Costs vs. benefits of betting

At least 19 states are considering expanding gambling licenses to staunch a flood of red ink. Yet the latest economic research suggests the governors and legislators are being snookered by gambling proponents with their something-for-nothing sales pitch.

Economists have done relatively little research on the economic impact of gambling. But recent papers intimate that gambling pays poorly for state economies - as it does for most gamblers.

Melissa Kearney, an economist at Wellesley College, Mass., finds that the $38 billion in annual state-lottery gambling sales replace, on average, about $38 per month per household, or 2 percent, of other household consumption.

Since only about half of adults buy scratch cards or lottery tickets, that dollar figure can be doubled for those who do actually purchase these bets.

And for the poor who join in the state-sponsored lotteries in 38 states, the reduction in spending on food, clothing, housing and rent, and other nongambling consumption comes to 3 percent on average.

The resulting loss to nongambling businesses is even larger than average lottery sales of $18 a month per adult.

When a state introduces a lottery or expands its lottery offerings, it raises the amount spent in that state on gambling, Professor Kearney notes. It doesn't take money away from other forms of gambling, such as racetrack, bingo, private, or unlicensed gambling. When states first launched lotteries, they increased the odds that an adult will engage in some kind of gambling during the year by 50 percentage points. State sponsorship of gambling largely erased the social stigma once felt by many Americans, she figures.

"Is this the best thing for children?" asks Kearney. Parents or guardians decide how much of their income goes into gambling, how much for the welfare of the children.

A gambling expansion obviously damages most nongambling businesses in a state, except for the relative few actually serving casino customers or the casinos themselves. It's a wonder that retailers and other businesses haven't risen in political rebellion against the potential expansion of gambling in many states.

Is gambling good for state coffers?

Lotteries pay out 52 cents on every dollar gambled, 14 cents are costs, and 36 cents are profit to the state. But states lose sales-tax and income-tax revenues from other businesses hurt by the diversion of dollars to lottery gambling. Some businesses on the edge of profitabiity close down as they sink into losses.

In effect, lottery states have set up a system of "voluntary taxes." Adults up and down the income ladder spend about the same amount on the "games." But the poor pay a higher proportion of their income, especially the poorly educated. And some put up far more than the average lottery expenditure.

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