My home state of Maryland recently built its first casinos, which by law offer slot machines only. That means no table games and no poker.
As much as I dislike using -EV luck-based games as a source of state revenue, this seems like an especially asinine policy. It encourages the worst kind of gambling while creating fewer jobs and hamstringing Maryland’s casinos in their competition with those in neighboring Delaware, Pennsylvania, and West Virginia.
There are a few reasons why gambling-as-revenue-stream is bad public policy. First, decades of experience with the lottery suggest that it’s a regressive tax. That is, it draws a disproportionate amount of its revenue from the lowest-income households in the state. This is both bad for those families and for the economy in general, as additional money in their pockets is more likely to be spent in ways that stimulate the economy as a whole.
Don’t insult me with those ridiculous claims like “the money is for education!” Money is fungible, and education is already a high-priority budget item. Money raised from slot machines and earmarked for education is simply money that would otherwise have been diverted from some other budget item. The disingenuousness of this claim is jaw-dropping, and it’s even more appalling to me how many people fall for and parrot it. It’s like they understand nothing about how money works. Which brings me to my next point…
Gambling encourages bad decision-making and an undesirable outlook on life. You might be surprised to see a professional poker player saying that he opposes legalized gambling, but really I see a world of difference between poker, a skill-based and potentially +EV game, and slot machines, lotteries, etc. which are beatable only by cheating and generally a terrible decision for anyone to play. Poker at least has the potential to teach good financial decision-making. Its governing philosophy is that, as in life, your outcomes are in part a result of your decisions and in part a result of luck. Table games generally and slot machines in particular operate on a “roll the dice and see what happens” mentality, not the way a government ought to encourage its citizens to live and act.
It’s one thing to say “people are doing this anyway, let’s at least tax it”. I don’t generally believe the state has a right or obligation to actively prevent people from making self-destructive decisions, and I’m all for taxing them, which if anything ought to discourage them. However, it’s quite a different thing to actively encourage bad decision making. The Maryland Lottery’s slogan used to be “It could be you.”
Slot machines are about the least social games offered in your average casino, and they’re widely considered to be the most addictive. I’ve never played any non-poker game in a casino, so I’m not an authority here, but I can at least see the appeal of craps, where you’re interacting with other people and all getting excited about the same thing. People playing slots look like zombies, dead-eyed and lost in their own little world.
Finally, I realize that dealers are a relatively small percentage of the jobs created by a casino, but they’re also among the most lucrative. To the extent that casinos are sold as a job-creation strategy, which they often are, it makes no sense to me to restrict them to a form of gambling that creates fewer jobs.
My understanding is that these casinos are slots-only because, ironically, that was an easier sell to skeptical voters and politicians. The casino advocates were apparently able to sell slots as “gambling lite”, somehow less seedy than table games. I suppose the American public as a whole still has some negative associations attached to cards.
Meanwhile, people who want to play with cards and dice are still driving to neighboring states. As it happens, I’m headed to West Virginia when I finish writing this to play poker at the nearest casino that offers it. Though I won’t, I’m sure many others like me will drop a few dollars in the machines while they’re there. Ironically, slots were originally proposed in Maryland as a shot-in-the-arm for the horse racing industry, which was losing customers to Delaware tracks that also offered slots.
The whole thing just seems like a giant public policy boondoggle to me. A few developers and casino operators are playing poker, and they’re fleecing all of the legislators and voters who are simply gambling.
Very good point.The point underscore the main trend- very fast deteriorating American democracy,
Regarding “the American public as a whole” I see only downhill road.
The American public as whole is completely passive and ignorant.
How far-reaching legislation come into existence in the USA every week without debate or vote???.
The poker related example is the UIGA there was no debate or vote on the issue and it passed because “security” the Safe Port Act.
Another dangerous example is ACTA – a multinational treaty forced aggressively by US government.
The official pretext is for the establishing international standards for intellectual property rights enforcement.
But this is not full story like with the Safe Port Authority.
The pact clearly affects fundamental rights including freedom of expression and privacy.
There is silence in USA. But there plenty of violent protests in Europe because of secret nature of negotiations that has excluded civil society groups and the general public from the debate process.
