Monopolies or Open Markets for Casino Industries?
William N. Thompson
Emeritus Professor of Public Administration
School of Environmental and Public Affairs
University of Nevada Las Vegas
Las Vegas, Nevada 89154-4030
[email protected]
And Catherine Prentice
Swinburne University of Technology
Melbourne, Australia
Prepared for The 15th International Conference on Gambling
And Risk Taking
Caesars Palace, Las Vegas
May 30, 2013
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Monopolies or Open Markets for Casino Industries?
1. Introduction: Descriptions—Monopoly, Oligarchy, Open Markets
This paper looks at impacts of the structures of casino industries in 13 American states
venues. The legalization of casinos has been a major policy issue in scores of national
and sub-national venues over the past 60 years. Among the critical issues in the
legalization process has been the subject of whether casino establishments should be
authorized as singular, that is, monopoly, entities in a specific location (city, state, or
nation) much as public utilities, or they should be licensed in an open market free
competitive manner. A middle ground approach find venues allowing a limited number
of licenses, ergo, an oligopoly of casinos. (1)
A monopoly enterprise is one that serves its primary market (those purchasing its
products) without a competitor who is selling identical or basically similar services or
goods within the market. As a practical matter all the customers must purchase the
products from the one enterprise if they desire to have the product. There is no
competition as the sales of the product are controlled by the single enterprise.(2)
In an oligopoly a few enterprises will control the distribution of the service or good to the
market. Oligopolistic situations also arise if several producers work together, or collude,
in order to control the supply and the price placed upon the products they sell. Such
combinations of sellers may be called cartels.(3)
With monopolies and oligopolies (or cartels), the enterprises control the market, and they
typically seek to maximize their profits by setting higher prices that consumers must pay
if they want their products. These enterprises may also use practices that preclude other
enterprises from coming into and competing in the markets—such as lowering prices to
levels with which the others cannot compete, and when these go out of business, then
raising the prices considerably.
Open markets occur where there are a sufficiently large number of sellers of services and
goods that no one of them can set the prices for the goods.
Monopolies occur naturally or they may be generated by unfair competitive practices
(called predatory practices) by the larger enterprises in a market. (4) They may also be
authorized by governmental action. Certain industries require massive investments in
facilities and equipment before they may offer their products for sale. Sufficient risk is
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incurred that the industry needs a certainty of sales revenue that they gravitate toward
monopoly status. Major enterprises such as utilities (e.g. electrical and water works) seek
that certainty by winning governmental approval to operate as monopolies. The
enterprise must find capital suppliers to fund the start-up of their projects, yet banks and
lenders will be reluctant to fund massive projects if they don’t have certainty brought by
monopoly markets. Government licensing provides a needed economic security behind a
producer of a product—electricity or water—that is considered critical for the public.
When the governments grant monopolies through licensing, they are aware of the power
they are granting to the enterprise. Therefore they exercise regulatory power over the
activities and specifically the pricing of the products offered by the monopoly. Yet even
then, the risk situation may be too much for private investors, and therefore the
government itself chooses to become the monopoly supplier of the goods.
On the other side of the equation, governments themselves have set forth laws prohibiting
the operation of monopolies and the exercise of predatory practices by enterprises in most
markets. The governmental authorities give much favor to markets with free competitive
enterprises, as monopolies may offer some advantages, but usually (with notable
exceptions referred to above) offer severe disadvantages for society. (5)
The most notable advantage of a monopoly is that it can take advantage of economies of
scale. By purchasing large quantities of raw materials for conversion into its products, it
can realize low input costs for its operations. In sales it can avoid considerable costs
involved with market advertising. By realizing higher profits, the enterprise can invest in
technological innovations that contribute to production of higher quality products.(6)
On the other hand, much history reveals that monopolies may do the opposite—they fight
innovation. Rather than spending money on improving products, they transfer the money
to profits. As long as they control the market, they have no incentive for product
improvements. (7) Nor do they have incentives for improving their workforce by offering
higher salaries, training, and other factors that improve worker motivation. They do not
seek to improve customer service, because the threat of competition is not there. The
monopoly company restrains production in favor of unfair higher prices, and by doing so
introduces inefficiencies into society, inefficiencies that are considered “dead weight
losses” for the entire society. Monopolies transfer wealth from unfortunate customers to
monopolists. With monopolies in place, better competitors face overwhelming
obstacles—entry barriers—from trying to come in and compete for the market.
Monopolies may also be adverse to the public interest as they give great political power
to companies especially if they control critical products or if they command economic
power by providing large numbers of jobs and revenues which are taxed.
2. Casino Industry Structures
As we examine the structure of the casino industry in many venues, we find that there are
some cases of open market competition that approach situations recommended by most
economists. But many casino arrangements find structures of oligopoly. And many
more, perhaps even a majority of cases find casinos operating as government created
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monopolies in local markets (defined arbitrarily as geographical circles of 50 or 100
miles, with travel times of several hours to the next casinos). After we review and assess
available data on the casino operations, we can return to a vexing question: Why would
the government decree that a casino enterprise should operate as a monopoly? There
seems to be surface answers, almost obvious without need for independent proofs and
support, as to why society would monopolize and regulate an enterprise delivering
electricity, natural gas supplies, the delivery of water. These are critical goods for the
survival of a society. Arguments that telephone companies and television stations had to
be monopolies or oligarchies seem not to be made anymore. There are even arguments
against the notion that governments must have monopoly control over all operations of
prisons, fire-fighting services, and police forces. While few argue against the need for a
government control over military forces, in the state of Nevada we find that the U.S.
Department of Energy has given a private monopoly the function of providing essential
security forces to guard the United States’ arsenal of nuclear weapons at the Nevada Test
Site. This list can go on, nonetheless, certain government approved monopolies make
sense. Does a government approved monopoly for providing casino gaming services
make sense? We shall return to this question.
At the mid-point of the 20th century, fewer than one half of the national venues at that
time permitted casinos to exist anywhere within their boundaries.(8) The number of
casino countries increased to 77 in 1986, and 109 in 1996. Now over 132 (or 67.3%) of
196 recognized nations have casinos. In a majority of these national venues, at least
some casinos operate as monopolies for their market region. Only a small minority are in
competitive local markets. In the United States, only one state (Nevada) permitted
casinos in the mid-century, a second (New Jersey) joined the list in 1978, and a decade
later a flood of new states jumped on the casino band wagon with riverboat casinos,
Native American (Indian) casinos, and in a few cases land-based casinos. Now casinos
of some kind are found in 38 of the states. Canada had no casinos at the mid-century
point, but starting in the 1970s casinos have been authorized for seven of the ten
provinces plus the Yukon Territory.(9)
A variety of industry structures have been approved for the casino venues. The industry
structure has been set forth in specific laws which give legal standing to casinos. Unlike
the situation for most other industries, casinos may exist only with a legal authorization.
(10)
While the authorization process is usually accompanied with a debate, that debate is
almost entirely consumed with a consideration of whether or not gambling activity which
takes place within the walls of a casino is moral, appropriate as a form of entertainment,
and likely to produce considerable employment as well as tax revenue for a venue. The
debate rarely looks at the merits of monopolies vis-a-vis oligopolies and open market
structures for the casino industry. There is little research evidence that has been drawn
from studies of the effects of the varying industry structures on casino industry
performance, e.g. job development, growth and profits, tax revenues and price structures.
3. Purpose of Paper
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The purpose of this paper is to check the credibility of the basic proposition advanced
above that monopoly structures in the casino industry are adverse to the interests of
casino product consumers. Accordingly it is hypothesized that (1) monopoly casinos will
offer artificially higher prices to customers, and (2) that monopoly casinos will offer their
customers lower service quality by utilizing fewer employees, and by having fewer
amenities at their gaming properties.
Initially the research will categorize thirteen commercial casino venues in the United
States along a continuum from the most closed and monopolistic to the most open and
competitive jurisdictions. Pricing and quantities of amenities will be compared for the
venues. Further analysis will examine individual casinos categorized as local monopoly
casinos or casinos located in competitive local areas in four selected state venues.
Price points and service attributes will be explored. These include slot machine payout
percentages, numbers of employees, and quantities of amenities including numbers of
hotel rooms, volume of convention space, and numbers of restaurants and entertainment
facilities. The relationship of these factors and the casino industry structures will be
examined in order to test the basic hypotheses presented above.
Prior to presenting data and testing the hypotheses, we will present an historical
development of casino structures by looking at major venues including Monaco, Macau,
and Nevada, as well as other jurisdictions in North America and Asia. Vignettes will be
offered for the thirteen American jurisdictions (plus one other) specifically used for the
analysis.
