Using Gambling as a Source of Revenue Is a Sucker’s Bet

That legalized gambling is seen as a source of revenue for state and local governments and as an almost sure-fire growth business behind some of the highest flying stocks on Wall Street only confirms once and for all that P.T. Barnum was right. There is a sucker born every minute.

In reality, gambling in America may be about to go slightly out of fashion. It’s possible that the recent spread of legalized casinos to riverboats on the Mississippi, to American Indian reservations and to tourist-loving cities such as New Orleans marks a peak of the business, not a takeoff point.

For while Wall Street analysts talk about continued growth to justify sky-high stock prices for Circus Circus and International Game Technology, recent Gallup Polls show public approval of legalized gambling to be declining, not rising as it did in the 1980s.

And while it’s true that many Americans enjoy gambling in a context of glamorous night life and slightly wicked weekends--”We go to Las Vegas to do adult things,” said a schoolteacher--the idea that legal lotteries and slot machines can bring big money into government coffers is an illusion.

Lotteries and taxes on gambling contributed $15 billion to state governments last year--about 2% of the $660 billion in total state revenue from taxes and fees.

“Gambling is not a good source of revenue, because it’s unreliable,” says Ron Snell, director of the Denver-based National Conference of State Legislatures. State budgets can’t plan on the winnings; municipal bond agencies don’t really want to see casino receipts fund a state’s interest payments.

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Why should we care? Because politicians, sensing an opportunity for fresh revenue without the ordeal of raising taxes, are fooling themselves into believing that gambling is the people’s choice.

Even normally sophisticated California is losing its cool. A report by Gov. Pete Wilson’s planning and research office suggested last month that the state should erect casinos near its borders to capture some of the $3.8 billion a year that Californians spend in Las Vegas, Laughlin and Reno, Nev.

The idea of rescuing the immense economy of California--where the state budget is more than $50 billion--by recapturing a couple of billion from Nevada would be funny if it weren’t so pathetic. It’s as if the governor’s office wondered belatedly why the late Bugsy Siegel, the sometime Beverly Hills resident who created Las Vegas, set up his business in Nevada.

California’s mistake, and that of other communities across the country, is to think that creating a successful gambling complex is painless and profitable. The result is usually disappointment and losses--as in Davenport, Iowa.

Davenport, one of the first towns to approve riverboat gambling on the Mississippi, lost more than $600,000 in state subsidies, according to “Temples of Chance,” a book by David Johnston that examines the current casino craze.

Davenport never made a dime because its two riverboats lost money in their first year of operation and then departed for Mississippi when that state approved gambling on its stretch of the river.

Gambling in Atlantic City, N.J. is now generating respectable revenue--$3 billion last year--after more than a decade of operation. But while some hotels have succeeded, gambling has never restored the broad, diverse economy of the old resort.

The reason, explains William Thompson, professor of public policy at the University of Nevada Las Vegas, is that “gambling is not a generator of capital; if anything, it’s parasitic.” He means there is no gain for a community if gambling simply churns money from its own citizens or from other businesses.

Vegas succeeds by importing gamblers from California, the nation and the world. Even so, its economy is anything but diverse, and it has known ups and downs in 60 years of making itself a fun place to go.

Gambling expert John Dombrink of UC Irvine wonders how things will work out in New Orleans when the Hilton Hotel, which will subsidize its restaurants with casino proceeds, takes customers from Commander’s Palace, Chez Paul and other famous eateries that don’t have gambling.

The spread of gambling is not a sure thing. The Gallup Poll reports that only 29% of Americans really enjoy betting. That the federal government allows casinos to be set up on American Indian reservations only indicates how desperate for any kind of work those reservations have become.

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Gambling may grow moderately. The stocks of casino companies will fluctuate, as they have done for the last decade. International Game Technology and Gtech Holdings, which supply casino equipment and computerized lottery games, can look forward to growing business--but whether they’re worth their current high prices is another question.

Analyst Kurt Feuerman of Morgan Stanley warns investors: “This is not a buyer’s market. (At current prices) the risk of a sharp correction has increased.”

That sucker born every minute doesn’t have to be you--or California.