Let me give you example what is ACTA about:
I post link:
http://blogs.villagevoice.com/runninscared/2012/01/two_british_tourists_denied_entry_us_twitter_jokes.php
If ACTA will be ratified the link like this could be forcebly removed within hours.They could block your blog.
You and me will be liable to be prosecuted for offences under ACTA.
if you are US poker player playing online or living abroad you should know about FATCA too. The law requires foreign financial institutions to identify their U.S. account holders, name names and even to withhold when Americans don’t fess up.
Noblesse oblige
A very good post.
I have always enjoyed playing poker and other card games in general(I think that I was playing cribbage with my family at the age of 4). And I believe that just like prohibition or the so called “war on drugs,” if you attempt to make gambling “illegal” it will only drive it underground and into the hands of organized crime.
That doesn’t mean I approve. Gambling has very high social and economic costs for a community. As I think Andrew rightly points out, it’s a regressive tax on the poor and poorly educated, just like the state lotteries.
As Andrew rightly points out, the “money for education” is a piece of political propaganda and a sales pitch, nothing more. But it shows how warped the discussion of this issue is in the US, much like drugs. Instead of having a 21st century discussion backed by all the sociological science and data we have about the nature and persistence of human addictions, we turn to “money for education” or “a marijuana tax will bring in enough money to solve our state budget problems.”
I’d like to see gambling smartly limited. Take away the slot machines (I doubt that an underground slot machine mafia is going to spring up), put loss limits back in place (I know, I know the poker player in me is against it but the person living in the community near a casino knows it’s the right thing to do), and limit the advertising reach of casinos.
The big problem with these types of regulations is that they work directly against the profits of casinos who spend big political dollars to get them removed. So I’m really not sure what the “solution” is.
http://www.economist.com/node/21543562
“I don’t generally believe the state has a right or obligation to actively prevent people from making self-destructive decisions, and I’m all for taxing them, which if anything ought to discourage them.” That’s right, at least in JS Mill’s view (and obviously no one has made a better case since). So the state cannot impinge on the liberty of individuals to make bad choices, but it can nudge them away from it and make declamations of certain activities.
The state would leave the slot machines to the private sector, not ban them outright, if it took that view. Taxing accordingly. So if you suggest they don’t do this and don’t follow it up with an approbation on privately operated slots then you are saying that you do believe the state has a right to actively prevent people from making self-destructive decisions.
Maybe then consider not what the initial position was (no slots at all) but that slots should be allowed and then the question becomes who is best to administer them, the market or the state. Mill’s ideas aren’t natural law so when it gets to the muddy work of case by case analysis we might conclude that it is better if the state administer this vice.
There are other reasons not to allow slots/casino gambling besides protecting people from themselves. Regulating the gambling industry – verifying that games are fair, that casinos are properly capitalized, that proper security measures are in place – is a huge burden for the state to take on, but a necessary one if gambling is to be legal. I don’t think anyone’s civil liberties are infringed upon if the state chooses not to take on this burden and consequently not to allow gambling within its jurisdiction.
Without playing devil’s advocate too much… this also assumes the state should take on that burden. Ensuring fair games, security, capitalization might be the responsibility of the state in the eyes of some but there is nothing to say that consumers can’t be left on their own to be preyed upon. After all these games are by definition snake oil anyways — the state doesn’t take on the burden of stopping all sales of snake oil. If fraud occurs fraud occurs, and there are laws on the books for misrepresenting a product in a fraudulent manner. Ok maybe I am playing devil’s advocate too much :). Its a vice of mine…
As an aside, regulatory bodies, including those for gaming specifically, often employ people, at least initially, who were closely connected with the creation of the body itself.
I don’t think the argument that casino revenue going to fund education is bull because money is fungible holds much water.
Yes, education is already a high-priority item. Education is also woefully underfunded despite that. There is no reason why increasing the total revenue by an amount earmarked for education can’t be an additional source of funds for education beyond the regular budget. Just because education is high-priority doesn’t mean it gets everything it needs already – it doesn’t.
Whether it actually happens that way in practice is another matter, though it appears to work given how lottery revenue is distributed here in BC, for example.
I also don’t think there is much difference between poker and slots. I know that will ruffle some feathers, but seriously, go down to your local card room. Look at the average person in there. Look at their faces, their body language, their motions and emotions. There’s virtually no difference between the brain-dead zombies playing slots and the brain-dead zombies playing poker.