4. A Look at Casino Venues
Over modern history, almost all the venues with casinos authorized them as monopoly
enterprises for either the nation as a whole or for the local communities of a nation. This
was the organizational pattern across Europe, epitomized by the establishment of a
tourism casino community in Monaco built around the state controlled monopoly of
Monte Carlo casino facilities. (11)
A divergence from the pattern was found in Macau, a Portuguese colony along the south
China coast. There private casinos were licensed on a free competitive basis starting in
1847. However, in the interests of securing better regulation and more guaranteed
government revenues from the operations, a monopoly franchise was given to one
company in 1934. The monopoly control persisted as a new company took control in
1962, and held the control until 2002, when it operated 11 casinos. After the colonial
regime was ended in 1999, Macau became instead a special region within China. In 2002
the new regime decided to issue three licenses for operators, each of whom could have
multiple casinos. The old operator (Stanley Ho) retained one of the three licenses, while
new licenses went to Las Vegas entrepreneurs Sheldon Adelson (in conjunction with Lei
Chi Woo of Hong Kong) and Stephen Wynn. The new operators opened casinos
beginning in 2004. Also in 2004, each license holder was permitted to have a sub-license
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holder: Adelson and Woo separated into two companies, Ho sold a sublicense to an
M.G.M. partnership with his daughter Pansy Ho, and Wynn sold a sublicense to a
partnership of Ho’s son Lawrence and James Packer of Australia. Now six companies
hold licenses for multiple casinos (35 in number) in an open oligopoly that does not
preclude new companies in the future. The dissolution of the monopoly structure in favor
of a competitive model was followed with the experience of considerable growth in the
casino gaming market as evidenced in casino revenues from year 2000 through 2011.
While some of the phenomenal growth in the gaming revenues has to be attached to the
fact that mainland China began to allow residents to go to Macau, albeit in a restricted
manner, after the venue was integrated with the Chinese nation, there can be little doubt
but that revenues were driven by the creation of new competitive casino properties—
among which were the largest casinos in the world.(12)
.
Table 1. Gaming Revenues in Macau: The End of a Monopoly and Prosperity
Year Number of Casinos
Revenues
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
$2.0 billion
$2.4 billion
$2.8 billion
$3.6 billion
$5.2 billion
$5.6 billion
$7.1 billion
$10.4 billion
$13.6 billion
$14.9 billion
$23.5 billion
$33.5 billion
11
11
11
11
15
17
24
28
31
33
33
34
The former monopoly holder, Stanley Ho, was not happy about having to share his
business. In 2005 he remarked, “We are Chinese. We should unite against foreign
capital. We cannot keep silent. If not the foreign capital will bury us.” His
prognostication was way off target. In 2003, before competitive operators opened their
doors, Mr. Ho’s premier casino was the 11-story Lisboa. His eleven properties at the
time realized revenues of $3.6 billion. He went on a building spree and by 2010 he had
20 casinos, with his flagship casino being the new 57 story high Grand Lisboa. His
revenues were now $6.4 billion. For sure, he had lost market share—from 100% to 27%-but his gaming profits had risen 80%--a respectable trade-off for losing a monopoly. (13)
As casino development swept Europe in the later nineteenth century and over the course
of the twentieth century, the monopoly pattern prevailed with one casino being allowed in
selected communities in Germany, France, Spain, Portugal, Netherlands, Italy and other
states. Great Britain broke the pattern to a degree by allowing oligopolies of small
casinos in some major cities (e.g. 20 in London, 6 in Birmingham), but single casinos
exist in most cities where they were permitted. (14)
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In the United States, Nevada provided one model as the state by legislative act in 1931
simply allowed any business wishing to operate a casino to apply for a license. Very few
restrictions were placed on license applicants. Later as casinos grew in size and became a
major tourism attraction, especially in the southern Nevada area around Las Vegas,
licensing simply meant establishing credentials of having integrity and some financial
ability. Even as mobsters came from other states where they had operated casinos
illegally and began operations in Las Vegas, they made a private decision that all
applicants for casino licenses would be welcome in Las Vegas, that there would be no
monopoly control over the casinos by the mob or any branch of the mob. New Jersey
legalized casinos for one city in 1976—Atlantic City. There was no set number of casino
licenses, and beginning in 1978, 13 casinos were created. No company was allowed to
have more than three facilities. (15)
After New Jersey’s casinos began, pressure mounted for casinos elsewhere. Several
states embraced monopoly of oligopolistic casinos along major interior rivers beginning
in 1990. Only Mississippi’s boat casinos were in competitive market places. In 1988 and
1989, two western states allowed casinos in selected mountain areas with limited betting
and competition among facilities. Tribal casino began to emerge in multiple states in
1989 as well. Almost all Native American casinos operated as local monopolies. The
1990s brought more than one hundred new Native American casinos. These were almost
all monopolies for their immediate localities and regions. In 1996 the state of Michigan
authorized an oligopoly of three casinos for Detroit. (16)
The debate rages on, but the forces of local monopolies or limited oligopolies seems to
reign supreme. In 2006 Pennsylvania permitted essentially 14 monopoly casinos in
scattered cities, albeit Philadelphia and Pittsburgh had a few dispersed casino locations.
In 2011 Massachusetts decided to grant monopoly licenses for four casinos, while Florida
is considering a monopoly structure for new commercial casinos. (17)
While some Nevada interests reacted like Mr. Ho, and worried about the new competition
across the United States, the impacts on the formerly monopoly venue (with a sole casino
owner) were similar to the impacts on Ho’s operations. Statistics on Table 2 reveal that
Nevada and Las Vegas casino gaming revenues through the period encompassing a
national expansion of casino gaming.
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Table 2. Nevada Survives as Casino Gaming Sweeps the United States (18)
Year
State Venues Having Number of Non- Non-Nevada Nevada Las Vegas
Casinos
Nevada Casinos Revenue Revenue Revenue
1989
7
53
$2.8b
$5.0b $3.4b
1990
7
115
$3.6b
$5.5b $4.1b
1995
17
300
$14.7b
$7.7 b $5.7b
2000
27
384
$24.8b
$9.3 b
$7.7b
2005
36
861
$52.6b
$10.7b
$9.7b
2010
37
935
$61.3b
$9.9b
$8.9b
Casino gambling as states with casino gaming expanded in number from 8 (7 plus
Nevada) to 38 (37 plus Nevada). Outside of Nevada the number of casinos expanded
from 53 in 1989 to 935 in 2010, and their revenues went from $2.8 billion to $61.3
billion. Nevada casinos existed within a culture of constant competition, and the new
casinos in new venues did not destroy the Nevada industry. Quite to the contrary, as the
nation expanded with new casinos, revenues flourished and new casinos were developed
in Nevada as well. Indeed, for each new casino outside of Nevada, the Nevada gaming
revenue increased $5,555,555 per year, while Las Vegas gaming revenue increased
$6,235,828 per year. Certainly market share was lost for Nevada, but profits increased.
Canadian Provinces embraced casino gaming in the 1970s tying them to charities or to
government lottery schemes. In 1969 national legislation had opened the door for
lotteries and such “schemes.” Major government owned monopoly casinos were created
in Manitoba, Saskatchewan, Ontario, Quebec, Nova Scotia, and Yukon Territory.
Charity casinos appeared within a competitive market structure in Alberta and British
Columbia as well as the venues with government casinos. (19)
In the 1970s the Australian state of Tasmania opened its first casinos in Hobart. A
second in Launceston opened in 1982. The Eighties and Nineties saw monopoly casinos
in the other venues, with one each in Victoria, South Australia, West Australia, New
South Wales, The Capital Territory, while Queensland had four but it quite separate
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locations, and the Northern Territory had two that are separately placed. New Zealand
authorized four casinos in the 1990s as well.(20)
Singapore created a shared monopoly by authorizing two mega-casinos. Japan is
debating legalization with the major plan offered permitting ten monopoly casinos in
selected cities. These two new casino venues have latched onto a new (newly used)
concept—the integrated resort, with each casino attached to a full resort complex. Local
monopoly casinos are also found in the Philippines, Korea, and Malaysia, while Vietnam
has a casino oligopoly in Ho Chi Minh City.(21)
Vignettes describing selected venues can give illustrations of the impacts of casino
structures on the gaming economy. But the descriptive paragraphs can also allow us to
categorize American state venues on a continuum from the most monopolistic to the most
least.
