The Unintended Costs of Gambling as Revenue Streams
Abstract
The legalization has become a specific choice of state governments that are undergoing fiscal constraints. The development of the economic sector of these governments is in need, while there are limited financial resources to manage these projects. On the other hand, gambling activities are on the rise, with the associated firms getting millions of profits. This growth of these activities has made the state governments turn on taxing gambling and its related activities to serve as revenue streams. So that the government can effectively acquire revenue from these gambling firms and their associated events, it needs to state the specific measures that would enable each party in this industry are not negatively affected. However, in legalizing gambling and the related activities, there comes an additional cost that may improve the overall running of the country or community or hamper some sectors. These pros and cons can be either experienced in the social, health, or the economic part of the community, country, or even personal part.
The Unintended Costs of Gambling as Revenue Streams
Introduction
The growth of gambling in most states has made the government steer up and ensure viable gambling is conducted. States use gambling as revenue streams, which makes the public to be the automatic shareholders in this industry (Albanese, 2017). One potential social cost of using gambling as revenue streams is that government officials would likely involve corruption of democratic processes. One of the ways that the US government can raise revenue from gambling is by expanding the gambling industry rather than increasing the rates of taxing in this industry (Albanese, 2017). It is worth noting to add that the tax rates in the last few years have been on the decline while the revenues on the industry have risen significantly.
Legalized gambling in any country provides a significant addition to the revenues, which can be used for national development. It is pertinent to add that this industry offered close to $50.6 billion of net revenues to states in 2017 (Ruddock & Iden, 2019). This amount of net income constitutes to 2.36% of the total revenue that the government collects (Ruddock & Iden, 2019). Therefore, this paper will be discussing how gambling can be used as streams of revenue and related benefits. The paper will also touch on the additional costs or unintended effects that the community and the state are likely to experience. The paper will finally answer the question if gambling is a beneficial revenue stream for the country.
Theoretical Background
States have been arguing from ancient times on the extent and type of conditions in which the government can be sustainable and provide reliable sources of income. States had an interest in developing gambling by legalizing it to make the industry a constant source of finance for the governments (Albanese, 2017). The financial interest in this industry was because the states realized that certain forms of gambling were beneficial economically. Therefore, the government placed itself into sides; one of the sides is the social guardian, while the other is the gambling operator (Albanese, 2017). The government had conflicting pressures on which side to favor the most.
In discussing this concept of gambling by the states, it is essential to include the fundamental policy of contradiction developed by an Italian expert in economics called Viti de Marco (Walker & Sobel, 2016). The policy states that gambling may be subjected to punishment on the grounds to maintain the morality of society. The policy continues by saying that gambling may also be protected on the grounds of getting fiscal revenue for a country. These contradicting facts can be shaped by the monopoly, as stated by the policy (Walker & Sobel, 2016). The policy says that the monopoly unites the key players in this industry, which prevents any players from suffering any costs. It is useful to note that states restrict gambling in that they do not allow it to be run in a competitive environment. This restriction in this industry might have sumptuary objectives to try to limit or control the unintended social costs. Those states that monopolize this industry restrict it so that they can be able to maximize their revenue to ensure that profits are always high. It is simple to note that in these monopoly markets, the containment of unintended social costs is not efficient.
States might, therefore, try to impose stringent measures in this industry or monopolize gambling to establish a better source of revenue where competition is limited with maximum profit (Walker & Sobel, 2016). However, the nature of this industry may make the demand for monopoly measures. In most cases, some of the gambling games are always associated with criminal activities, cheating, and fraudulent acquisition of cash. These illegal activities in this industry force the state governments to impose stringent rules to protect morality in society as well as consumers. Also, the state governments regulate the games in which the public gamble on, to make sure that the games are fair. In recent researches by different economics, it has been found out that some game results are always manipulated to favor one gambling side. Therefore, strict rules have been put in place to ensure that those involved in these games are excluded from any gambling activity (Walker & Sobel, 2016). Consumer protection is essential as a rationale for restricting gambling among the gamblers.
