The Moderation Conversation: Gambling in the Jersey Swamps

This is the fourth installment of “The Moderation Conversation,” an RM feature in which Matt and Chris meet for a live chat and completely rewrite the subsequent transcript so as to appear significantly more eloquent than they actually are. The conversation topic for this edition was gambling in New Jersey. What is the likelihood of casinos opening in North Jersey? Is the proliferation of online gaming throughout the state a good thing? Are there national implications for the Garden State’s current gambling policies? Read on for RM’s thoughts.

Gambling in the Tri-State Area

Chris: So Matt, we’re in a Starbucks. It’s a Saturday night. And we want to talk about gambling in New Jersey.

Matt: I like how you set the scene.

C: Yeah. There’s warm lighting… nice music…

M: It’s almost like a casino!

C: [Laughs] So yeah, in Atlantic City [in southern New Jersey], gambling has been going on for quite a few years now, and recently there have been proposals to move gambling to the Meadowlands [in northern New Jersey]. And online gambling was legalized in Jersey in 2013.

We wanted to talk about how this is going to affect the region and whether it’s a good idea for expanded gambling to come to New Jersey. What are your thoughts?

M: I’m in general opposed to a significant expansion of gambling. Historically speaking, legalized gambling had been restricted to Atlantic City and Las Vegas, and then some people started to argue that that was unfair because New Jersey and Nevada could reap the benefits of legalized gambling while other states couldn’t. They said we should try to expand it further so all states could share equally in the benefits. But I’m not so sure there are a lot of benefits. And I’m not so sure that the states that have legalized gambling are actually any better off than the states that don’t.

C: Okay.

M: I don’t think that it’s a boost to local economies; in fact, I think in a lot of respects it’s a drain on local economies. I think that the tax revenue that comes from legalized gambling is not so much the result of any new economic activity that’s generated as it is just a redistribution of wealth from low-income communities to the government. What are your thoughts?

C: I would tend to disagree with you. I think a limited expansion of gambling, specifically in North Jersey, would make sense, and I’ll go into specific reasons why in a little bit. But to address what you said about local economies: I take your point about gambling revenue, but I don’t think that’s the whole story. I don’t have any data on the extent to which revenue from Atlantic City gambling has been benefiting the state, particularly over the last decade or so, but my understanding is that since revenue has been declining in recent years there has been a decline in the quality of services that are offered by Atlantic City. And that decline has been hurting merchants that are down there, too. You see a lot of problems with restaurants and tourism more broadly.

M: But if the goal of legalizing gambling is to stimulate other kinds of economic activity, then why not try to stimulate that activity directly? Why not create tax-free zones to incentivize restaurants to move into an area? I mean, if your priority is not so much collecting tax revenues off of the gambling itself as it is trying to grow these other businesses, then why not just go directly for that?

C: Well, the reason people come to these restaurants, at least in Atlantic City, is because gambling is the main attraction. They go there for a week or however long for the purpose of gambling and the money they spend on restaurants is ancillary to that purpose. And I’d say that’s the reason why legalizing gambling in the Meadowlands would be beneficial: you have the entire New York City market right there. So you would have people coming out to New Jersey then not only to spend money on the casinos – say, perhaps, around MetLife Stadium or wherever else in the Meadowlands – but also on any other local attractions and businesses.

M: Didn’t New York have some sort of limited expansion of casinos last year?

C: They did in northern New York, but nowhere in the New York City area. I think there might be some legalized gambling on Long Island, and there is definitely a casino in Yonkers, just north of the Bronx. But given you have a target market there that’s very, very large, it would make sense to provide an easy access point for those consumers to get to.

 

Casinos, Market Competition, and Online Gambling

M: Do you think that at some point, though, the market would just become oversaturated? Part of the reason why Atlantic City was so lucrative for casinos was that it was virtually the only place east of Las Vegas where you could gamble legally. And if we start to expand gambling so much that we have casinos all across New York state, all across New Jersey, wouldn’t that sort of diminish the value to a casino owner of building a casino? How much of the market am I really going to claim if there are already casinos all around me?

C: Possibly, but I think more competition would be good in this case. I would think having more casinos would be better for making sure that they’re paying out well and/or not encouraging negative behavior on the part of their customers. That is, they would actually try to take steps to make the experience better, and there could be heightened checks to prevent problem gambling.