5. Vignettes and Descriptions of Casino Industry Structures in American State
Venues (22)
(a) Colorado: In Three Mountain Towns by Accidental Design
In 1990 Colorado voters approved “limited” casinos for three remote mountain towns—
Central City and Blackhawk—twin towns about 30 miles from Denver, and Cripple
Creek, an historic town 50 miles from Colorado Springs. Why the these three towns? It
was simple. Some entrepreneurs came up with the idea. They asked all the small towns
of Colorado if they would help finance the campaign. Three towns said “yes,” and so the
proposition voted upon limited casinos to the three towns. Each location could have as
many casinos as could win licenses—no limit. However, the casinos could only offer
games of blackjack and poker as well as slot machines. The maximum single bet at a
game was $5. This limit has been increased to $100. The state gaming board was
empowered to license the casinos and also to set taxes for gaming each year. In 1991,
over eighty casinos won licenses and opened. The market was immediately saturated.
Within a year, over 20 casinos closed their doors. The state exacerbated the economic
struggles of the casinos by doubling taxes from ten percent to twenty per cent for the
second years of operations. Few new applicants sought licenses. There are now 40 active
casinos. As each casino had to be located within a building with another business, the
town became saturated with souvenir shops with gaming. Instead of economic growth
the towns experienced severe traffic jams, and the accident rates on the few winding
mountain roads into the towns soared with many cases of drunk driving deaths.
(b) Illinois: Let’s Put the Casinos by the Poor People—Let’s Help Them out a
bit!
Illinois was not intending to create windfall profits for casinos when the legislature
passed its gaming law in January 1990. Their goals were much more benign. They were
seeking much needed tax revenue for the state coffers, but also economic development
for its poorest communities. The economic development would come to the
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economically depressed communities such as East St. Louis, Joliet, Peoria, Rock Island
and Galena as the new casinos in the communities would attract tourists from long
distances away, and the tourists would be served by casino employees drawn from
unemployed local residents. They would also be served by local merchants who would
be expanding their businesses. Ten river boat casinos were authorized for the entire state.
They had to be located in depressed communities located on major waterways in the
state.
In order to assure that there would not be windfall profits, each casino boat could offer
only (up to) 1200 gaming positions (slot machines or seats at gaming tables). The boats
would have to be on open waters and in the act of cruising during casino playing times.
Gaming would stop when the boats would come to their docks to let players off or to let
new players on board. As the boats were in depressed communities, it could have been
anticipated that the persons in the communities were poorer people, and it might have
been expected that these poorer people might well become the main customers of the
casinos. They did indeed. With the exception of Joliet, the casino communities each had
one boat. Joliet had two boats (in actuality they were allowed four, as each one had only
600 gaming places, and this meant that one of the two—for the casino--could be
operating at all times). The locations (listed above, plus Elgin, Aurora, Metropolis,
Alton) were isolated from each other. With the exception of the two Joliet properties,
each had an Illinois monopoly. However, the East St. Louis casino shared (within four
years) the immediate local region with four St. Louis Missouri area casinos. From its
first days, the Rock Island casinos shared the local market with an Iowa casinos operating
from Davenport and Bettendorf.
The Illinois hopes that the casinos would attract customers from long distances and that
their spending would create local jobs was a pipe dream. By limiting the size of each
boat, the authorities created a situation in which the casinos did not have to even
advertise. They just had to open their doors, and they were full. They certainly did not
have to build hotel rooms for the customers. One survey found that 54% of the players
lived within 25 miles of the casino they attended. Eighty-six per cent of the players lived
in Illinois—even though five of the ten casinos were on rivers that were state boundaries
with Iowa, Missouri, or Kentucky. Only 17 out of 740 players interviewed (2.3%) stayed
at a hotel or motel, and several of these were not visiting the area in order to go to the
casinos. Rather than bringing money into the community, a preponderance of the players
were taking money that they would otherwise be spending on other activities in the
community, and instead spending the money at the casinos.
The limit on the number of casinos along with the restrictions on the size of their gaming
areas precluded any expansion of the casino businesses, and kept the properties from
advertising their properties to potential tourists. The Chicago Better Business Bureau
sent a survey team to Joliet, Illinois. They went door to door visiting 100 local
businesses. They had a simple question or two. Did the introduction of two casinos
(with four riverboats) into Joliet help or hurt your business? And, if it helped how did it
help. Approximately one half of the businesses said that they had seem no effect on their
business. However, almost one half found that their business had suffered—gone
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down—with the introduction of casino gaming in their town. Two business leaders just
glowed when the question was asked. Both asserted that business had never been better.
“Thank God for the Casinos.” One of the businesses purchased used cars for cash. The
supply of cars offered by owners for sale at fast and low prices was phenomenal. Turnover profits were great. The other business that witnessed improvement was a travel
agency. Ah! Ha! Thought the survey team. Here we find the benefits of tourism coming
to Joliet because of the casinos. The notion was offered to the director of the travel
agency, who responded with laughter. (Kind laughter). “No” No” “You don’t
understand, our many new clients are not people who have chosen to come to Joliet.
They are people who live in Joliet. Since the casino doors have opened, they have rushed
our doors, seeking our services. They are booking flights to Las Vegas.” Joliet casinos
certainly did affect tourism.
(c) Indiana: Following the Neighbor, But Bigger
The governor of Indiana vetoed legislation to allow riverboat casinos for his state.
However, on July 1, 1993, the legislature overrode his veto, and In December 1995, the
first of eleven casino boats opened its doors. Five boats operate as an oligopoly along the
shores of Lake Michigan. Each is permanently docked. Three boats constitute an
oligopoly in southeast Indiana operating within the Cincinnati, Ohio, metropolitan area.
There is a single monopoly boat on the Ohio River just north of Louisville, and another
on the Ohio River in Evansville. The eleventh boat is on a southern Indiana lake by
French Lick. A researcher was engaged to analyze the economic impacts for a proposed
boat seeking the single for a location near Louisville. His intent was to show how the
boat could result in an overall economic benefit for the entire Louisville metropolitan
region. Louisville is in another state—Kentucky. The company proposing the boat
emphasized to the researcher that the state of Indiana was not concerned about the
economic benefits for the region, but only two things—how many jobs would the boat
need, and how much tax revenue would the boat provide for Indiana. In a sense greater
tax revenues for Indiana would in and of itself be adverse to economic benefits for the
region—of both southern Indiana and the Louisville area as the taxes would be going to a
government hundreds of miles away in central Indiana. Back to the drawing table, the
researcher reduced the size of a hotel to a minimum, and cut back on restaurants and
showroom activities. He added gaming area to the equation. So the numbers were
changed and projected tax revenues increased. Didn’t really change the bottom line. His
company had hired the former lieutenant governor to lobby their proposal. A rival
company hired a former governor—and they proposed a bigger boat with a bigger casino
and more projected tax revenue. They won the license.
(d) Iowa: The Original Image, Crap Shooting With Huckleberry Finn
Iowa was first to put the boats on water. Riverboat gaming began in Iowa in 1991.
Twelve casino boats plus five race track casinos have been licensed. New casinos may
be permitted but local jurisdictions must approve their presence. Along with three Native
American casinos, the facilities stand as local monopolies except for three in the Council
Bluffs area and four in the Davenport area. Originally patrons were limited to a $200
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loss for each cruising session, and they were not allowed to have a single bet of more
than $5 at a time. These limits have been removed.
(e) Louisiana: Boats and The Blues
In 1992 Louisiana law authorized one land-based casino for New Orleans and 15
riverboat casinos. Racetracks, truck stops, and bars are also authorized to have slot
machines. Advertising was also strictly limited. The New Orleans casino was designed
to cater to tourist traffic; however, so that it would not compete with existing
entertainment venues in the city, it was not permitted to have a hotel or even a sit down
restaurant or café, or live entertainment. A tax of 18.5% on gaming was added to a
required annual fee of $100 million. The fee was later reduced to $50 million. Five of the
riverboat casinos are in the New Orleans metropolitan area, five in the ShreveportBossier City area, three in Baton Rouge, and two in Lake Charles. There are also three
Native American casinos in the state.
(f) Michigan: To Stop Gaming Dollars Going Over the Bridge
Voters in Detroit were given opportunities to approve advisory referenda on casinos on
several occasions. They voted in the negative in 1976, 1981, 1988, and 1993. However,
shortly after the 1993 vote, two things happened. The governor of Michigan approved
casino compacts for seven Native American tribes. (There are now twenty tribal casinos-all well outside of the Detroit Metropolitan area). Then on May 17, 1994, the
government of Ontario, Canada, opened a casino in Windsor, just one mile (over the
Detroit River’s Ambassador Bridge) from downtown Detroit. Detroit voters could see
the constant line of traffic over the bridge taking Detroit (and other Michigan) dollars
across the international boundary to be gambled in a foreign casino. In November they
approved an advisory vote calling for legalization of casinos in Detroit. Legalization,
however, required a change in the Michigan constitution.
