Transcript Economic Evironments

Chapter 2
ECONOMIC ENVIRONMENTS
Gary Anders, Arizona State University
Kathryn Hashimoto, East Carolina University
Hashimoto: Casino Management: A
Strategic Approach
© 2008 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Introduction
The Blind Men & the Elephant
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For the blind man who touched the tail, the elephant
was like a snake.
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For the one who touched the side, it was like a wall.
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For the one who touched the ear, it was like a fan.
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For the one who touched the leg, it was like a tree
trunk.
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This story captures the differences that
researchers and consultants have regarding how
commercial gambling affects the social and
economic texture of communities.
Hashimoto: Casino Management: A
Strategic Approach
© 2008 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
BACKGROUND INFORMATION
Multipliers:
 Number of times a dollar circulates in the
local economy.
 Determines the total impact of each dollar
of direct spending on the local economy.
 The higher the number, the better the
economic worth of the transaction.
 Generally the multiplier is around two.
Hashimoto: Casino Management: A
Strategic Approach
© 2008 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Leakage: when parts of a dollar spent
are exported outside the local economy.
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When casinos are locally owned, the money stays
longer in the local economy and benefits the local
community with more investment.
Results: a higher multiplier.
When casinos are owned by an outside corporation,
the money is siphoned out of the community.
Results: a lower multiplier.
Depending on type of ownership, casinos can have a
stronger or weaker economic impact on the local
economy.
Hashimoto: Casino Management: A
Strategic Approach
© 2008 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Positive Economic Impact

Employment – Direct:
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The major reason for allowing casinos
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Opening a casino increased household employment in three of
four rural counties
Types of jobs created may not have a significant positive
effect on higher paying jobs
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Employment – Indirect: opportunities are less obvious
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Construction workers needed to build casino
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Improvements in infrastructure require other occupations
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Services are needed: restaurants, banking, housing
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These services require space; more construction ensues
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Indirect job opportunities spiral upward as various community
needs are created because of the growing population
Hashimoto: Casino Management: A
Strategic Approach
© 2008 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Positive Economic Impact

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Tax Revenue:
States cannot mandate or collect taxes from Native American
casinos. A compact is negotiated to specify the responsibilities of
both sides.
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For commercial casinos, states directly tax revenues.
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Tax rates range from over 36% in Illinois to 6.25% in Nevada.
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For underdeveloped states, tax revenues from casinos make a major
impact on the resource base of local communities
Where revenues from casinos are displacing other sources of
gambling tax revenue (i.e., tracks and lotteries) the total impact of
tax revenue from casinos is lessened.
Employees in casinos and related businesses pay state income and
sales taxes; states further benefit from this additional tax revenue.
Hashimoto: Casino Management: A
Strategic Approach
© 2008 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Positive Economic Impact
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Spin-off Development:
Casinos buy goods and services from the area.
Businesses grow or develop to meet the increasing
demand.
Increased land use.
Hospitality services (hotels, rental cars, etc.) begin
construction to meet the needs of the tourists,
locals, and corporations.
According to a 1997 Arthur Andersen report, the
introduction of casinos leads to growth in almost all
other areas: retail sales, commercial and housing
construction, restaurants, etc.
Hashimoto: Casino Management: A
Strategic Approach
© 2008 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Negative Impact
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Many positive aspects of gaming also have
a negative side:
Casinos’ demand for land = increase in land values =
higher taxes for nearby property owners
Small businesses that can’t afford higher taxes may
leave or go bankrupt, which changes the character of
the community
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Possible costs of additional police and security
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Additional security costs to avoid mob influence
Hashimoto: Casino Management: A
Strategic Approach
© 2008 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Summary
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Literature presents mixed results
concerning impact of gambling:
Proponents argue gambling increases local tax
revenues, creates new jobs, and stimulates
economies through induced consumption and
employment multipliers.
Critics argue that gambling displaces existing
expenditures as a result of transfers from
existing businesses to casinos.
Hashimoto: Casino Management: A
Strategic Approach
© 2008 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Summary
What factors affect the economic
benefits?
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First:
Whether gambling is exported to residents of
other states, and whether opening local casinos
encourages residents not to gamble in other
jurisdictions.
For maximum benefits, casinos should bring in
new money rather than displacing existing
consumer expenditures.
Hashimoto: Casino Management: A
Strategic Approach
© 2008 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Summary

Second:
Where does the money spent on gaming
come from?
If some portion of the gaming dollars comes
from the customer’s savings or substitutions
for other types of entertainment, the
displacement effect is small.
Hashimoto: Casino Management: A
Strategic Approach
© 2008 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Summary

Third:
Net economic impact should take into
consideration the substitution effect.
Substitution effect – if a portion of money
spent at a casino comes from reduced
revenue from other forms of gaming, then
the casino’s overall economic benefits are
reduced.
Hashimoto: Casino Management: A
Strategic Approach
© 2008 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Summary

Fourth:
Different tax rates in different states cause
revenue generation to vary substantially.
Governments may attempt to institute an
optimal tax to balance gains to the state
against costs of providing increased services.
Hashimoto: Casino Management: A
Strategic Approach
© 2008 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
Summary

Fifth:
Economic impact studies typically use
expenditure and employment
multipliers that demonstrate the benefit to
regional economics through direct purchases
and employment, or through indirect
multiplier effects.
Hashimoto: Casino Management: A
Strategic Approach
© 2008 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.
The Future of Commercial Gaming
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The near future will likely see continued expansion in new
gaming markets, which can lead to market satiation.
Unless growth is met with increased demand, the
overcapitalization will result in reduced profitability.
Online gambling is a new competitive alternative that could
significantly affect the demand for casinos.
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Internet gambling industry is estimated at over $5 billion and
growing rapidly.
Given the ease and convenience, internet gambling is certain to
become a serious competitor of casinos.
While there are on-going policy efforts to extend regulatory
control, there are significant challenges because of the low cost
of establishing these websites in offshore locations.
Hashimoto: Casino Management: A
Strategic Approach
© 2008 Pearson Education, Upper Saddle River, NJ 07458.
All Rights Reserved.