How much money would expanded gambling generate?

Throughout this session, every time the subject of expanded gambling in Texas comes up, along with it comes some kind of projection of how much revenue it might generate. Those estimates always come from the proponent of that form of expanded gambling, and as expected are wildly optimistic. For example:

Texas Insider, February 13:

"Our breadth of support cuts across all lines of gender, race and party," said Tommy Azapardi, Executive Director of Texans for Economic Development. "In these economic times, voters are very motivated by the 53,000 new jobs and the billion dollars a year for state coffers racinos could generate for the state."

Texas Politics, February 23:

Proponents say casinos in Texas could generate anywhere from $3 to $4.5 billion per year.

Houston Chronicle, February 25:

Backers of Joint Resolution 31 and Senate Bill 1084, the broad gambling legislation, said their proposal would bring in at least $3 billion a year in new state and local revenue.

So how realistic is any of this? Well, consider this.

During 2008-09, the [Economic Forum] expects gaming taxes to drop from $804 million to $715 million, an 11 percent decline. Gaming revenues will increase by 3.3 percent to $739 million in 2009-10, and by 3.9 percent to $767 million in 2010-11, according to the forum.

That's from Nevada, a state which has more gambling than we do or would even if HJR 31 passes. The $715 million in gaming revenue comes from a gross gaming revenue tax of 6.75% (it's actually slightly less than that, but this is close enough), which in turn implies statewide gambling revenues of about $10.5 billion. If you assume the casinos' margin is seven percent - that is to say, a total 93 percent payout on all bets - that means gamblers dropped a total of about $150 billion at Nevada casinos.

So the question is, do we think Texas casinos will generate more than Nevada's? HJR 31 sets the revenue tax at 15%, so we could generate as much tax revenue on less than half the amount - about $4.8 billion, or $68 billion in bets at the same payout rate. To get all the way to $3 billion, though, you'd have to have the casinos take in $20 billion, which in turn is about $270 billion in bets. I don't think that's going to happen.

By the way, a little further Googling led me to this article, which suggests that gross casino revenue in Louisiana is about $2.5 billion. That strikes me as a better comparison to Texas - note that Louisiana has 13 riverboat casinos and one land-based casino, while HJR 31 would call for 12 casinos in Texas - and would generate $375 million in gambling taxes at 15 percent.

Now of course, the casinos have other ways to make money for themselves (food, drink, hotel occupancy, entertainment, etc) and for the state (sales taxes, hotel taxes, alcohol and cigarette taxes (assuming smoking would be legal in the casinos, which I'm guessing would not be the case), property taxes, business margins taxes, etc). I don't know what the components are to that $3 billion figure for the casinos, or the $1 billion figure for the "racinos" (I still hate that word). It's entirely possible - likely, really - that I'm not comparing apples to apples. But at least you can see where my numbers are coming from. It would be nice if the gambling industry could do some of the same kind of calculation, and show their work, so that a proper comparison, as well as a judgment of their projections, can be made.

Full disclosure: The two Nevada links came to me from Teresa Kelly of Texans Against Gambling, after she commented via email about an earlier post of mine. That was the inspiration for this post, though the rest of the research is mine. I'll be more than happy to do a similar exercise for someone on the pro-gambling side of things if they want to as well.

Posted by Charles Kuffner on March 24, 2009 to Budget ballyhoo