The authors of the 1994 proposal put together a petition drive to have a statewide vote to
change the state constitution and permit three casinos for Detroit. The proposition was
put on the state ballot in 1996. It contained a lot of fine print that did not even appear on
the summary that was on the ballot in front of the voters. All they saw was that Detroit
was to have three casinos, and taxes would go to the state and the city of Detroit for good
causes. They approved the proposal with a majority of less than 52%. They had also
approved the fine print that stated that licenses for two of the casinos had to go to two
companies which had supported the 1994 referendum campaign. The Atwater Group
combined with Circus Circus Casinos to win one license, even though in the process
almost all the principals in Atwater (which was a 1994 sponsor) were found unsuitable
for licensing.
Greektown, another 1994 sponsor, combined with a northern Michigan Native tribe and
won the second license. In competition with eight other non-1994 sponsors, the M.G.M.
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company won the third license. Each of the three companies found existing properties in
decaying downtown Detroit areas and constructed appropriately large parking garages
and interior casino floor areas. Promises of completing hotel structures were delayed for
over 6 years, and in 1999 the gaming began. The casinos were full, but the players were
almost all from the local metropolitan Detroit area. A promise that the competition
would help defeat the existing gaming in Windsor was not realized. The Canadian
authorities approved a second casino in Windsor, and added almost one thousand slot
machines to the race track facilities also in Windsor. Casino Windsor constructed 390
hotel rooms after the Michigan legalization, and in 2001 they approved a $90 million
expansion with an additional 200 hotel rooms.
(g) Missouri: Regulation or Grabbing for the Big Dollar Sign
Riverboat casinos were first licensed on rivers of Missouri in 1993, and they began full
scale operations in 1994. At first the boats imposed a $500 loss limit on players during
each cruising session. Later the limit was dropped. Initially the casinos were allowed for
any county where voters had indicated approval of the gaming. In 2008 the state
indicated that there would be no more licenses than thirteen. In the early stages the state
was eager to find operators and they tended to overlook factors which might have
disqualified certain applications. Casinos applicants hired local attorneys who used what
some considered inappropriate influence over regulators to secure licensing. One such
applicant was a major Nevada firm, Stations. They won approval for licenses in Kansas
City and in St. Charles in 1997. However, their operations did not meet all state
standards, as they were fined over one million dollars and had their license suspended for
activities such as allowing persons as young as thirteen years old to make wagers. They
were permitted to sell their interests to Ameristar Casinos. After the state decided there
would be a permanent oligopoly with just thirteen casinos, the state regulators decided
that a qualification for a casino would be its size of operations. They applied this new
regulatory standard retroactively, as they withdrew a license from the President casino
which had operated as one of Missouri’s first with a boat that was underneath the Arch in
St. Louis. While the boat was making profits, they were not sufficient to satisfy the
Missouri Gaming Commission, who’s members also feared that the boat was in a state of
decay and its owners were not prepared to upgrade it. A new license was awarded to a
casino in Cape Girardeau which promised to bring in greater revenues.
(h) Mississippi: From the Coast to a Ditch, to the Shore
Next to Nevada, Mississippi comes the closest of any states to offering an open market
situation for casinos. There are 32 casinos, and like Nevada, casinos came to Mississippi
in an almost natural progression from an existing reality to a licensed phenomenon.
Several ships had offered cruises to nowhere from ports in Mississippi. There was a
debate over whether the ships could offer games while in waters of the Mississippi Sound
inside a line of outer islands in the Gulf of Mexico. The courts wrestled with the issue as
did the legislature. One ship was permitted to operate games during the dispute, and after
several tries the legislature granted permission for the games. However, the ship was not
sufficiently profitable and it ceased operations. The legislature in the meantime
13
witnessed the legalization of riverboat casinos in Iowa and Illinois and in the Summer of
1990 they also approved casino boats for ports on the Gulf of Mexico and along
navigable areas of the Mississippi River. The licenses, however, did not require that
boats make cruises, only that the gaming areas be above water below. Each casino boat
became a permanent structure containing a barge area with the casino floor. After
Hurricane Katrina devastated the Gulf Coast and all the casinos there, Mississippi
allowed them to be rebuilt on solid ground, but within 800 yards of the Gulf. Open
licensing found three casinos in Gulfport-Bay St. Louis and nine in Biloxi along the Gulf
Coast, eleven near Tunica in the north within an hour of Memphis, Tennessee, and eight
along the River in Greenville, Vicksburg, and Natchez. There is also one Native
American casino. While the licensing process is an open one, with the only restriction
being that the location of the casino boats must be in river or Gulf water counties where
voters approve the gaming, in 1996 the Casino board did reject a license for a fifth boat in
Vicksburg on the grounds that the boat would represent damaging competition to the
existing Vicksburg boats. In 2012, a license application for a new casino on the Gulf
Coast was held up so that architects could redesign the facility to accommodate a much
larger gaming floor.
(i) Nevada: The Reigning American Title Holder--Persisting
Nevada has an open licensing process with over 300 casinos in addition to 2000 gaming
locations with only a small number of slot machines (15 or under). The gaming is
permitted in all counties and cities with the exception of Boulder City which until 1960
was controlled by the federal government—the city had been established as a residential
area for workers on the massive Hoover Dam. While the casino gaming was legalized in
1931, it did not become the state’s dominating industry for a dozen years after that. In
the 1940s casino operators (of illegal establishments) from all over the United States
gravitated to Nevada to set up shop where it was legal. Prominent among them were
members of organized crime families. These “mobsters” met together and made a critical
decision. Las Vegas (and Nevada) would welcome anyone who wished to come and start
a casino. They did not have to be members of this crime family or than crime family, or
even any crime family at all. From the start, the casino entrepreneurs of Nevada
determined that their industry was to be open and competitive—there was to be no
monopoly in Nevada.
And so today, the casinos of Nevada, especially those of Las Vegas are very competitive.
In an interview Stephen Wynn, a major casino entrepreneur, stated that the Las Vegas
Strip was the essence of free enterprise. He had competed openly and vigorously with
other casino owners such as Sheldon Adelson, owner of the Venetian. “He would offer a
room deal, then I would have to offer a better deal, he would match me and offer better
odds on a game, and I would have to follow—it was cut throat, we were at each other’s
jugulars—AND I LOVED IT!” He offered that this competition was wonderful for the
players as they received the best deals and the best customer service. (23) The notions of
monopolies had been raised before as the federal anti-trust authorities had started actions
against Howard Hughes as he was buying up properties on the Las Vegas Strip in the
1960s. After he owned seven casinos, they suggested he own no more as he would be
14
controlling too much of the casino activity. Robert Maheu, aide to Hughes, found this to
be ironic in that he had arranged with federal officials for Hughes to buy Las Vegas Strip
properties as a means to end the influence of organized crime interests in Las Vegas (24).
Wynn was also upset in 2004 as The M.G.M-Mirage corporation had purchased
Mandalay Bay Casinos and was about to control over 50% of the rooms on the Strip and
70% of the non-gaming entertainment operations. While that came to be, both Adelson
and Wynn continued their growth activities on the Strip, and the competed against
M.G.M. operations very well.
A case of competition off the Strip is illustrative of Las Vegas activity. Three major
casinos ring the southern urban core of Las Vegas. Each appeals to gaming patrons
living in Henderson, the largest suburban city in the Las Vegas metropolitan area, and the
second largest city in Nevada. The casinos are the Green Valley Ranch (Constructed in
2001), the South Point (Built in 2005 as the South Coast, purchased by Michael Gaughn,
renamed South Point in 2006), and the “M” Resort (2009). The three are very
competitive (being within a fifteen minute drive of one another) and they look at each
other as their competition. They market their facilities primarily to local residents, while
they do have hotels and restaurants that appeal to tourists as well. Each has a sports
book.
Bradley Wimmer is a sports gamer as well as being an Economics professor at UNLV.
