How gambling can affect family finances
Though disputed, new study finds personal bankruptcies rise after a casino has been in town for several years.
When a casino operator wants to set up shop in town, he usually comes equipped with an array of economic studies touting the great boon in business and tax revenues to expect once the slot machines and blackjack tables are set up and the roulette wheel starts spinning.Skip to next paragraph
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But as the nation's states and localities become ever more dependent on gambling to keep their revenue coffers full - some for as much as 10 percent of revenues - an increasing number of studies are raising questions about the losing side of that equation.
The most recent, released this week, has found that when a casino comes to town, personal bankruptcies do decrease slightly, but only in the short term. After it's been up and operating for nine years, then personal bankruptcies increase at a rate of 2 percentage points each year, compared with counties where there is no gambling.
"What this suggests is that in a lot of communities, the full impact of bankruptcy and the negative consequences of gambling are yet to be felt," says Edward Morse, a law professor at Creighton University School of Law in Omaha, Neb. "This is especially true as casinos continue to proliferate."
But advocates of gambling contend that the study "flies in the face" of other research that has found that the introduction of casinos has a negligible effect on bankruptcy rates. They also note that the two states that have had the largest increase in bankruptcy filings over the past decade are Utah and Tennessee, neither of which have casinos.
"And it's questionable whether a 2 percent increase is earth shattering when you balance that against the decrease in bankruptcies in the early years, plus the increase in jobs, economic development, and expansion," says Frank Fahrenkopf, president and CEO of the American Gaming Association, the industry's lobbying arm. "That's the kind of balancing that has to be done when a state or local jurisdiction has to make a decision about whether to have gaming."
For more than a decade, gambling advocates and opponents have cited dueling studies on casinos' impact on personal bankruptcies. But they tended to be based on snapshots or shorter periods of time. The National Gambling Impact Study in 1999 alluded to this, finding that while gambling did not appear to have an impact on personal bankruptcy, the issue needed to be examined more thoroughly due to the rapid expansion.
The new study, done by Professor Morse and his colleague Ernest Goss, is the first to look at the impact of casinos over a 12-year period, from 1990 to 2002. It compared the personal-bankruptcy rates in casino and noncasino counties and tracked the longer-term consequences of introducing gambling. They speculate that one reason there's an initial decline in personal bankruptcies is that the opening of a casino does provide jobs and other economic benefits, including a large influx of nonresidents who come to gamble. But over time, as the casinos mature and other localities open up competing facilities, they speculate that the number of tourists begins to drop at the same time that the number of problem gamblers increases.
A survey of members of Gamblers Anonymous done by William Thompson, a noted gambling researcher at the University of Nevada, Las Vegas, has found that 40 percent of GA members do file for bankruptcy. He also says that the new study's findings appear to be "sound" based on his understanding of problem gamblers' patterns.
"There's reason to believe [that bankruptcy filing] is a much-delayed factor, and that it doesn't come when a casino [first] comes in," he says. "People try all sources of money before they turn to bankruptcy and crime."
Mr. Fahrenkopf counters that only about 1 percent of gamblers develop a "pathological" gambling addiction, as defined by the American Psychiatric Association.
But studies also show that as many as 5 percent of adult gamblers will develop a "gambling problem," which can also lead to bankruptcy and other social problems associated with gambling, such as divorce and suicide.