Sunday, June 15, 2003

Economic Impact of Gambling

The debate on gambling in Jamaica is one that will not go away, as gambling is inter-woven into our economy. Many are still not aware of the current and potential benefits of gambling. I, for one, was not aware of this until my involvement in the industry between 1998 and 2002, when I served on the Betting, Gaming and Lotteries Commission (BGLC).

Many argue that gambling is immoral and that it increases crime. While I agree that gambling does have some negative impact, I do not believe that the activity of gambling itself creates crime. Crime is driven by deviant behaviour, referred to repeatedly by the Prime Minister as ones “values and attitudes”. Furthermore, if we examine the impact of gambling in Jamaica and cite examples from other countries, we would see that gambling creates much greater benefits than disadvantages. In fact, the National Gambling Impact Study Commission (NGISC) report shows that in the United States alchohol and drug dependence and abuse are significantly higher than pathological gambling. The findings are that over a lifetime the percentage of the adult population susceptible to alcohol abuse was 23.5% , as against 11.9% for drug abuse and 5.4% for problem gambling.

In 2002, estimated earning from legal gambling in Jamaica was $17 Billion, of which lotteries accounted for $12.4 Billion and horse racing $4.6 Billion. In 2001, the figure was $9.4 Billion. The increase resulted primarily from the games introduced by Supreme Ventures Limited (SVL).

There is the view that Jamaicans are spending a significantly greater amount of their incomes on gambling to their detriment. This is not necessarily so as increased earnings from gambling result from what is known as the churn. In other words, SVL games are played twice per day, six days a week. This means that someone who bets $100 on Monday and wins in the morning will bet the winnings in the afternoon and so on for the week. With the lottery played twice per week that $100 would be bet on Wednesday and any winnings could only be bet on Saturday when it might have been spent otherwise. This is similar to the economist’s explanation of the multiplier effect of money.

The increased earnings create a positive economic impact as it results in increased contributions to taxes, good causes (charities) and increases in direct and indirect employment levels. GDP currently approximates $370 Billion, which means that earnings of the gambling industry approach 5% of GDP. This is not an insignificant contribution and shows that many depend on the industry for their livelihood. A recent BGLC release estimates that over 20,000 jobs are directly or indirectly generated by the gambling industry. Add to this the multiplier effect, and we could be approximating at least 60,000 persons.

Caymanas Track itself is a small town with bustling daily activities leading up to the race day anticlimax. There are 67 Off Track betting stations and 560 betting shops owned by the 15 bookmakers. In gaming there are two large companies, SVL and Jamaica Lottery Company (JLC), providing employment for hundreds of persons either directly or indirectly through their 1,300 sales outlets and administrative offices. The industry has the unique privilege of employing labour island-wide. Additionally, there are many service and product providers doing business with the industry. An economic impact gambling study undertaken in South Africa shows the GDP multiplier effect at 3 times, that is, every $100 generated by the sector produces another $200 through indirect and induced effects. The employment multiplier was found to be 3.15. Jamaica has no official numbers on this but I have no doubt that it could be similar.

In addition to the employment benefits, there is the tax and good cause contributions. Good cause contributions include education, health and sports development. In the area of sports development, one of the most significant contributions has been made to the Sports Development Foundation and ultimately the Reggae Boyz campaign to France 98. Many curse gambling but enjoy and boast about the benefits. In fact, the lottery games contribute approximately 7% to good causes, which in 2002 amounted to some $870 Million. Additionally, between lotteries and racing an average of 7 – 8% was contributed to government taxes, resulting in $1.2 to $1.4 Billion in direct tax contributions. In addition to all of this, these companies pay statutory contributions and profits tax.

A recent Sunday Observer (June 8, 2003) article revealed that in first quarter of 2003 Government earned $18.75 Million in gaming machines fees, and estimated that if all machines were brought into the net, earnings would be $150 Million annually.

There have been many references to the extent of illegal gambling in Jamaica, which seems to persist without any control or revenue benefit and carries with it uncontrolled levels of problem gambling. It is my opinion that proper regulation will not only serve the interests of Government but that it will also improve the lot of illegal operators as they will have the ability to properly market and expand their operations.

Two recent international racing events gave us an insight into the contribution we could expect from a well developed and regulated industry. The first is the recent Belmont Stakes in New York, where a horse called Funny Cide was making its bid to be the first horse in 22 years to win the Triple Crown. Funny Cide did not win, but this single race attracted some 125,000 spectators at the track alone. It was also televised and bet on internationally. At the same time, the English derby attracted some 20 Million Pounds in bets on the race alone. Seven percent of this (representing contribution to Government taxes) would be 1.4 Million pounds (J$134.4 Million). This could significantly benefit the health and education sector as well as the sports industry.

We must get serious about developing a well regulated and first class gambling industry in order to realize the full potential. Internationally, gambling is no longer seen as a scourge on society and is today an integral part of the entertainment industry. In particular, casino gambling is an important part of tourism worldwide. The official statistics shows that our tourism arrivals have increased over the years but per capita tourist spending reduces each year. In the Bahamas, on the other hand, the number has been increasing. The Bahamas, despite having a well developed casino market, has a much lower reported crime rate. Casinos can potentially increase foreign exchange by increasing the take from tourism.

In true Jamaican style, we never take on any one industry and become the world leaders. We created reggae music but have allowed other countries to exploit it financially, to a great degree of success. Similarly, why are we not the regional, if not world, leaders in tourism with our indigenous culture, natural beauty and people resources ? We must realize that our competitive advantage is mainly in the entertainment and tourism industry of which the gambling industry is a critical part of that. An expanded and well regulated gambling industry can only serve to increase economic activity and benefit Jamaica as a whole.

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