He seeks out friendly haunts of the casino sports books during football, basketball
seasons, as well as for major horse race events. He went to the Green Valley Ranch
shortly after it opened. There he could bet on basketball games, but on half-time results
for only selected games—a handful of the major games of the day. When Gaughn took
over control of the South Point, Wimmer found his seat at its sports book. He loved it, as
he was able to make bets on winners and on the total points for a game during the halftime of EVERY game.(25)
The Green Valley Ranch took notice, but by the time they had changed their rules and
allowed half-time betting on each basketball game, the “M” had opened with its sports
book operated by Cantor Gaming. It offered both half-time bets as well as bets on game
outcomes and total points scored during any timeout throughout the entire game for all
games. Wimmer found his car steering him a little further west and south to the “M”
Resort. This path to happiness lasted for but a short duration as both the Green Valley
Ranch and the South Point adjusted and also began taking bets on game outcomes during
timeouts throughout the course of the games. These changes gave the player more in
terms of gaming product and gaming enjoyment. However, they came with a cost to the
properties as each had to hire more staff to analyze all games, not just at their beginning,
but through their entirety, and the staff were thus exposed to more and greater dangers of
making mistakes, or simply not being as skilled in game analysis as the best gamblers.
The “best” gamblers in terms of skill started coming to the three casinos as major sports
books on the Las Vegas Strip were not willing to take the risks and lower profits realized
by the Green Valley Ranch, the South Point, and the “M” Resort.
(March 21, 2012 Interview with Bradley Wimmer, Associate Professor of Economics at
UNLV.)
15
(j) New Jersey: The Open Market Experiences the Power of a Monopoly.
New Jersey casinos, established by a vote of the people in 1976 and subsequent
legislation passed in 1977, are structured for free and open competition. However, the
casinos must be based upon land within the boundaries of Atlantic City. The high price
of land and construction costs in Atlantic City, along with a requirement for having 500
hotel rooms or more renders the local casino industry an oligopoly of 13 properties. The
casinos are permitted to have up to 50,000 square feet of gaming space along with their
500 room hotel. If they want more gaming space they must have at least 1000 rooms
(and an additional 500 for each additional 50,000 square feet of gaming space).
The New Jersey gaming law prescribes specific rules that must be followed for each
game that is played—each casino follows identical rules. The rules set minimum bets
made for each game. The government also places four regulators inspectors within the
casino during times of play—which originally was 18-20 hours a day, but now is 24
hours every day). This requirement was dropped in 2011. The license application
process is quite costly and labor intensive. As New Jersey had affirmed to the world that
its casinos would the most strictly observed and regulated in the world, they set out to
have stringent requirements which even included the décor and color combinations inside
the casinos.
While the state wanted to have such close regulations, a reality struck the regulators with
a vengeance in 1978 as the license application process was opened. Only one single
company stepped forth seeking to be licensed: Resorts International. Not only had the
New Jersey authorities promised very tight regulations that would keep out “bad people”
as casino operators (The governor had loudly shouted out to an audience of organized
crime mobsters that were quite likely not present as he signed the 1977 legislation—
“Keep your dirty hands out of Atlantic City.”), but they had also promised that the new
casinos would bring vitally needed jobs, urban renewal, and considerable tax revenues.
But these promises demanded that there would be many casinos, and here only one
applicant stood in line to get a license. (26) Resorts had been the largest financial donor
to the referendum campaign that won voter approval in 1976. But the newly created
Division of Gaming Enforcement (DGE) within the New Jersey attorney general’s office
investigated Resorts and found that close associates of the company had ties to organized
crime, and that the company exhibited many serious defects in the way they operated a
casino in the Bahamas. Moreover, the company had been notorious for bribing
government officials in the Bahamas. The DGE recommended that the final decision
maker on licensing—the newly created New Jersey Casino Control Commission
(NJCCC)—deny the license application.
The NJCCC had a dilemma. Either they could choose the squeaky clean path and deny
the license and thereby postpone (and no one knew for how long) the job creation activity
of a new casino along with its promised tax revenues, or they could fold to reality and
grant a license to a party recognized as an industry “bad actor.” They tried to follow a
middle path. They granted Resorts a temporary six month’s license. Resorts finished
16
remodeling an old hotel as a casinos, they bought equipment, and they hired staff. For
six months they operated as a complete monopoly in the field of casino gaming in the
eastern two-thirds of America. During those six months they made lots and lots of
money, but they did not clean up their corporate act. They offered abysmal customer
service and they sought to raise game limits skirting the regulations wherever they saw
the chance to do so, and they set payout percentages at the lowest levels allowed. They
were found to have been violating many regulations on a constant basis. Six month
lapsed, and the DGE again recommended that a permanent—or even a continuing—
license be denied to Resorts. But then, Resorts had hired over two thousand workers, and
they had given millions and millions of dollars to the state in casino taxes. The
legislature had calculate future tax revenue into the state budget. Money they had. What
the state did not have was a line-up of other companies seeking a casino license. They
only had Resorts. They gave Resorts a permanent license. For another eight months
Resorts operated their casino as a monopoly until the second casino opened its doors in
Atlantic City. Their profits were phenomenal.(27)
(k) Pennsylvania: Just Make it Bigger
The legislature of Pennsylvania studied the question of having slot machine casinos in
2003. In a hearing a researcher examined potential revenues of a projected 35,000 slot
machines which were to be placed at fourteen separate (monopoly) locations. Actually
Philadelphia and Pittsburgh could have multiple locations in separate parts of each
metropolitan area. He looked at revenues based upon what slot machines won from
players in New Jersey and Delaware, but he also looked at the source of the players—
mostly Pennsylvania residents, and he looked at where casino winnings would go—to out
of state casino owners in most cases, to out of state suppliers of slot machines
(manufacturers located in Nevada), and other suppliers, some in and some out of
Pennsylvania. He also looked at the path taxes would take as they left the casinos—to
Washington, D.C., and too Harrisburg, Pennsylvania. The final conclusion he offered
was that even if Pennsylvania could rescue a good share of current gambling dollars
going to New Jersey and Delaware, the overall equation found that more money would
leave Pennsylvania than come into Pennsylvania as a result of having the machines.
A month after the testimony the research received a call from the governor’s office—the
governor supported the idea of having the casinos. His staff wanted the research’s
opinion. If they had 35,000 machines, could the state retrieve over one billion dollars in
taxation? Taxation was one item in his analysis. He agreed to apply the analysis for this
single factor with the understanding that standing alone this would not be a conclusion in
favor of or against the casinos. He plugged the numbers in. Assuming a tax of 33 1/3%,
the answer was “yes.” 35,000 machines could make $90,000 each, meaning that each
would produce $30,000 a year in state taxes or $1,050,000,000. The governor was
happy. He told his legislative colleagues to revise their bill. The legislation was passed.
On July 5, 2004, he signed the bill authorizing fourteen casinos (seven at horse race
tracks and seven “free standing”), each with up to 5000 slot machines, with a maximum
of 61,000 machines for the state. The first casinos opened in 2006. By 2009, after all
were opened the state was realizing over $1.3 billion in casinos taxes, with a third more
17
coming into local governments. In 2010, the state began allowing the casinos to have
table games. One thing motivated all state activity on gaming—tax revenue.(28)
(l) Ohio: A Monopoly Created by The Monopolists
(Not considered in analysis, as the casinos are just beginning to open in mid-2012) In
2010 voters in Ohio approved four monopoly casinos for Toledo, Cleveland, Columbus,
and Cincinnati. In actuality, the Cincinnati casino must share its local market with three
casino boats under Indiana jurisdiction. Somehow the sponsors of the Ohio vote were
able to sneak by the details of their proposal to the voters with a promise of economic
benefits such as jobs and taxes. The little detail that went almost unnoticed
until the votes were counted was that the proposition determined just who was going to
own the casinos. They were put out to bid. One party—the owner of sports teams in
Cleveland, was given ownership of two of the casinos. Post vote protests led to a
legislative approval of slot machine casinos at each of seven horse race tracks in the state.
The first casino opened in May 2012 in Cleveland.
(m) South Dakota: Reviving Wild Bill Hickok
The town of Deadwood South Dakota gained a “Wild West” reputation in the Nineteenth
Century. It was noted for offering “sin” opportunities for cowboys and fortune seeking
miners. Wild Bill Hickok was shot in the back during a poker game in 1876. In the
Twentieth Century Deadwood exhibited its historical roots as it appealed to tourists. An
attempt to win more tourist trade, casinos were proposed. However South Dakota voters
defeated a casino vote in 1982. The tourist activity took a major hit after a fire destroyed
much of the downtown area in 1987. City fathers responded by sponsoring another
casino referendum in 1988. This time South Dakota voters said yes, and in 1989, after
local voters gave a second approval, casinos opened. Now there are 30 small gaming
halls offering Blackjack, poker, and slot machine activity. Each casino is limited to
having 30 slot machines or table gaming seats. Originally bets were limited to $5, but
there is now a $100 bet limit. The state imposes an 8% gaming tax, with the money
going to support gaming regulation and to tourism development for the local Black Hills
region. Other areas of South Dakota have eight Native American casinos, while bars,
restaurants and hotels across the state are each permitted to have a limited number of slot
machines. When Deadwood was open to casinos, bets were limited to five dollars per
play. The limit is now one hundred dollars.