Sure, there are the odd smart pros (like AB for example) who aren’t simply sitting there holding and folding cards and hoping for a bad beat jackpot. But they are the vast minority and are ironically dependent on the brain dead fish to continue to be there.
Given the casino rake, unless you play high stakes, you have to be SIGNIFICANTLY better than your opposition to make money. That just isn’t possible, by definition, for most poker players. Therefore you eventually whittle the players down to the few outstanding pros, and legions of gamblers who think they’ve been hard done by when they lose an all in to a flush draw.
On the education point, what I mean to say is that lotteries, etc. don’t actually create more money especially for education. Yes, additional revenue means more money to go around generally, but I guarantee you that in a world where substantial revenues are earmarked for education, other monies that otherwise would have been spent on education are spent elsewhere. You’re right that I overstated the matter, but $50M in annual gambling revenues earmarked for education does not mean that over the course of 10 years education receives $500M more than it otherwise would have.
It does get more money, and that’s not trivial, but it’s also not intrinsically related to the legalization of gambling. My point is that all gambling taxation amounts to is an additional income stream for the state, and the fact that it is regressive makes it much less desirable than other options for raising similar amounts of money.
As for the difference between poker and slots, I must disagree. Granted not everyone reads 2+2 and dreams about game theory, but virtually every poker player tries to play well, which no matter how successful constitutes considerable mental exercise. You don’t have to be a winning player to benefit from from that. In fact Belgian researches are currently studying a 69-year-old man whose avid poker playing seems to be counteracting the usual effects of aging on his memory and mental acuity: http://www.pokerstarsblog.com/pca/2012/pca-2012-pierre-neuville-proving-how-pok-090012.html.
Playing poker is also a much more social experience than playing slots. The salutary effects of such social interaction are well-documented. Compared both to other forms of gambling (slots) and other forms of entertainment/recreation (television), poker is considerably more social.
I can’t really agree here.
First, if you earmark a revenue item for a specific area in addition to regular budgeting, then it shouldn’t be part of the regular revenue stream. No reason why that can’t work, unless the intent gets subverted by simply adding it to the regular revenue pool. That is a different issue though.
Second, I don’t agree that lottery/gambling revenue is a regressive tax. Rather, I would argue that gambling is entertainment, and that a person has a certain amount of entertainment dollars available to them. Increasing the cost of gambling as entertainment decreases the amount of that type of entertainment that your budget can buy. It won’t affect your economics otherwise (unless you are addicted, which is another matter). So whether or not lower income households gamble more or not isn’t relevant to how much money they have to stimulate the economy. Either they’ll do with less entertainment, or they’ll spend those dollars on cheaper forms of entertainment.
As far as the benefits of poker, I would contend that most poker players are NOT trying to play well and instead are essentially playing slots at the poker table. The level 1 thought process of I have good hand, I raise, I have bad hand, I fold is about mentally equivalent to pushing buttons on a slot machine and figuring out whether you won anything. What’s more, at 20-30 hands an hour of live poker, you get maybe 2-3 decision points an hour. Seriously, have you looked at the average 1-2NL player in the local cardroom? Mentally stimulated is not the way I would describe him.
Finally, I don’t know how you can call poker a social game. It is an anti-social game to its core. You are there to take money from the other players, and anything you say is part of that process. Sure, you can chat with the guy in the seat over about what you had for dinner. You can do that with your slot neighbour, too. But you are not sharing an experience with your table mates with a common purpose. You have a purely individual purpose which directly antagonises the other players. In fact, table games are much more social – at least playing craps, or whatever, you are all trying to win money from the house.
PS I really like the blog! It’s just funner to argue than to agree 🙂
> First, if you earmark a revenue item for a specific area in addition to regular budgeting,
> then it shouldn’t be part of the regular revenue stream. No reason why that can’t work,
> unless the intent gets subverted by simply adding it to the regular revenue pool. That is a
> different issue though.
Think of this like the teenager going to University, and living alone for the first time. As the parent you want/need to give them money, but you don’t want them spending “badly”.
There are two general approaches “here is $X, please spend it wisely” and “here is a grocery store card for $X, you can “only buy food with it”” … the former almost certainly has better results.
