Massachusetts' great gambling giveaway
IF THE MASSACHUSETTS Legislature wrote a billion-dollar check to the casino industry, people would be outraged. But the gambling bill, awaiting action in the House after receiving Senate approval, threatens to give away more than $1 billion in value by charging an inordinately low fee for the four proposed licenses.
The bill permits four licenses -- each for 2,000 slot machines -- to be granted to the Suffolk Downs, Plainridge, Raynham, and Wonderland racetracks. The bill would direct 60 percent of the net revenue from each slot machines back to the state, while an additional 7 percent would go to enhance purses at the facilities, 5 percent would go to promoting racing, 2 percent would go to local communities, and 0.5 percent would fund compulsive gambling programs. The bill's wording is vague, but it appears that each license-holder would pay $25 million initially, then $25 million every five years to renew the license.
The stated intent of the legislation -- to preserve jobs at Massachusetts racetracks -- may be laudable. But at what price? As currently proposed, slot machine casinos sound like a source of substantial revenue for the state, but a close examination of what remains for the license-holder reveals the real winner.
If we assume that each slot machine generates revenues at a rate of $285 per day, which was the figure used by the Maryland Legislature during their deliberations on a similar casino bill, the net present value of income, after the state's share and expenses, tops $600 million. This suggests that a recurring fee of $85 million per license would be closer to the true value.
But given other states' experience and the fact that these slots will have a state monopoly and are allowed to have substantially lower payout rates than most slot machines, each machine could well generate revenues at a rate of $350 per machine per day. Under this scenario, the net present value of the four licenses soars to over $1 billion, with the true value of a recurring fee reaching $150 million per license, or six times the current proposal.
The point is not that the state should fix the exact license price. Rather, there is credible evidence that the proposed license price is too low and difficult to ascertain. A review of the data from other states with legalized gambling reveals gambling licenses are often underpriced. In Pennsylvania, the state granted licenses at fixed rates to several racetracks, only to see three of them sell out at substantial premiums to large casino operations. Those premiums could have gone to the state taxpayers; instead they went to track owners.
Supporters respond that 5,000 racing industry jobs may be lost if slots are not allowed to supplement horse and dog racing in Massachusetts. It is worth noting that these numbers are inflated because they include the owners of racing horses and dogs. For example, almost 800 of Suffolk Downs's 2,000 ''employees" are actually horse owners. Even if we use the industry's inflated numbers, the current legislation may end up saving jobs through a subsidy of almost $300,000 per job.
There are plenty of reasons to oppose slot machines, including the impact on area businesses and the long-term social costs associated with additional gambling addictions, crime rates, bankruptcies, and divorces -- all of which will require additional public health and human services expenditures.
But if the lure of slot machines proves irresistible, the state should not provide a huge windfall to a select few through underpriced monopoly licenses. If the licenses are to be granted, the Legislature should conduct an open and transparent auction that maximizes the return for all the citizens of the Commonwealth.
Steve Poftak is research director at Pioneer Institute. 