(n) West Virginia: From Racino to Casino
The West Virginia legislature authorized an experimental installation of video gaming
machines--keno machines, poker machines, and machines with symbols--at Mountaineer
horse racing track beginning on 9 June 1990. At first, only seventy machines were
installed. During the experimental time the number grew to 400 in 1994, most of them
being keno machines. The first machines had payouts of 88.6 percent. During a three18
year experimental period the lottery agreed not to put machines in other locations. Now
machines are at the three other tracks as well: Charles Town, Wheeling Island, and TriState—the latter two being dog track facilities. The tracks keeps 70 percent of the
revenues, and 30 percent goes to the state. There are now over eleven thousand machines
at the tracks. Lottery machines are also permitted in over a thousand bars and taverns. In
response to the expansion of gaming in Pennsylvania, in 2007 the state legislature
approved a measure allowing casino table games at the four tracks if they receive local
voter approval. The approvals were secured, and four full casinos operate in the state.
6. Classifying and Ordering American State Venues
For analysis of effects, it is necessary to classify the 13 American venues in order going
from the most monopolistic to least—ergo most competitive. To do so we look at the
numbers of casinos permitted, their locations vis-à-vis one another, and to whether new
casinos may seek licenses.
At the top of the list will be the seven casino venues which have determined that there is
a set limit on the number of casinos and that no more will be permitted. These will be
arranged by the number of casinos permitted and by their geographical spread.
Table 3: The Order of States—Most Monopolistic to Most Open (29)
Closed numbers of casinos
West Virginia
Pennsylvania
Michigan
Illinois
Indiana
Missouri
Louisiana
4 monopoly casinos
14 monopoly-oligopolistic casinos
3 oligopolistic casinos
10 monopoly-oligopolistic casinos
13 monopoly-oligopolistic casinos
13 monopoly-oligopolistic casinos
16 monopoly-oligopolistic casinos
The six remaining venues do not limit numbers of casinos:
Iowa
New Jersey
South Dakota
Colorado
Mississippi
Nevada
17 monopoly-oligopolistic casinos
13 limited location-competitive casinos
30 limited location-competitive casinos
40 limited location-competitive casinos
30 competitive casinos with some limits on locations
300+ competitive casinos
7. Measures of Impacts of Monopoly on Industry Outputs
The literature on monopolies suggests that their major impacts are upon pricing and
providing quality services to customers. The general theory advanced is that a monopoly
industry structure will burden the customer with artificially higher prices and also lower
19
quality goods and services. It is difficult to measure these factors in relation to the
casino industry as there are not many price points on a casino gaming floor that can be
accurately assessed across large numbers of casinos. Players do not pay a set fee to play
games. And while the games offered do return benefits to the player in terms of wins
according to odds on each game, most games are played with the same rules and odds
over many casinos, and where differences exist they are not such that they can be easily
determined and used in analysis. Also where there are differences, they are as likely to
be found within the same casinos as to be found across several. Ergo, a blackjack game
may offer slightly different rules if the game is for low stakes ($5) as opposed to high
stakes ($100 and over) the subtle, or if it is dealt from a shoe, and automatic card shuffler,
or from a single deck. Roulette wheels may offer a house advantage of a single zero, or
they may offer double zeros. Yet in America, wheels with single zeros are extremely rare
so as to make comparisons not fruitful. Within some foreign casinos wheels or both
types may appear on the same gaming floor.
There is one measure that can be used to assess the value of one gambling offering.
Slot machines make random payouts to players. However, the odds that exist over long
terms of play are amazingly consistent for specific casinos and venues. They are also
reported in official records. Of the thirteen state venues only Michigan makes no report
of payoff percentages. While five cent, twenty-five cent, and dollar and others vary, the
reports typically report machines for each denomination as well as the rates for all
machines together in a casino.
Of the thirteen casino states in this analysis, four (Illinois, Indiana, Iowa, and Missouri)
report payout percentages for individual casinos. These and eight others make reports for
all machines in the venue.
(a) Monopolies and Slot Machine Payouts
The theory of Monopoly Impacts will be first tested with the hypothesis that
“Monopolistic Casinos Industry Structures will demonstrate lower slot machine payout
percentages than will Open Competitive Structures.”
20
Table 4. Monopoly Structures and Pricing: Slot Machine Payoff Percentages
States (from most monopolistic and limited--closed--casino numbers to most competitive
and open for new casinos). Closed means no more casinos will be allowed. (30)
Closed States
West Virginia
Pennsylvania
Michigan
Illinois
Indiana
Missouri
Louisiana
Slot Machine % Payoff (median casino)
89.78
90.76
------91.58
91.28
90.85
90.90
Open States
Iowa
New Jersey
South Dakota
Colorado
Mississippi
Nevada
(Median—all states: 91.09
90.86
91.28
90.99
92.32
92.56
93.80
7 closed states-minus MI: 90.88
6 open states: 91.80)
The hypothesis presented is accepted. Monopoly structured casino industries in state
venues have a tendency to suppress slot machine payouts, hence raising the price of
gaming for the players. The casinos in the closed states hold 9.12% of the money played
in machines, while 8.20% was held by the casinos in the open states. The 0.92 difference
represents a hold for the closed casinos that is over 9% higher than the hold in the open
states. Clearly, open competitive venues offer higher payouts, ergo better prices for the
players.
(b) Service Quality Attributes
As mentioned above, it is difficult to find price points on casino floors, at least prices that
can be compiled for comparisons among large numbers of casinos. However, there are
attributes of casino operations which have may major impacts upon the service quality of
casinos, and also to the values that casinos add to their communities, and to their player
base. Data were collected on several of these attributes, namely job numbers, numbers of
hotel rooms, convention space, and numbers of restaurants and entertainment venues in
casinos.
21
For each attribute, casino revenues were examined so that we can assess the amount of
casino revenue associated with one casino job, one hotel room, one square foot of
convention space, one restaurant, and one entertainment venue in the casino.
The data were accumulated for each state, and also for individual casinos in four selected
states. The data are presented on tables 5, 5a and 6. The data are used to test the
hypothesis that Open Competitive Casino states will offer better service quality than will
closed monopolistic casino states. (31)
Table 5
Casino Revenues, Jobs and Amenities (2009) Closed States
STATE
Revenues Jobs Hotel Rooms Conv Space Restaurants Entertain Ven.
(Closed)
WVA
$906m
4688
663
37,800
29
10
Revenue Per Unit $193,171 $1,365,852 $23,957 $31,241,379 $90,559,000
PA
$3549m
Rev. Per Unit
14,925 488
$237,453 $7,262,295
38,500
$92,052
62
7
$57,161,290 $506,285,710
MI
$1339m
Rev. Per Unit
8122
800
$164,861 $1,673,750
32,735
13
10
$40,904 $103,000,000 $133,900,000
IL
$1429m
Rev. Per Unit
7083 1116
$201,751 $1,280,466
50,100
40
13
$28,523 $35,725,000 $109,923,070
IND
$2799m
Rev.Per Unit
15,857
4028
$176,515 $694,886
179,050
70
$15,633 $39,985,714
MO
$1730m
Rev.Per Unit
10,961
2567
$157,832 $673,938
LA
$2456
Rev.Per Unit
17,610
4523
$139,466 $543,002
184,550
57
$9374 $30,350,877
25
$111,960,000
24
$72,883,333
119,940
74
19
$20,477 $33,189,189 $129,263,150
TOTALS FOR 6 CLOSED MONOPOLY-OLIGOPOLY STATES
$14,208 m
79,246 14,185
642675
345
108
Rev.. Per Unit
$179,290 $1,001,621 $22,108 $41,182,608 $131,555,556
22
Table 5a Casino Revenues, Jobs and Amenities (2009) Open States
STATE
(Open)
Iowa
$1381m 9241
Rev/Per Unit
$149,443
New Jersey $3943m 36,377
Rev/Per Unit
$108,392
1627
$848,801
16406
$240,339
101,320
55
$13,630 $29,109,090
768,669
$5130
151
57
$26,112,582 $69,175,438
South Dakota $102m 1765
Rev/Per Unit
$57,734
1148
29,850
$88,763 $3414
Colorado
$735m
8821
Rev/Per Unit
$83,277
1392
61,928
$527,723 $11,862
75
$9,794,533
Mississippi $2465m 25,739
Rev/Per Unit
$95,769
12,936
0,554
130
$18,961,538
346,875
$7160
23
$60,043,478
44
$2,315,909
Nevada $10,393m 177,397
Rev/Per Unit
$58,586
148,975 11,683,792
1283
$69,763
$890
$8,100,546
TOTALS
$19,019m 259,340
Rev/Per Unit
$73,336
182,484 12,992,434
1738
$104,223 $1464
$10,943,037
2
$50,950,000
10
$73,459,000
47
$52,446,808
375
$27,714,666
514
$37,001,945
------------------------------------TOTALS WITHOUT NEVADA---------------------------$8626m
81,943
33,509 1,308,642
455
139
Rev/Per Unit
$105,268 $257,423
$6592 $18,958,241
$62,057,553
The information of Tables 5 and 5a suggest that we may initially confirm the hypothesis
presented. Data shown consistently reveal that the open market states offer more
employees to serve their guests, as well as having more amenities—hotel rooms,
convention space, restaurants, and entertainment offerings. While the hypothesis may be
confirmed, a note of the persistence of an outside variable must be mentioned. The
taxation element is discussed along with the same data set in a previous study cited in
note 31. The monopoly states have higher gaming tax rates, and these are also associated
with lower job numbers, as well as lower levels of amenities.
