The Gambling Scam on America's Poor

Some scandals don't involve illegal activity -- they're just outrageous and unjust. Take gambling in America. Abetted by Congress, legislatures from 48 states now sponsor gambling operations and lottery monopolies to balance their budgets on the backs of their poorest and most vulnerable citizens -- while basking in the virtue of fighting tax increases.

Three decades ago, there were no casinos outside Nevada, and only 13 states ran lotteries. Today 19 states support commercial gambling in densely populated markets near interstates, 28 states host Indian casinos, 41 run lotteries, and 43 allow track-side betting. Even so-called riverboat casinos have expanded rapidly as states lift wager limits to permit casinos they couldn't sanction on solid ground. Only Utah and Hawaii still ban gambling.

States have stretched legal loopholes to ludicrous lengths for the same reason Jack Abramoff wielded his influence: They want the money, and the money is there for the taking. US gambling interests have seen an eightfold increase in revenues since 1982. Last year, Americans legally wagered more than $1.1 trillion. Along the way they lost more than they spent on movie tickets, recorded music, spectator sports, video games, and theme parks combined.

Clearly, America's appetite for what industry officials benignly call "gaming" has grown. It's all legal, so what's the big deal? Here's the scandal: In 1999, the bipartisan National Gambling Impact Commission found that 80 percent of gambling revenue comes from households with incomes of less than $50,000 a year.

More remarkably, players with annual incomes of less than $10,000 spent almost three times as much on gambling -- in aggregate, real dollars -- as those with incomes of more than $50,000. With the aggressive encouragement of state governments, US gamblers -- most of them scraping by on limited incomes -- had to lose $84 billion last year in casinos and lotteries for the states to raise $24 billion in new revenues.

Consider Massachusetts, a typical example of a state under pressure to legalize casinos. With 16 percent of adults leaving the state to gamble in the past year, advocates argue that legalization would "recapture" lost revenue from these gamblers and generate $350 million in income to the state from slots alone.

On the surface, that appears to represent only a $475 annual loss per player. But industry executives will tell you that 85 percent of their revenue comes from 20 percent of the players. So I called a Massachusetts state legislator's office that is fighting the introduction of casinos in the state to help me with the math.

"For the state to make its $350 million on slots after payouts," an aide told me, "147,000 gamblers -- about 3 percent of the entire adult population -- have to lose a total of $496 million. That's an average annual loss of $3,374 apiece." Incredible, perhaps, until you've seen the transfixed expression on the face of a "player" at one of these machines.

Adding slots to Massachusetts' revenue mix is equal to raising taxes on the average player by 62 percent. Legislators wouldn't try that with the folks at home, but it's easy when pitched as entertainment.

Of the many ways government can raise money, gambling is the worst. It's regressive. And it can ruin lives.

To be sure, most states gain political support for their lotteries by earmarking them for appealing causes such as education, schools, roads, and parks. But there is no practical way to prevent a legislature from allocating these revenues to other reelection-prompting purposes -- and most do.

Anyone comforted by the idea that gambling is voluntary should spend a day with the casino staffs that segment local markets, track prospects' and players' observed worth, define their predicted value, and systematically maximize individual "share of wallet" through targeted and customized promotional messages, limited-time cash offers, and carefully tracked time-to-response and spending analysis.