If you’re regularly playing in games full of “brain-dead zombies” then you need to work on your game selection. From my experience there is usually a direct correlation between how social a table is to how profitable it is. The advice I give to people is if you see a table full of iPods and sunglasses run the other way. It’s not going to be a fun or profitable game because they take it so seriously that they cause other players who otherwise wouldn’t to take the game seriously too.
Poker (live poker anyways) is absolutely a social game at it’s core. I consider myself to be reserved and introverted personality wise yet I regularly muck it up with people from all over the world. Sure you don’t have a common enemy (the house) like you do with other table games, but when I used to play a lot of blackjack I don’t remember playing with the same person more than one session (it may have happened, but so infrequently that it doesn’t matter). With poker I actually get to know people.
No need to apologize – remember that I was a nationally competitive debater! I don’t take it personally if people disagree with me. In fact, as you, it’s fun!
1) An earmark isn’t part of the regular revenue stream, but it almost certainly does influence how revenue is allocated in future years. Suppose that funding for education generally increases by $1M per year and would continue to do so absent a gambling earmark. Then gambling comes along and earmarks $10M/year for education. Now the legislature chooses not to continue with that $1M/year increase. After 10 years, education received $45M more than it otherwise would have because of the earmark, not $100M more even though the earmark was for $10M/year.
2) This assumes that lottery spending comes from a dedicated entertainment budget (there are definitely people who look at it like an investment) and that the size of that entertainment budget is fixed. I think that ads for the lottery are actively designed to counteract both of these assumptions.
3) There are 1-2 players who come to me for coaching. There are far more who talk strategy with each other anyone else who will listen. Even if they aren’t playing well compared to someone who knows what he’s doing, their play is a far cry from pure gambling. That would be stuff like blind shoving, flipping, calling every raise trying to hit the flop, etc. You occasionally see behaviors that approach this, but it’s no the norm. And with 20-30 hands per hour, you have at least 20-30 decision points. Folding 72o to a raise is more of a decision than pulling the arm on a slot machine.
4) It’s social in the sense that you’re interacting with other people. As James points out, many card rooms have a cadre of locals who do become friendly with each other over time. But that’s not even essential to the argument. Interacting with other humans promotes health and well-being in a variety of ways. I don’t think the difference between poker and craps is nearly as vast as the difference between either of those games and slots.
> First, decades of experience with the lottery suggest that it’s a regressive tax. That
> is, it draws a disproportionate amount of its revenue from the lowest-income households
> in the state.
Do you have a citation for this?
I mean, I could maybe see it with scratch cards but one “powerball” ticket for every play is only going to be like $200 a year (half that before this year) … or are people really buying 20 tickets at a time or something?
And while, yeh, it is regressive in the way that a lot of things are … it’s not anywhere near as bad as 6% sales tax. I’d also be interested to see an economic breakdown of casino visitors … my guess would be that it’s more like a bell shaped curve of income levels, and where esp. the higher levels spend more too. But then maybe it’s worse than that due to the fact all the people playing in the middle are trending downwards.
Here’s one example, which is interesting because it’s purporting to refute the “regressive tax myth” but misunderstands what a regressive tax is and ends up proving it: http://www.lotterypost.com/news/136392. The article is citing studies finding that ” the dollar amount spent on lotteries generally does not fluctuate much over income brackets”, which of course mean that low-income households on average spend a higher % of their income on lottery than do higher-income households.
I agree that a sales tax is also problematic, and while still regressive, I’d guess that it’s less regressive – that is, lower-income households probably do buy less and less expensive stuff than higher-income households.
Found this recently:
http://www.radicalmath.org/docs/LotteryIncome.pdf
Don’t insult me with those ridiculous claims like “the money is for education!” Money is fungible, and education is already a high-priority budget item. Money raised from slot machines and earmarked for education is simply money that would otherwise have been diverted from some other budget item. The disingenuousness of this claim is jaw-dropping, and it’s even more appalling to me how many people fall for and parrot it. It’s like they understand nothing about how money works.
Money is finite and maybe Maryland doesn’t have low-priority budget items from which it can divert funds. If so Maryland needs to raise revenue and regressive methods such as gambling taxation are effective.
That’s exactly my point, though. Of course legalizing gambling is a way of raising revenue, and if education is a priority then some of that revenue will go to education, but that’s all it is and it ought to be weighed against other means of raising revenue. Tying the money to education is political chicanery. The government could just as easily raise money in a different way and spend that money on education, or divert more of its current funds toward education.
