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Best of Liz Benston

Gaming Guru

Liz Benston

Study Shows Link Between Casinos, Bankruptcy

15 April 2005

LAS VEGAS -- Counties nationwide that legalized casinos from 1990 to 2002 experienced lower personal bankruptcy rates during the first several years of casino operations but eventually reported higher rates than counties without casinos, according to a study released this month.

The study, one of a few in the past several years that has examined casinos and bankruptcy rates, was conducted by two professors at Creighton University in Omaha, Neb., and is a follow-up to a 2004 report on the subject.

Law professor Edward Morse and economics professor Ernie Goss analyzed federal bankruptcy data by county in states with commercial casinos as well as tribal casinos with slot machines. They measured differences in bankruptcy rates from 1990 to 2002 between counties that opened casinos in 1990 and counties that had no casinos during that period.

Counties with casinos in 1990 had a bankruptcy rate that was 1.50 per thousand people higher than noncasino counties. By 1995, the gap had declined to less than 0.5 bankruptcies per thousand people. After 1995 bankruptcy rates for 1990 casino counties grew more quickly than noncasino counties, outpacing that of noncasino counties after eight years. The bankruptcy gap between casino counties and noncasino counties grew each year beyond seven.

The study attempted to control for factors such as population growth, income, employment data, race and age. Nevada, which has long had casinos, was excluded from the study.

Casinos can help local economies by offering jobs and fueling growth of neighboring businesses, the study said. Yet as the market matures, more problem gamblers emerge, potentially dampening those effects, it said. With the spread of casinos nationwide, gamblers will increasingly seek out locations closer to home, diminishing the benefit of tourism dollars.

"Adding a casino increases the opportunity for convenient access to gambling," the study said. "It is possible that, over time, citizens with a propensity for problem gambling behavior will capitalize on those opportunities by increasingly frequent gambling experiences. Losses mount as these experiences increase, leading to expanding demands on credit to pay for one's gambling habit."

The American Gaming Association, which represents commercial casinos, disputes the findings.

Other studies have shown that casinos have no discernable effects on bankruptcy rates or that other factors such as increased access to credit cards play more of a role, American Gaming Association Chief Executive Frank Fahrenkopf said.

The study also singles out casinos without including other potentially significant forms of gambling such as lotteries and horse betting, Fahrenkopf said.

"I think the thing is full of holes and it's just totally out of step with other independent research," he said.

Fahrenkopf said researchers looked at a time period that would show an increase in order to back up a preconceived point of view about gambling.

Morse said he and Goss are not fundamentally opposed to gambling and were only moved by "intellectual curiosity."

The study wasn't commissioned by any group or by the university, said Morse, who lives across the state line in Iowa where several casinos are located.

"We're really not trying to take a position of being pro-gambling or anti-gambling," he said. "In the course of research you discover a lot of things about the industry -- that there are some clouds and it's not just sunny skies."

"We have to take a measured and careful look at how we evaluate this industry," Morse said. "We're puzzled that there aren't more researchers (looking at bankruptcy rates) because these are important public policy issues."

Federal data shows that the two states with the highest bankruptcy rates -- Utah and Tennessee -- don't have casinos, Fahrenkopf said.

Morse said that doesn't prove or disprove that casinos influence bankruptcy rates.

"That's a non sequitur," he said. "What we looked at was the implications of adding a casino in the county -- the differential impact of changing one variable, adding a casino."

Morse said he and Goss opposed two ballot proposals in Nebraska that would have legalized casinos "because of the way they were designed." Coast Casinos Inc. and Las Vegas Sands Corp. lobbied for the measures, which were defeated last year.

In their 2004 study, the professors concluded that personal bankruptcies grew twice as much in counties that legalized casinos in the 1990s compared with counties that didn't have casinos. That study only compared bankruptcy filings in 1990 and 1999 and did not include tribal casinos.