Why casinos are a tool of economic development
Archaeologists have come to understand that gambling has been a part of the human experience on this planet from the early days of civilisation. In recent times, this presence is felt around the globe, and it has been growing rapidly. Gambling is a common offering across the United Kingdom, Europe has numerous betting opportunities and gambling exists in many locations throughout Asia. Gambling can be found in Central America and South America, and throughout the Caribbean. In North America, there is gambling in Canada and in 48 of the 50 United States. In country after country, the ability to legally gamble is the new normal.
In the past few decades, there has been a particularly rapid increase in the proliferation of legal gambling all over the world and three forces have basically driven this process. The first of these forces is the desire to generate tax revenues. Politicians face a great many demands by their constituents to provide services, and yet these constituents certainly do not appreciate politicians raising taxes. This has generated a search for alternative sources of government revenues, of which gaming has become an example.
In the US, the state of Pennsylvania is a jurisdiction that desired to cure a budget deficit through the vehicle of legal gambling. With the 2004 passage of the Act that allowed casinos, the state now collects $1.4 billion annually in gaming tax revenues. Consistent with Pennsylvania's desires primarily to offer this industry as a source for government revenues, the tax on slot machine winnings exceeds 50 per cent, which certainly limits the scope of the resorts and the ability of the operators to reinvest. It is also interesting to note that many Pennsylvania residents were gambling before casinos were being offered within their state, but they were gambling in the neighbouring state of New Jersey. Since the casinos began opening in Pennsylvania, the casinos in Atlantic City have been suffering a substantial loss of customers who do not need to leave their state any more to gamble. No longer do people from Pennsylvania travel to New Jersey to help that state pay its taxes. Those tax dollars now stay in Pennsylvania.
Another reason to legalise gaming is to work to curtail illegal gambling within a jurisdiction. In many locations around the world, the decision is not whether a jurisdiction will have gambling, but, rather, whether it will be regulated or continue to operate in the underground.
The problems with illegal gambling are numerous and include potential corruption in the political, judicial and enforcement functions of government. In addition, illegal gambling often is accompanied by less than appropriate debt collection practices, there are no consumer protections, the vulnerable are often exploited, it creates a favourable environment for money laundering and the industry pays no taxes.
The last of the significant reasons to legalise gambling is to enhance investment and employment within a jurisdiction. In this sense, legalisation is used as a tool of economic development. This was true in Nevada when that state legalised gambling in 1931; this was true in Atlantic City in the 1970s; and it was true in Singapore and Macau at the start of this century.
The Singapore model is one of the more interesting modern cases of using casinos as a tool of economic development.
The nation was suffering a certain malaise in its tourism sector and so introduced casinos as a complement to enhance the demand for its tourism product. It was the perception of Singapore's leaders that modern travellers have a wide variety of demands as to how they like to spend their entertainment dollars, and a casino was one of these outlets. Furthermore, the revenues generated within the casino allow for the associated resort to more fully develop a wider array and better quality of amenities.
While there is no pure case as to why a jurisdiction legalises, the previous three reasons typically comprise the important determinants in a movement to introduce casinos.
Generally, it can be determined what the jurisdiction was attempting to accomplish by looking at the details of the law, especially with respect to the tax rate.
What is often a problem with jurisdictions is that they cannot make up their minds as to what they are trying to accomplish, for a jurisdiction may want serious tax revenues and high employment and investment, but unfortunately as the tax rate goes up, the level of employment and investment falls.
As a general statement, as the tax rate increases, the size, scope and amenities within a casino resort decrease, as do the levels of investment and employment. This is the danger of a jurisdiction having conflicting or contradictory goals.
In looking at the 2014 Bermuda Casino Gaming Act, it articulates clearly a goal of generating enhanced investment and employment on the island, and so one should expect a low tax rate to best accommodate this goal.
In short, it appears that, as with Singapore, Bermuda's leaders are interested in using the casinos as a tool of economic development by adding an important and expected amenity for the global traveller as an aid to enhancing the tourism product offered by the island.
• Richard Schuetz is the executive director of the Bermuda Casino Gaming Commission