Just a coincidence? Bankruptcies highest where casinos are

A study of US counties doesn't show a causal link, but it fuels concerns that gambling may boost risk of insolvency.

A controversial new study has found that personal bankruptcy rates are twice as high in counties with gambling casinos than in those without.

Mike Osborne is surprised that anyone is even questioning it. He's a recovering compulsive gambler who started dabbling with sports betting in seventh grade. When he hit high school, he'd become the local school bookie but gave it up because he missed the thrill of "putting money on the line, risking something." By the time he was 22, the Baltimore real estate broker and father of three was more than a half million dollars in debt.

"Basically, I had tapped out every source I had available," he says. "At that point I didn't think of bankruptcy as an option. I had a suicide attempt and went into treatment. Then I realized bankruptcy was the only way I'd be able to provide for my family again."

With personal bankruptcy filings at historic highs, a growing number of grass-roots organizations contend that the phenomenon is fueled, at least in part, by the explosion of legal gambling in the United States over the past quarter of a century. Twenty-five years ago, legalized gambling was confined to Nevada and Atlantic City, N.J., along with a handful of racetracks and lotteries scattered around the country. Today, there are 648 legal casinos in the 31 states that allow legalized gambling, and most states have some form of a lottery. In the past decade, total personal US bankruptcies grew from 770,000 to 1.3 million, while business bankruptcies fell almost 40 percent.

Yet a fierce debate continues about whether those high bankruptcy rates can be tied to the easy access to betting parlors. The gambling industry insists the presence of casinos does not increase personal bankruptcy filings, arguing they instead create an economic boom that helps communities pull out of hard times. They point to several government studies, including the National Gambling Impact Study Commission, that found no link between gambling and bankruptcy. The industry says that other factors, such as higher levels of debt, easy access to credit, and "the reduced social stigma of declaring bankruptcy," are responsible.

"This is a very hot issue because the antigaming movement has always tried to make the argument that if you put a casino into a community, it will increase bankruptcies," says Frank Fahrenkopf, president and CEO of the American Gaming Association, the lobbying arm of the nation's gambling industry. "But every independent study I've seen flies in the face of that."

The new study just released by researchers at Creighton University in Omaha, Neb., attempts to take a step back from the political controversy and disentangle various social factors so that it can isolate the specific impact of casinos. It essentially takes two snapshots of counties, one in 1990 the other in 1999. Then it compares those with and without casino gambling. It found that business bankruptcies, which are fairly rare compared with personal bankruptcies, are 35 percent lower in the gambling counties. But counter to what the gambling industry claims, personal bankruptcy rates are twice as high as the rate in comparable counties without legalized gambling.

"To the extent that you have more convenient access to a casino, because one is located in your county, then we can expect people with problem gambling behaviors to manifest them," says Edward Morse, a law professor at Creighton. "And that would be reflected in the financial meltdown of a bankruptcy."

Other independent researchers have found similar results. George Yacik does consumer research for credit-card companies. He's also done several studies that found a tie between the presence of gambling and increases in personal bankruptcies. "I don't understand why the gambling industry gets their backs up whenever a study mentions the link between gambling and bankruptcy," says Mr. Yacik, who is a vice president of SMR Research Corp. in Hackettstown, N.J. "The evidence is circumstantial, but it's clearly there."

But the gambling industry dismisses SMR's research. Mr. Fahrenkopf argues that only about 1 percent of the population develops the kind of serious gambling problem that Mr. Osborne struggled with, and the casinos try to keep them from the roulette tables and slot machines. [Editor's note: The original version mischaracterized how SMR Research Corp. conducts its work.]

Other experts believe the number of troubled gamblers is much higher. They contend that while 80 percent of the population is able to enjoy gambling as entertainment, as many 15 percent develop a "problem," and another 5 percent may become serious compulsive gamblers.

"When we have more casinos, we have more compulsive gamblers and we have more bankruptcies. It's that simple," says Dr. Valerie Lorenz of the Compulsive Gambling Center in Baltimore.

Osborne, who is now president of the Problem Gambling Council of Maryland, also notes that compulsive gamblers often lie about why they're in debt. And that, he believes, could skew the best studies.

"It's part of the disease," he says. "You don't want to admit it."

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