The six “closed” states have a total of 79,610 jobs in their casinos. With gaming
revenues of $14.2 billion dollars a year (2009), it can be seen that it takes $179,290 in
gaming revenue to produce one job. However, the seven states with open casino
23
competition have 259,340 jobs produced by revenues of $19.0 billion—or only $73,336
for each job. For each dollar spent by gamers, and for each single gamer, there are more
employees in the open market states. This impacts upon quality. Very recently the state
of New Jersey took a license away from one of the Atlantic City casinos. There was a
litany of abuses which contributed to the casino’s disqualification. However, high on the
list was the fact that the casino had engaged in the practice of wholesale employee
layoffs. In turn the casino had established a record of having unclean and unhealthy
facilities along with many complaints about customer service. Job numbers made a
difference. It can be noted on the tables (5, 5a) that the differences between closed and
open venues held firm even when Nevada was removed from the equation.
Casino amenities off the gaming floor have the capacity to add value to the casino
community and to the base of casino players. Hotel rooms add attractions to a
community as do convention facilities, restaurants, and places of entertainment.
The seven closed states have 14,185 rooms, or one room for each $1,001,621 in gaming
revenue. The six open states have 182,484 hotel rooms or one for each $104,223.
Taking Nevada out of the equation, the five other open states produce one room for
$257,423.
One square foot of convention space was associated with $22,108 of casino revenue in
the seven closed states, but only $1464 in the six open states ($6592 in five open states,
without Nevada.) One restaurant (there were 345 in all) in the closed states was tied to
$41,182,608 in gaming revenue in the closed states, but only to $10,943,037 for each of
the 1738 restaurants in the six open states ($18,958,241 in the five states minus Nevada).
There were 108 entertainment venues in the six closed casino states. Each came along
with $131,555,556 in gaming revenue. In the six open states had gaming revenues of
$37,001,945 for each of 514 entertainment venues, and without Nevada $62,057,553 for
each of 139 entertainment facilities in the five open states.
8. Price Points and Service Quality and Monopolistic Casinos in Four Selected
States
A further analysis takes us to four states, all of which are monopolistic-oligopolistic
venues. Three states—Illinois, Indiana, and Missouri—are closed venues, with no more
casinos permitted, while the other—Iowa—maybe open to new licenses. The individual
casinos in these states (with two exceptions for new casinos) provide information on their
slot machine payoffs as well as the service quality attributed examined. Of the 51 casinos
in the states (that were opened for all of in 2009), 20 were monopoly facilities in that no
other casino was within 50 miles. Thirty one were in oligopolistic settings having
competing casinos within fifty miles.
If we advance the same two hypotheses for these sets of casinos we should expect that the
Monopolistic set of 20 casinos will have higher slot prices—meaning lower payout
percentages to the players, and that they will be less likely to have the service quality
factors than top competitive casinos.
24
The data may reject these hypotheses. Slot machine payoff percentages were not
distinguishable—the 20 Monopoly casinos had a slot payoff percentage (median) of
91.08%, while the 31 Competitive casinos had a payoff (median) of 91.07%.
On the service quality factors the evidence was directly contrary to the hypothesis.
Jobs in the monopoly casinos came with gaming revenues of $124,900, but in the
competitive states with $173,200. Hotel rooms: monopoly unit price $591,300, and with
competitive casinos, $828,500. Convention space: monopoly unit price $6.6 square foot,
competitive casinos, $$16.2 square foot. The monopoly casinos had a restaurant for
each $22,448 in gaming revenue, and an entertainment venue for each $49,517. The
competitive casinos had a restaurant for $31,760, and an entertainment facility for $each
103,223 in gaming revenue.
Before we suggest that the evidence offers a rejection of the hypothesis, we might
suggest another explanation. All of the casinos are in states with monopolistic and
oligopolistic casino industry structures. While Iowa could allow new casinos, it is
unlikely to do so in the short run. The casinos whether monopolistic or in in local
oligarchies, they can expect an artificial market stability not present in the other open
states. Perhaps in these venues, monopoly casinos can experience greater levels of
profits, and can use these to hire extra staff and invest in amenities which improve
service quality—however, the evidence suggests this spread of factors only in the
selected states, and not across all casino states where opposite findings are in evidence.
Table 6. Price and service factors of individual casinos—in monopoly settings and in
competitive settings in selected states
(Casinos in Iowa, Illinois, Indiana, and Missouri—Monopoly casino defined as only
casino w/in 50 miles and Competitive as a casino with another casino(s) w/in 50 miles.
*Slot Payoffs are collective medians)
CASINO REVENUES, JOBS AND AMENITIES (51 casinos in IA, IL, IN, and MO)
Revenue Jobs Hotel Rms Rest.
Entert. Conv. Space Slot
Venues
Payoff*
MONOPOLY (20) $l.7 b
Rev. per unit (thousands)
13469
2847
75
34
$124.9 $591.3 $22,448.0 $49,517.6
COMPET’VE(31) $5.4 b 30,987 6479
169
52
Rev.per unit (thousands) $173.2 $828.5 $31,760.9 $103,223.1
9. A Summary Note: Future Research
25
256,357 91.08
$6.6/sq.ft
332,098
91.07
$16.2/sq.ft.
While data presented on tables 4, 5a, and 5b support the hypotheses advanced that
monopoly-state casinos will both offer higher prices for their products and yet offer fewer
amenities suggesting they give customers fewer benefits overall, this is not a definitive
report, but rather should be seen as exploratory and preliminary. The findings (or nonfindings) on table 6 did not support or reject the hypotheses. The suggestion at this
bottom line stage of this report is that more research in this area could be valuable. We
need to aim at making definitive findings. Casino gambling legalizations may have
reached a “tipping point” and many new states will soon be setting forth industry
structures for their casinos, the matter deserves more research. Replications of the
approaches taken here would be valuable. So too would cross-venue studies that utilized
sample surveys of large numbers of players regarding their perceptions of service quality
in casinos they have visited.
10. Parting Discussion—Of all Industries, Why Should Casinos Be Monopolies?
The literature suggests that some industries are appropriate ones for having monopoly
enterprises. Do casinos fit the bill as part of such industries?
(a) Monopolies may be established if authority figures are concerned that
society’s need for the product of the monopoly is critical and that the monopoly
may not be successful if confronted with vigorous competition. Ergo, as electric
power is vital, the power producers should be monopolies. The same may be
offered for utilities producing drinking water and services for cleaning waste
water. In Sweden the government has a monopoly over sales of alcoholic
beverages, limiting consumption, and keeping prices high. They do this with
notion of protecting the public.(32)
However casino gambling is simply not a product or service that is vital for
society. At best it is a recreational service that may be enjoyed by many with
potential but not necessary economic benefits. At worse, as its moral critics may
assert, it involves activity that can become addictive and quite harmful to the
individuals involved in gambling and also to the general society. No reasonable
assessment would offer that casino gambling fulfills such a critical need for
society that its institutions need the special protection of monopoly status. The
special protection that Sweden feels is necessary for alcoholic beverage sales is
manifested with limited consumption. Governments as well as private casino
monopoly owners do the opposite. They seek to raise levels of consumption in
order to realize higher profits as well as taxation levels.