M: Well, I think that one of the cruxes of the disagreement here is whether casinos would actually have reason to curb negative behaviors. It seems like casinos have a financial incentive for people to continue gambling as much as possible. It seems like the business model of a casino is built around people not exercising a lot of self-control. So I’m not sure how having legal casinos would do anything to address people having gambling problems.

C: I’d posit that having physical gambling establishments is actually more conducive to solving this problem, especially in light of the concurrent rise of online gaming in New Jersey. You’re definitely right – legal casinos don’t necessarily have the incentive to help people limit their gambling addictions. But any potential rise in online gambling would exacerbate this problem significantly because it involves people being able to gamble basically any time of the day at any place. There are very few ways to get people to consider their actions through an online system, right? You have no way to really tell people that they should take a break or get help.

So in that regard, an increase in brick-and-mortar gambling locations instead of expanded internet gambling would be more likely to temper problem gambling. Physical establishments present greater barriers to that kind of destructive gambling. There are costs associated with going out to gamble, like taking transit, staying at a hotel, etc. There’s also the ability for people on site to monitor the behaviors of people gambling. The state could probably step in and say, “If you open a site, you’re going to have to adhere to very specific restrictions on what you can allow your clients to do.”

M: Mhm, that’s true. It could be more tightly regulated. So am I understanding you correctly that you’re generally opposed to internet gambling?

C: Yeah, very much so. I think that’s much more of a problem, and I actually wish New Jersey would take steps to roll back online gambling while it’s still in its infancy. The revenues generated in its first few months have been way, way below expectations. I think it was like a tenth of what New Jersey originally anticipated.

Which I think is a good thing, at least in the short term. We don’t want that to get to a point where a lot of people are consistently gambling and losing money. And given the possibility that online gambling continues to grow in popularity, now would be the time to limit its accessibility.

M: Right. Okay. So I guess that’s our first point of agreement – we both believe that internet gambling is problematic. I would agree with you that it’s potentially insidious because of the fact that it’s very easy to become addicted, and it’s very easy to unwittingly lose a lot of money without really realizing that it’s happening – especially if you’re disposed to some kind of gambling problem in the first place.

But I guess I’m just skeptical that having physical locations really does that much to attenuate those kinds of problems. There’s research which suggests that people who live within a certain radius of a casino are many times more likely to have gambling problems than people who don’t live near casinos. And obviously, as with any kind of social science research, correlation is not causation. It could be the case that people with gambling problems move close to casinos so that they can always be near the casinos. But I think it’s suggestive of the fact that by creating this new form of entertainment (I don’t know if entertainment is the right word), by creating this new outlet for people, you sort of hook them into becoming more frequent gamblers. And it worries me that these corporations have an incentive to prey on people and to encourage the worst kind of self-destructive behavior.

C: Yeah, that’s a very fair concern. I don’t disagree with that; I’d be worried about that as well. I guess I’d propose two things. The first is that if you do have casinos come to the Meadowlands, I’d hope there would be a way to track trends in how people gamble and really incorporate that into the running of the casino. In doing so, you’re able to monitor how people are gambling and the specific decisions that they’re making and you can basically cut them off if they’re at a point where they’re really in danger. And the other point I’d make is that if gambling ever does come to New York City, New Jersey is immediately going to be behind the curve. Given that there are revenues associated either with casinos directly or the secondary businesses they support, I think it’d be better to try to get ahead of the trend, because casino gambling in Atlantic City has been on the decline for 20 years now or so. Revenues have dropped 40 or 50%, I think…

M: Why do you think that is? Why have revenues been dropping in Atlantic City?

C: Well… that’s a good question. I don’t know why people have stopped visiting the city. I’m guessing partly because of all the other casinos that have opened up in the tri-state area and partly because it’s really out of the way. There’s really nothing there besides the casinos, so there’s really nothing to attract people down to that part of the shore.

M: I think part of the issue is probably that there are casinos in eastern Pennsylvania now – I think in Bethlehem there’s the big Sands Casino?

C: I think so. Connecticut, too.

M: So New Jersey’s facing more competition. That’s the problem I was alluding to earlier, that even now, when we don’t have all that many casinos, the market is already getting somewhat saturated. I’m not necessarily saying that’s the sole reason why there’s been a decline in revenues in Atlantic City, but it seems like the more casinos you have, the less lucrative any one casino is going to be.