It can be deduced from government records using the policy above that it is tricky to understand in which favors is the government operating when it restricts gambling. A good example is when the government has strict rules in assessing the potential operators of this industry is predominantly viewed as a way of protecting the game players in gambling rather than the protection of unintended social costs (Dowling et al., 2015). It is pertinent to add that using the policy stated above; some gambling services have economies of scale.
Gambling wars and states fiscal stress
The rise of gambling in various states and fiscal stress has made the responsible governments come up with financial policies so that they can get the maximum revenue possible (Levy & Tracy, 2018). There has been a competition of gambling revenues in several states, which has later come to be known as gambling wars. Most states undergo fiscal stress, and gambling of a particular company might be rampant in these states, which makes them fight the revenues of these gambling industries. Although the gambling industry might have grown in the last decade, state revenues growth might have been affected due to these gambling wars. States find it difficult to finance their projects due to limited funds, which makes them legalize gambling because of the associated profits in this industry. It is useful to note that the rivalry among states in promoting gambling has put pressure on the taxation rates.
Some states impose high taxation rates on this industry to make sure that they get the maximum profits possible (Barnes et al., 2017). These kinds of states understand that the gambling business has reached into the behavior of the public; therefore, it is widely conducted, and the related companies get a lot of profits. Some states try to attract related gambling companies by lowering the tax rates such that the tax base is increased through the expansion of the industry. Gambling affects the budget bottom line, just like expenditures in that when the government loses revenues associated with this industry will make the government spend on the related unintended costs (Barnes et al., 2017). Among the state governments, the estimates on the budgetary cost in this industry are rare to be recognized.
The change of states gambling base
The change of the attitude in the gambling business by most states has led to changes in the extent and nature of this industry (Barnes et al., 2017). The gaming industry where the gambling industry benefits has been on the rise, with many new games being innovated. These games are available to digital platforms of these companies so that the public can gamble their results. Initially, some games were not available because the fan base was limited. Due to the growth of this industry, several fans can be able to gamble on their favorite sports and games on these online sites. This growth has led to the rise of gambling policies to regulate this industry (Barnes et al., 2017). Some of the economic policies that have emerged are the gambling commission and gambling expenditure. Some of the states have changed their gambling base by removing restrictions on gambling machines. This removal of restrictions helps the government to get the maximum revenue possible. The government receives revenues in this industry by offering licenses to related companies (Nelson et al., 2017). The licenses are typically charged at a specific price and are renewed annually. This issuing of licenses is one of the ways that states benefit or acquire revenue from the gambling industry. Other countries have taken advantage of the change of the gambling base by taxing the game players in this industry. The states have agreements with these companies in that when one wins a particular amount of money in gambling activity; then the amount is taxed at a certain percentage (Nelson et al., 2017). It is pertinent to add that the change of the gambling base has made these companies to sponsor some of the sporting activities in these states. The government imposes a tax on these sporting activities, which is crucial in the net revenue in financing other development projects.
The change of state gambling base also comes with other benefits apart from revenue. One of the advantages is that this industry has created a source of employment for most individuals. Professionals are employed in these companies as economic analysts, procurement officers, and IT specialists (Nelson et al., 2017). When people in a country are employed to a great extent, the state tends to grow economically because poverty levels are reduced. Another benefit associated with a change of gambling base is that local economies tend to increase because money is spent locally. It is useful to add that the social part of the community would also benefit in terms of entertainment. Some people benefit from gambling because it helps to eliminate boredom or pass the time primarily when it is organized as a group. Another social benefit of the change of the gambling base is that it improves the general mood of an individual (Nelson et al., 2017). Studies from medical experts reveal that when someone involves gambling, they positively improve in their attitude that causes happiness. In the same study, when people who watch television as a form of entertainment are compared to gamblers, the general mood of gamblers is relatively high.
Additional costs to gambling
The reliance on gambling as revenue streams comes with unintended costs or additional costs that may affect the government and the society in one way or the other. Some of these additional benefits are negative, while others are negative.
