per pathological gambler and $1,082 for lost productivity.”

Please note, although it is irrefutable gambling addiction does have some impact with regards to bankruptcies, there are no studies that clearly define the actual level of this problem. There are no studies that show direct correlation between gambling and bankruptcy rate is not because gamblers often do not report gambling as a cause of their bankruptcy, as it could affect their bankruptcy status.

Crime:

Criminal cost will include all the negative impacts that originate from gambling related crime, from fraud and theft to money laundering and loan sharking. There violent crimes that can be related to gambling such as homicides, attempted murders, assaults, robberies, harassment and even stalking. Non-violent crimes are also accounted for, so this would include instances of breaking and entering, vehicle theft, fraud as well as theft over/under £5,000.

There are three major groups crime can be identified.

The first being problem gamblers committing petty crimes ie theft, forgery, drug dealing, domestic violence, and white-collar crime in order to pay for continued gambling and related debt.

The second being instances of criminal acts involving acts such as theft and money laundering in actual casino venues.

The third has to do with Organised Crime and their part played in illicit activities like loan sharking, money laundering, and counterfeiting.

A 2010 survey of the literature shows the early literature on casinos and crime focused on Atlantic City, using data from the 1970s and 1980s. Evidence gathered from those studies were inconclusive, although most studies that focused on jurisdictions other than Atlantic City found a slight correlation between casinos and crime.

“Grinols et al. (2000) estimated that in U.S. counties with casinos over a 20-year period, an average of 8%-to-10% of crime in 1996 could be attributed to the presence of the casino, resulting in a cost of $63 per adult annually.”

A study by the Maryland Department of Health and Mental Hygiene (1990), stated that 62% of gamblers in treatment committed illegal acts because of gambling. Gerstein et al. (1999) approximated a total lifetime crime cost of US$2,950 for pathological gamblers and US$1,630 for problem gamblers in 1997 dollars. Using Grinols and Mustard (2001: 153) studies it provides the following range of annual crime cost associated with gambling based on seven previous studies. Shown in Table 1.
Table 1: Annual Crime Costs (US$) per Pathological Gambler in the U.S.

While there is no doubt that gambling does contribute to crime and can provide an environment where crime can occur, it is yet another aspect of the industry that is constantly being looked at and dealt with. So for example, all licensed casinos will have to comply with money laundering rules and regulations, all casino practices are closely monitored and routinely checked to ensure that from the dealers on tables to accountants at board level are following strict protocol. In fact, today many of the companies that own and run casinos are publicly listed on the stock exchange which is testimony to how far the industry has come since the days of Bugsy Siegel.

Nowadays, it is difficult to determine crime which are directly attributable to gambling, as there are many factors that can contribute to one committing a crime. Also, the amount of criminal activity that could be committed due to someone gambling is endless; so it is quite hard to reach a clear cut conclusion due to inconclusive evidence. Furthermore, there is no way to establish a causation, in spite of the many theories.

Consequences On Personal Relationships:

There have been numerous studies stating that the outcome of problem gambling is negative personal consequences; including financial hardship, emotional difficulties and social impacts to name a few. As there is a lack of apparent indicators that one is a compulsive gambler, it is hard for an outside party to detect an addiction. This is one of the main reasons why a compulsive gambler is able to continue for serval years in-spite of the negative effects.

However, in most cases, it is close family, friends and working colleagues that are first to notice and be affected by a compulsive gambler. Research has shown that compulsive gamblers and their family members are also prone to suffer from depressive or anxiety disorders, and misuse alcohol, drugs, or both. All of these disorders can be hidden in the short term, but given time, it is the people close to the person who are the ones who will be first to see and usually experience the negative effects of their affliction.

In the case of family life, problem gambling commonly leads to the break down of the family. It is often the case that family life can become physically abusive, mentally draining and highly erratic. Separation and divorce are often the end result, together with children suffering mental and emotional distress; which can take all parties involved years of counselling to understand, accept and overcome.

Furthermore, life long friendships can easily come to abrupt end, as result of the common telltale signs which includes broken promises and unpaid loans. In many instances, compulsive gamblers will end up losing all of their friends, and will not be able to forge any lasting and/or genuine relationships.

This is also the case in the work place. The effects of the addition leads to the inability to work at a consistent level, work as part of a team, meet targets and/or deadlines. This inevitably leads to a breakdown of social and professional relationships in the workplace.

Conclusion:

To conclude there are positives and negatives to gambling. Whether or not the stigma around gambling is justified is a subjective matter as it depends on what side of the argument you are looking at.

Overall, we can see that casinos have and will continue to contribute heavily to the economy. As it generates substantial levels of tax revenue as well as social benefits.

Although there is fluctuation in the market as shown in the capital investment extract, local State government has a role to play to ensure the industry’s success and prosperity, which is directly linked to positive impacts to the economy and society as a whole.

On a social level, it can be argued that although some of us will have a tendency to become overwhelmed by gambling; we have to recognise that self control and personal responsibility are key factors in any activity. Now with that being said the State itself has made it a point to have laws in place to help deal with in some cases, prevent the negative impacts of gambling, and have put systems in place to help problem gamblers. Hence the importance of bodies like the National Council on Problem Gambling, which actively help and work together with casinos to help deal with this problem.

In conclusion, there is no doubt that the benefits exceed potential disadvantages. However, going forward all parties involved in the industry need to recognise and effectively deal with any negative impacts or potential pitfalls which will arise in the future.

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