(b) Monopolies are supported with the notion that certain businesses need especially
large capital investment. (33) Accordingly they find that investors (banks, etc.)
are reluctant to furnish capital funds without the assurance that the businesses will
achieve a high profit level—levels that only monopoly businesses can achieve. It
is also recognized that if competitive enterprises seek to offer the same product
there will be major inefficiencies with duplicate investments such as multiple
telephone poles on the same street, or duplicate sets of train tracks over the same
26
pathways. Certain modern casinos may carry costs approaching several billions
of dollars, however, such high costs are not necessary to produce casino facilities.
Casinos historically have been created as side rooms off of other facilities. In the
not too distant past (and yet even today) some casino gaming facilities are but
temporary locations for playing of games simply using decks of cards or pairs of
dice. Such were the nature of the riverboat casinos of Nineteenth Century
America. Moreover, it can be noted that the most extravagant casinos today--ones
with investments over a billion dollars each, are found in very competitive market
places such as Las Vegas, Atlantic City, Macau, and Singapore. Casinos do not
need monopoly protection in order to attract capital investment funds.
(c) Monopoly protections are supported with the hope that profits guaranteed by
monopoly status may be used to develop new innovative products that will be
beneficial for society. (34) While casinos are constantly tweaking their games
with rules changes and graphic appeals, the level of innovations in casinos is
minimal. The games in casinos are very old and the equipment of the games has
been around for centuries. Casinos do not sell products; they sell services. The
innovation in their service delivery is not capital intensive. Most casino
innovations have come either from suppliers who sell to all establishments, or
from the minds of entrepreneurs who likely as not are located in competitive
casino facilities.
(d) Efficiency is often offered as a reason to support monopolies. (35) One scenario
holds that many competitive establishments operate with the same customer base,
then one performs more effectively and with greater efficiency. Their costs are
reduced, and subsequently they reduce the prices they charge and expand their
facilities. Their competitors are unable to meet their prices, and they lose their
customers, and the most efficient enterprise forces the others out of business.
Hence the most efficient wins a monopoly position in the economy. This
rationale for monopolies—to the most efficient go the spoils—cannot apply to the
casinos in this study. These monopoly casinos did not earn their monopoly
standing. Their standing was given to them by the government. Some did earn
their governmental gift through a competitive bidding process, but many did not
even do that—being the sole qualified bidder for a casino license in a particular
location.
(e) There is an argument that monopolies may exist, if they are subject to strict
government regulations. (36) Some may even suggest that monopolies are good
because they necessitate strict regulation. Does the rationale fit the casino
industry? Hardly. Strict gaming regulation was first applied to casinos in the
state of Nevada, at a time—the 1950s—when the industry had already developed
along the lines of open competition. More strict regulation came to the casinos of
England in 1968, after the casinos had been operating on a competitive model.
Atlantic City, New Jersey, casinos were hailed as the most strictly regulated, after
licenses were granted to a competitive number with more licenses welcomed.
27
Rules that casinos had to have a certain level of amenities (such as a number of
hotel rooms) came to Nevada, New Jersey, and Mississippi—all competitive and
open casino states. The opposite occurred in New Orleans where a monopoly
license for a land-based facility came with a restriction—the casinos could not
have hotel rooms or even sit-down restaurants. Nor could it have a show. So
much for the argument!
None of the rationales supporting monopoly status for a business enterprise applies to
casinos.
Notes
1. See Dombrink, J, and Thompson, W. The Last Resort. Reno: University of
Nevada Press. 1990.
2. J. Roper and D. Zin, “Monopolies, Duopolies, and Oligopolies,” pp. 1401-1405,
in Kolb, R., Encyclopedia of Business Ethics and Society. Los Angeles: Sage,
2008; Massel, M. Competition and Monopoly, Washington, D.C.:The Brookings
Institution, 1962, chapter One; Mansfield, E. ed., Monopoly Power and
Economic Performance. New York: WW Norton, 1968; Dewey, D. Monopoly in
Economics and Law. Chicago: Rand McNally, 1959; W. Adams, “Public Policy
in a Free Enterprise Economy,” pp. 475-502, in Adams,W. ed., The Structure of
American Industry, 6th ed., New York: Macmillan, 1982.
3. See Roper, Ibid., p. 1404.
4. Ibid.
5. Massel (note 2, supra) , pp. 42-82.
6. Dewey (note 2 supra), pp. 37-41.
7. Roper, Ibid., p. 1401.
8. Thompson, W. “Casinos de Juegos del Mundo: A Survey of World Gambling.” In
Gambling: Socioeconomic Impacts and Public Policy (special volume of the
Annals of the American Academy of Political and Social Science), edited by
James H. Frey, 11-21. Thousand Oaks, Ca: Sage, 1998.
9. Named venues in Cabot, A., Thompson, W., Tottenham, A., and Braunlich, C.,
eds., International Casino Law, Reno: Institute for the Study of Gambling,
University of Nevada, 3rd ed.,1999.
10. Ibid.
11. Thompson, W. International Encyclopedia of Gambling, Santa Barbara: ABCClio, pp. 455-457.
12. Thompson, W. “Two Countries—One System: Las Vegas and Macau—Sharing
the Future,” Gaming Law Review and Regulation, March 2012 (#3), pp. 81-90.
13. Ibid.
14. Cabot, A., Thompson, W., Tottenham, A., Braunlich, C., (op cit., note 9), pp. 323480.
15. Thompson, W. International Encyclopedia of Gambling, Santa Barbara: ABCClio, 2010, pp. 553-571; 573-576.
16. Ibid., 39-148; 546-550.
17. Ibid., 584-586.
28
18. Thompson, W., “Casinos in Las Vegas: Where Impacts are Not the Issue,” pp.
104-106, in Hsu, Cathy, ed., Legalized Casino Gaming in the United States, New
York: Haworth, 1999.
19. Thompson, W., and others “Canada and Mexico, et. al,” in International; Casino
Law, 1999. (Supra Note 9), pp. 169-216. International Encyclopedia of
Gambling, pp. 386-404. (Supra Note 15).
20. Bennett, P. , Leyshon, K., Horne, P., Caillard, P., Falvey, R., Nagel,T, “Australia
and South Pacific,” pp. 543-593, in Cabot, Thompson, Tottenham, Braunlich, op.
cit., note 9; and entries in the International Encyclopedia of Gambling,(op cit,
note 15), pp. 382-385.
21. See entries under each country, International Encyclopedia of Gambling(Ibid.),
pp.361-381.
22. Ibid., see entries, pp. 524-596; also entries in International Casino Law(Note 9),
pp. 17-153; and Thompson, W., ed. International Casino Law and Regulation,
2008-2012; Boulder Co: International Masters of Gaming Law.
23. Interview with Stephen Wynn, Las Vegas, September 21, 2004.
24. Interview with Robert Maheu, Las Vegas, June 7, 2007.
25. Interview with Bradley Wimmer, Las Vegas, March 21, 2012.
26. Interview with Richard J. Codey, Center on the American Governor, Eagleton
Institute of Politics, Rutgers University, March 23, 2010.
http://governors.rutgers.edu. Retrived May 6, 2012.
27. Lehne, R. Casino Policy, New Brunswick, NJ: Rutgers University, 1986, pp. 8993.
28. Thompson, W., “Gambling Taxes: The Philosophy, the Constitution and
Horizontal Equity,” Villanova Sports & Entertainment Law Journal, v. 17 (issue
2), 2010, pp. 389-420.
29. See entries in International Encyclopedia of Gambling (Supra note 15), pp. 524595.
30. American Casino Guide, Slot Machine Payback Statistics. www.americancasino
guide.com/slot-machine-payback-statistics.html. Retrieved May 6, 2012.
31. The data is utilized in a previous article: Thompson, W. “Casino Taxes:
Accentuating the Negative,” Gaming Law Review, v. 15, #7, September 2011, pp.
599-608. Sources for data include American Gaming Association, State of the
States 2010; North American Gaming Almanac, 2010.
32. “What is a Government Monopoly?” eHowmoney.
www.ehow.com/about_5471337_government-monopoly.html Retrieved May 7,
2012.
33. Dewey, op. cit. note 2, p. 50.
34. “Firm Size and Innovation.” www.pauklein.com/monopoly/monopoly.htm
Retrieved May 7, 2012; “Potential Benefits from Monopoly.” tutor2u
www.tutor2u.net/economics/content/topics/monopoly/benefits of monopoly.htm
Retrieved May 6, 2012.
35. Dewey, pp. 50, 66; Walters, S. Enterprise, Government, and the Public. New
York: McGraw Hill, 1993, p. 218; See Slichter, S., “In Defense of Bigness,” in
Mansfield (see note 2), pp. 13-18.
36. Adams, W., op. cit. note 2, pp. 488-492.
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