- i) Consumer benefits
Consumer benefits mean that those who engage in gambling activities have extra advantages brought about by the strategies of the companies. As stated above, gambling has had a hand in boosting employment opportunities in different states; it is, therefore, obvious there are consumer benefits involved in this industry. It is useful to add that there have been reduced transport costs to gambling sites due to competition (Welte et al., 2015). Many companies have come into existence in the gambling industry and try to reach a high number of customers. One of the strategic marketing plans is to reduce the costs incurred by the consumers in this industry so that they have the best conditions. The new entrants in this gambling market try to apply measures that would benefit customers. Another consumer benefit in this gambling industry is that these companies have reduced the prices to be used in gambling (Welte et al., 2015). Higher prices in this gambling industry tend to discourage the leading players, which is dangerous for the growth of the related companies. Increased competition in the industry is advantageous to the consumers because they tend to choose the related gambling company that has the lowest consumer prices.
- ii) Industry competition
Apart from competition between rivalry gambling companies, there is the rise of competition between the gambling industry and the non-gambling industry (Welte et al., 2015). It is studied that gambling casinos offer additional services to their customers, which are related to the services of another company that is not associated with gambling. In most instances, it is found that these services offered at gambling casinos are free of charge or are offered at lower prices. This marketing strategy tries to enter into a competition with the non-gambling company, and in the long-run, customers from the other company tend to shift to this specific gambling company. Most non-gambling companies have been forced to change or diversify their services while others have lowered the prices imposed on their services. This lowering of prices imposed on products is a challenge to the non-gambling companies because they are most likely to incur losses. It is pertinent to add that an increased rate on the non-gambling companies is dangerous because it may lead to total shutdown due to the high taxation.
- iii) Crime
Apart from the additional economic costs discussed above, the legalization of gambling activities to be used as revenue streams has social impacts on the community as well. Crime is one of the associated social additional costs to the gambling industry (Mishra et al., 2017). Research studies have found out that there is a close relationship between gambling and crime in most states (Mishra et al., 2017). These research studies also found out that those who engage in gambling activities turn into crime when their legal sources of gambling money are limited. It is evident that in the first step, when these kinds of people start experiencing a reduced flow of cash to sponsor their gambling activities, they turn into debts to refinance themselves.
In some instances, the owed money does not pay-off, which prompts them to turn into criminal activities to settle the debts as well as finance their gambling activities (Mishra et al., 2017). Some of the associated crimes include forgery, selling of drugs, robbery, and embezzlement. These additional social costs tend to negatively affect the community because their right to safety is greatly tempered. In addition to these financial-related crimes, these people can also involve themselves in criminal activities, which can endanger the society around. When these people win a large amount of cash from their gambling activities, they tend to be swayed to carry dangerous weapons for personal safety (Mishra et al., 2017). These weapons endanger their lives as well as those of the community around them.
- IV) Drunk-driving
As stated earlier, the majority of the gambling casinos offer extended services to attract customers. One of the services provided free of charge or at low prices is alcohol (Patterson—Silver Wolf et al., 2014). This attracts a lot of customers who avail themselves of the casinos with their vehicles. At the casino, they are tempted to drink a lot due to the low prices or free of charge. These drivers drunk-drive themselves back, which is dangerous to their lives as well as the community as they may cause accidents. These accidents can be so damaging and may lead to loss of lives. It is estimated that 2% of the accidents in the US are associated with drunk-driving from the casinos.
- iv) Bankruptcy
Research studies have also established that there is a close relationship between bankruptcy and those who engage in gambling activities. It is studied that these people engage most in these activities in such a way that they exhaust their sources of income. Gambling in the states is growing at a rapid rate, and it is estimated that 60% of the people in the US involve in gambling activities (Patterson—Silver Wolf et al., 2014). It is also studied from the government records that per-capita income is on the rise because many people are being involved, or they have increased their expenditure on them. The increase in spending on these gambling activities can make an individual sell personal property so that they can be able to finance the services. In severe cases, these individuals go for lending institutions just to be in a position to play these activities due to their addictive nature.
- v) Public health
Gambling activities are also associated with the health of the community in three aspects; personal, interpersonal, and community level. An individual level of health impact refers to the additional health costs to the person who is involved in gambling activity (Kam et al., 2017). Interpersonal health additional costs comprise of those people that are strictly related to the gambler. The community-level additional charges refer to a more significant association where the family and their close associates are affected by the services or activities of a gambling individual. As stated earlier, gambling creates debts, and those close associates may be forced to pay the debt of their fellow due to bankruptcy. At a personal level, gamblers are reported to have increased levels of distress (Kam et al., 2017). This distress is associated with losing a bet on particular sporting activities. Take, for example, when a person has invested their all borrowed money in specific gambling activity, and the result comes out unexpectedly.
