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Best of Liz Benston

Gaming Guru

Liz Benston
 

Study Links Casinos, Personal Bankruptcies

16 March 2004

Personal bankruptcies grew at a rate that was twice as high in counties that legalized casinos in the 1990s compared with counties that didn't have casinos, a university study found.

Creighton University law professor Edward Morse and economics professor Ernie Goss used bankruptcy court information to compare bankruptcy rates in 250 counties with casinos. The Omaha, Neb., university researchers looked at bankruptcy filings in 1990 and in 1999 with non-casino counties in the same region and with similar demographic factors including employment, income and population. Nevada, which has long had casinos, wasn't included in the study.

While individual bankruptcies in casino counties grew at a rate that was more than twice as high as the rate in non-casino counties, the rate of change in business bankruptcy rates was 35 percent lower in casino counties, the study found.

The risk of compulsive gambling is higher when casinos are nearby but the casinos may also contribute to the economy by helping surrounding businesses, it said.

The study adds to a small but growing body of research on gambling and its relationship to social costs. The issue is highly polarized and politically charged, with results often used to bolster pro- or anti-casino arguments in states considering gambling. Results of past studies also have varied widely.

Morse said the study attempted to control for factors that have tripped up previous research. Some studies have failed to compare bankruptcy rates prior to the introduction of gambling and haven't taken into account other economic factors in the communities studied, for example, he said. The professors say they are neutral on the subject of gambling expansion and funded the study without help from third-party sources.

"We're just trying to figure out what the facts are and let people make their own decisions," Morse said. Goss presented the information Friday in New Orleans at a conference of the Southern Regional Science Association, a group of scholars from fields including sociology, political science and finance. Morse said the study has not yet been published and may be used in a book he is writing on the casino industry with Goss.

Officials with the American Gaming Association, which represents most of the major casino companies nationwide, reference several studies concluding that no cause-effect relationship exists between bankruptcy rates and casinos.

One oft-cited analysis of county-level statistics was conducted by the Department of the Treasury in 1999. Changes in bankruptcy law, credit availability through credit cards and the reduced stigma associated with declaring bankruptcy were among the factors connected to rising bankruptcy filings, not casino gambling, the study said.

Another study prepared by the National Opinion Research Center at the University of Chicago and by other researchers for the National Gambling Impact Study Commission in 1999 found no significant relationship between bankruptcy rates and the proximity of casinos. The commission, created by Congress to study the effects of gambling, didn't come to any conclusion affirming or denying such a connection.

Total yearly bankruptcy filings grew by 84 percent nationwide between 1989 and 2000 but seven of the nine states that legalized casinos during that time were below the national average for growth rates, according to the American Gaming Association. Michigan and Missouri were the exceptions. Another complicating factor is the fact that Utah and Tennessee -- both of which have no casinos -- consistently have the highest number of bankruptcies per household, the association said.

Nevada ranked No. 4 nationwide in bankruptcies through the year ended Sept. 30.

New Jersey-based consumer financial research firm SMR Research Corp. caused a firestorm with two studies in 1997 and 2001 that affirmed a connection between bankruptcies and gambling.

Those studies concluded that casinos and other forms of "live" gambling were not the main cause of bankruptcies but were nevertheless significant contributing factors. The gaming association denounced the study and anti-casino groups flaunted the results.

Using data from 2000, SMR's 2001 study showed that the 244 counties with casinos experienced a bankruptcy rate that was 13.6 percent higher than those counties with no casinos. In 20 counties with five or more casinos, the rate was 29 percent higher. Both SMR studies excluded bingo and state lotteries. The 1997 study showed a similar trend.

"That was a tremendous statement," said Ed Looney, executive director of the Council on Compulsive Gambling in New Jersey. The SMR studies remain significant today because they were conducted by a third party for companies that aren't for or against gambling -- a rarity in the world of gambling research, he said.

Looney, whose nonprofit is neutral on gambling expansion, is among those who believe bankruptcy rates are tied to the presence of casinos.

"There's undeniably, unequivocally a connection," he said.

Gambling plays a role in the bankruptcy process but how much of a role is still unclear, said Michele Johnson, chief executive officer of the Consumer Credit Counseling Service of Nevada in Las Vegas. About 12 percent of the nonprofit's clients attribute some part of their financial woes to gambling. Determining how many bankruptcies are linked to gambling is more difficult because bankruptcy forms don't require filers to specify how they incurred their debts, Johnson said.

Bill Thompson, a professor of public administration at the University of Nevada, Las Vegas, says the Creighton study's results are plausible given that other research has established that a small minority of gamblers will develop compulsive behavior and that a significant number of gambling addicts will eventually file for bankruptcy.

Thompson, who has conducted research on behalf of casino states, believes in some underlying connection between casinos and bankruptcies but says more research is needed.

"Let's wave some flags in support of these people doing this study and talk about how we can do a better study," Thompson said. "You've got to have some baseline studies."