C: That’s true, but especially considering the Meadowlands is so much closer than anything in Connecticut or Pennsylvania, which is a good hour and a half away, I’d think you’d have more than enough money coming in to make up for declines in Atlantic City traffic. And if anything did open in NYC, I mean, New Jersey would pretty much be shut out completely. That’d be a death knell for Atlantic City, period.

 

Lotteries and Sports Betting vs. Casinos

M: One argument that’s been raised in favor of casinos is that we [in New Jersey] already have a lottery.

C: Ah, yeah.

M: I mean, almost every state has a lottery. If the state were really all that concerned about people profiting off of gambling (or even about the state itself profiting off of gambling!), then they would ban lotteries too. So some say this shows that people who are opposing casinos don’t have any principled objection to casinos per se. They just don’t want there to be a lot of traffic in their neighborhoods, they don’t want these big corporations to be setting up shop near them. There’s really no social harm that comes with casinos.

C: Yeah, that’s a good point to bring up. To be clear: I would not say that casino gambling is an inherent good, and there are definitely dangers associated with it. You have to adhere to it in moderation, as is the case with anything else. But yeah, I’d agree with you that the government has no incentive to ban gambling outright. There are ways to profit from it. Clearly the lottery is doing that to a pretty good degree.

But again, I’m arguing in support of expanding gambling in New Jersey. I’m not arguing for gambling being a social good.

M: I think that my basic feeling about lotteries is that, yes, it probably is the case that lotteries and casinos have a lot of similarities. People could buy a ton of tickets, although it’s harder to become a problem gambler with lotteries that are only drawn once a week or so. I worry more about scratch-off cards, which it’s very easy to buy a lot of in one sitting.

This is similar to our marijuana discussion in that I’m arguing that there’s a difference between tolerating something and legalizing it and having the government or private individuals or firms make money off of it. But just as I don’t think law enforcement should be terribly aggressive in going after people who possess or are smoking marijuana, I don’t think by any means we should be penalizing people who are gambling with friends or anything.

C: Oh, yeah.

M: That said, I don’t think that we should necessarily be expanding gambling any further. When we were talking about marijuana, I think we both agreed that cigarettes are as problematic if not more problematic than marijuana, and so if you’re going to be a purist you could say, “Well, if you want to ban marijuana, why don’t you want to ban cigarettes?” And… maybe I do want to ban cigarettes! But the legality of tobacco and nicotine is not a live political issue right now. The contentious political issue is marijuana. Maybe it doesn’t make a lot of sense to oppose marijuana legalization while supporting tobacco being legal, but you know, that’s the reality of the situation.

So yeah, in a philosophical sense, maybe there is no difference between lotteries and casinos. But the political reality is that lotteries already exist and have existed for a very long time and casinos are what we’re debating right now.

C: Well, I think casinos, too, they are much more interactive, and the rapidity with which you can lose money at casino gambling is much greater than that associated with, say, scratch-off tickets. And there’s a specific stimulus associated with gambling, right? Like you’re pulling the lever, you’re seeing things pop up on the screen. I assume it hits a pleasure center in your brain that’s much more reactive than anything involved in playing the lottery.

M: That’s interesting. I would be curious to see if anybody’s done research on that. Is casino gambling more addictive than buying lottery tickets? I would think it is.

C: I would think so, without question.

M: The other thing I wanted to talk about a little bit was the idea of sports betting.

C: Oh, okay!

M: My understanding is that it’s currently illegal in the United States.

C: I think it’s legal in Las Vegas. I think. [NB: It is in fact illegal nationwide, although several states were exempted from the relevant statute because they had already permitted sports betting at the time it was passed.]

M: Okay. I know there was a ballot measure a few years ago to legalize sports betting in New Jersey, but it was very controversial because it was essentially trying to legalize it here while it remained illegal in the United States. You know, it was like California or Colorado legalizing marijuana while it’s illegal under federal law.

C: Is your position that you’re against sports betting?

M: So that’s what I wanted to get into. I don’t know. I’ve been thinking about whether there are – about the similarities and differences between sports betting and something like casino gambling or playing the lottery. It seems to me like sports betting is less problematic, again because it’s harder to – because the bets are tied to discrete events. It’s harder to become addicted and to be constantly placing bets. I mean, there’s an upper bound on how often you can place bets on sporting events.