This kind of person will be forced to emotional stress because there is no refund, and that means the person has to search for an alternative means to pay back the borrowed money (Kam et al., 2017). In severe cases, people who undergo search situations tend to commit suicide due to depression. In addition to stress-related problems, gambling at a personal level leads to complicated heart problems, high blood pressure, weight loss, and liver diseases. Gamblers tend to avoid medical assistance and own physical exercise because of the addictive nature of these activities (Kam et al., 2017). As stated earlier, most gambling centers offer free alcohol or low priced ones, which makes people engage in heavy drinking. Heavy drinking, as indicated by healthy experts, is dangerous to the health of an individual as it may lead to alcohol-related problems such as liver cirrhosis. On the interpersonal level, those who depend on the gambler can be neglected because all the efforts are directed to gambling activities. The closely related include family members who may undergo stress due to limited support from their own. This health-related problem may lead to heart-related complications of close relatives and, in later stages, can cause suicides (Kam et al., 2017). Limited parenting may make children be involved in activities that are dangerous to health, for example, drug abuse.
- vi) Labor costs
Although many studies have established that gambling has increased the number of people who are employed in these gambling companies, it is worth noting the labor costs are also incurred. Economic evidence shows that those employed gamblers have associated problems, for example, absenteeism, productivity losses, poor working relationship, and termination of employment in severe cases. It is studied that 40% of employed gamblers have been affected in one way or the other due to their involvement in these activities (Kam et al., 2017).
It is also reported that 60% of those who gamble miss work to go to gamble (Kam et al., 2017). These employed gamblers do so because they perceive that gambling enables them to have quick cash. Missing of work makes other economic sectors to be significantly affected because of limited labor supply. Employment has critical impacts on the community and family because it acts as a source of livelihood, and missed work attendance or reduced performance has both long-term and short-term costs to the country and society. Increased labor costs skyrocket when an organization is forced to replace those whose jobs have been terminated or those that have inconsistencies in their jobs.
Could gambling be a beneficial revenue stream for the state?
YES! Government officials and the community no longer condemn gambling in the current state because of the many benefit from the activity directly and indirectly (Marionneau & Hellman, 2020). In some parts of the country, gambling is being promoted as a legitimate plan of economic development. The theoretical part of this issue is that the government protects casinos, gambling machines, and racetracks because they are considered as crucial revenue streams. The high numbers of unemployed youths in the states engage themselves in these activities (Marionneau & Hellman, 2020). More so, it has been established that in many circumstances, they win jackpots that enable them to have a background in investment. When they win, a certain percentage is deducted that goes directly to the net revenue of the specific government, which is later used in economic development.
In moderate considerations, society must change the perception of taking gambling as an activity that brings social problems to an ethical business that sustains life and economic development (Marionneau & Hellman, 2020). For this to happen, the government must use neutral measures that would enable each crucial player in this industry to benefit. The state governments should avoid corruptive measures to protect the gambling companies while the consumers are affected. The legalization of gambling as a beneficial way of revenue streams is successful when stringent rules are available to protect the consumers and related companies.
Conclusion
The development of gambling activities in most parts of the world is a contentious issue that has been associated with several additional costs. In the beginning, there the use of monopoly tactics to ensure that state governments accrue maximum profit possible, which affected the crucial industrial players. However, due to the changes in gambling base with many activities to gamble on coming into existence, the federal courts had to set up policies to control the gambling industry so that each player in this industry has a fair share. Also, to the policies to govern the primary players in the gambling industry, it is worth noting to add that those who engage in activities that gamblers bet on them are restricted from gambling. Take, for example, football players; they are not allowed to gamble because they might manipulate the results to favor their gambling choice. The additional negative costs involved in gambling need to be contained by implementing stringent policies so that drugs such as alcohol are not offered freely in gambling sites. Also, these companies should not provide cheap alternative services to customers for equitable economic development.
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