Nice post Andrew. The reasoning behind poker prohibitions and the reasoning for slots and lotteries are political bunk and seriously flawed. A diverse gaming environment would be more robust for the casinos and for the players.
I agree with Gareth. Having the state involved in gaming creates as many problems as it attempts to solve. In my state we only have a lottery. I don’t play it (maybe once a year), but I think you could greatly improve the lottery by opening it up to competition (let many private firms offer them) instead of there being only one, run and controlled by the state. Monopolies are bad and generally only emerge where governments initiate them.
I agree slots, like lotteries appear to be regressive. However, there is one reason to play them that is based on economic theory. According to behavior finance, we are not perfectly rational creatures. We take gambles in life where we overestimate our chance for success. I think it is far less negative for folks to take that gamble on a lottery ticket or a slots machine than in the stock market for example. The illusion of skill in the stock market causes much more damage to the average person than their dream of a slots win.
Interesting point. How do you think slots stack up to poker, where there is also widespread delusion about skill, in this regard?
Andrew,
Additional money in the pockets of lower income folks is not pro-growth or good for the economy. Growth comes from productivity which flows from savings and investment. We’ve pumped a few trillion into the pockets of average citizens in the past few years, with no meaningful growth to show for it.
PF,
I can’t pretend to be your intellectual equal when debating economics, but I know enough to know that there seems to be a full-throated debate among those who do study such things over where to direct taxes and tax cuts to best stimulate growth. It seems to me that from a state’s perspective, even if you subscribe generally to the theory of trickle-down economics, there’s no way to ensure that the trickle will occur in your state. A local slots parlor takes money primarily from citizens of your state (this becomes more true as more states legalize casinos, eg Delaware no longer pulling as much business from Maryland now that there are slots here), delivers a cut to your government, and another cut as profits to a national or multinational gaming corporation. Of course in the short-term it incentivizes that company to make a capital investment in your state to build the casino, creating construction jobs, etc. but it must ultimately produce a net outflow of money from the state. Capital that Penn National Gaming reaps from its Hollywood Casino at Arundel Mills is unlikely to be reinvested in Maryland since that company owns casinos in several states and is presumably interested in expanding further.
There is a program just starting in Michigan called Prize Linked Savings (http://www.freakonomics.com/2010/11/18/freakonomics-radio-could-a-lottery-be-the-answer-to-americas-poor-savings-rate/). It encourages savings by setting aside a portion of the interest in a savings account as a lottery style payoff.
The social/economic benefit is indisputable. Also indisputable is the rejection of these programs by most governments – they canabalize the 60% rake lotteries.
And if our government gave a hoot about the economic impact of gambling, why did they ban online poker? American players were extracting from those crazy europeans. What a hit to our balance of trade.
The government did not remove organized crime by legalizing lotteries – they simply took over the business of organized crime.
That’s really cool, thanks for the link!
Great post, Andrew, you make the argument for the benefits and differences of poker very succinctly. The slots-only issue has always baffled me on a fundamental level too. My mind was blown when I learned that poker fits into the classification of “table games” (poker, blackjack, roulette) and is treated homogenously with these other games when it comes to gambling expansion… the nature of the games is completely ignored, and somehow the fact that these games *all use a table* is treated as the relevant point for classification and regulation.
I used to live in the Philadelphia area and had to wait a year or two before the new casinos in that area were able to offer poker, and now I’m in the DC area and am in the same situation you’re in when you’re here. I’ve been lightly following the news, and it’ll be great if some of these Maryland casinos get built, but I know it’ll probably be an extra year or two before any such casinos would offer poker, and, in the meantime, I get to make the long drive to West Virginia to enjoy the terrible service and exorbitant rakes that only a state lottery monopoly could offer.
Another possible reason why casinos/states might allow slots first is that, in most cases, a standalone poker room is not living up to its full profit potential; some portion of the profit from a poker room is in bringing in players who will also be gambling on the slots of pit games, so you really want to have the other gambling there before the poker gets there. Sigh… I want our game back.
Yeah, good point about slots being more lucrative. I meant to address that in the post because of course that’s the reason they get lobbied for long before poker does.