C: I’m not sure if that’s true. There are a lot of different sporting events that you can place bets on, and my guess is that any sort of sports betting scenario would pretty much involve all of the major sports and then specific events within those games. You could probably go pretty wild with making bets on minutiae within the games.

But that also raises the question about betting on, say, horses or horse racing, which I believe is legal in certain states. I’m pretty sure it’s legal in New Jersey, actually. And you don’t really see any great debate about that. It’s a generally accepted practice.

M: I think horse racing is a pretty marginal sport to begin with. I don’t think the number of people who are betting on horse races is really all that large.

C: But it’s a precedent that’s set, that some sort of sports gambling is allowed.

M: Yeah, that’s true. But to tie this back to the issue of lotteries vs. casinos: yes, you can argue that once you’ve legalized lotteries, there’s no consistent case against legalizing casinos as well. You could also say, well, once you’ve legalized betting on horse races, there’s no principled case against legalizing betting on anything else.

 

Frolicking in the Swamps

M: So just to recap: my argument is that casinos have a business model that inherently tends toward encouraging addictive behavior on the part of their customers, and that their presence has an adverse effect on communities because they lower property values and don’t contribute anything of real economic value.

C: Well, to return to the case at hand, one benefit of having them in the Meadowlands specifically is that there aren’t as many houses around there. If you put a casino out by MetLife Stadium, it’s not going to be as directly impacting communities like in Atlantic City, which has a lot of surrounding suburbs and towns. I mean, obviously North Jersey has that too, but the Meadowlands is an area that’s defined by swamp lands.

And regarding gambling addictions, I think it’d be easier if you create a new casino hub to basically implement best practices to reduce problem gambling from the start. So you could make it the case that there is a mandatory delay time between playing one game and going on to the next, or you could say from the start that there’s no free alcohol being distributed on this floor.

M: So you’re saying that it would be a good idea to put casinos away from heavily populated areas, so that if the research that suggests that casinos have a negative impact on property values is accurate, then at least they’re in a swamp?

C: Yeah. Again, there are some towns nearby. There are towns like East Rutherford around there that might be affected.

M: Why couldn’t – instead of casinos, why couldn’t we just have people, like, play around in the swamp?

C: Just frolic in the swamps?

M: Frolicking in the swamps.

C: I’ve heard reports of convicts escaping into the swamps, and police do not like that, because they can’t find the convicts. So I feel like if you got lost in the swamps, the police would not be too happy.

M: So… [Laughs]… by putting the casino in the swamp, we could actually be creating some sort of lawless zone.

C: Yes… [Laughs]. Precisely. Outside any jurisdiction.

The other benefit is that since there are so many people in New York City and its surrounding suburbs who are potential customers, you could easily get the casinos in Atlantic City to agree to all of these best practices. If you tried to institute those now in casinos in Atlantic City, you’d get a lot of pushback. Casinos would either outright refuse or lose a lot of money because those changes could be quite expensive.

M: But if you make it a condition of opening a casino…

C: Right. Guarantee they’ll participate because the revenues from those casinos will still exceed the potential costs associated with instituting those best practices, only the costs won’t be perceived as a loss. So I’d say far and away that’d be a better idea than either trying to expand online gambling or trying to rehabilitate Atlantic City. Do you have any other thoughts?

M: I’m still unclear on the ultimate motivation here. We’re saying that it’s better to open casinos and require right off the bat that they adhere to these best practices, but why is it better to open casinos that adhere to best practices than to not open casinos at all?

C: I’d go back to the fact that casinos will probably be opening in the city or at least in other areas at some point in the future.

M: So by having NJ set the standard for what a well-regulated casino looks like, we put pressure on other states that might want to legalize them in the future to also adhere to those regulations?

C: Exactly. Pretty much take the initiative in making this the hub of gambling in the tri-state area and making it the most consumer-friendly, safe form of gambling.

M: Okay. So we have an opportunity to start a trend here. You may not be able to buy electric cars in New Jersey, but at least you’ll be able to gamble.

C: I mean, if you somehow win, you could then go to Pennsylvania and buy your electric car and bring it back to New Jersey.

M: Well, you need to win the lottery to be able to afford a Tesla anyway.

C: [Laughs] This is true.

 

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