For instance, Delaware has over 5300 machines (at racetracks) that generate over $535 million annually. Their “pay-out” rate ranges from 87 to 95 percent which simply means that for every dollar put in, 87 cents to 95 cents is returned to the player. MOST machines are calibrated to allow between 75 and 98 percent “pay-out” with an average around 92 percent (usually depending on competition).
The distribution of VLT revenue (what’s left over after the pay-out) varies widely from state to state, but most averages are as follows: The state gets 20 to 60 percent; the operator gets 40 to 80 per cent; and the central machine vendors get 5 to 10 per cent. In some cases, there are other authorized benefactors. Usually about 5 per cent is for administrative costs and maintenance. In Nevada, approximately 7 per cent of gross machine proceeds are paid to the state as “taxes” and a small yearly fee for each machine; around $250. After a “pay-out” to the player of around 85 per cent (of the gross “input”), the rest is for the operator or owner; around 8 per cent (of the gross input).
Social costs are the negative impacts to society resulting from individuals who have trouble controlling their gambling. Some of these are adverse health and family impacts, crime, employer costs and government expenditures. There may be increased rates of domestic violence, child neglect and abuse and divorce. There may be increased physical and mental health problems as well as increased suicide rates. Employer costs may include absenteeism, lost productivity and increased unemployment related costs. Government expenditures include gaming regulatory costs. There may be other costs such as increased rates of bankruptcy for gamblers and unpaid gambling debts.
Benefits may include increased economic development and job creation, increased tax revenue and enhanced recreational opportunities.
Since “slots” already exist in the commonwealth, so do the above mentioned costs and benefits. Thus the addition of 750 NEW gaming machines, supposedly introducing a new type of gambling, will probably add even more social costs above existing levels — and it’s not likely to increase benefits either! (We’ll take a look at why in part 3)
The National Research Council of the National Academy of Sciences estimated national prevalence rates for different classifications of gamblers. “Problem” gambling is rated at about 3.9 per cent of the adult population.
This compares with drug abuse at 6.2 percent and alcoholism at 13.8 percent.
Comorbidity: Here’s a new term for all to learn. It refers to the problem that pathological gamblers often have co-occurring addictions or mental health problems. The General Accounting Office in a report in 2000 reported that “pathological gambling in many cases (up to an estimated 78 percent) is accompanied by other disorders and it is difficult to determine whether gambling is the only or the primary factor causing problems.”
In most states that have studied this and “netted” out social costs vs. Benefits, it has been found that these costs on AVERAGE are about one half of the revenue generated by gambling. That is, for every dollar in revenue, there is a distinguishable COST of about 45 to 50 cents. Thus, the “state” in which VLT activities are proposed must first determine how much of the likely revenue generated must be remitted to the “state” (in fees and/or taxes) in order to “off-set” probable losses due to the cost imposed upon it through the effects of the activity; AND pro-rate that cost with costs attributed to all other forms of gambling allowed in the “state”; AND still have enough left-over gambling revenue to support any programs instituted (or continued) for which money is required such as education or medical needs (which are usually the selling points used in order to allow or justify gambling in the first place). Has the CNMI incorporated THIS into its proposal to allow VLT gambling?
On top of this, the use of percentages by proponents to tout the generated revenues of added machines are nothing more than a “cute” way of avoiding real data. If, because of competition, the pay-out is increased to say 95 percent (it is in some areas), that leaves only 5 cents of every dollar spent for ALL benefactors (the state, operator, programs, etc.). By saying the state will get, say, 40 per cent of revenue sounds good, but the actual amount realized is only something like 2 cents for every dollar spent — which is LESS than the state could have realized had that same dollar been spent on a reasonably taxed commercial purchase. Has the CNMI considered this “off-set” loss?
In our next installment, we’ll look at the CNMI’s revenue potential and how it relates to “cross-border” activity and “substitution” effects.
DR. THOMAS D. ARKLE JR.
San Jose, Tinian
