Monday, January 16, 2012

Casinos everywhere

kw: gambling, gaming

In the local paper yesterday, I read an article about plans to build new casinos near here and in surrounding States. It seems Philadelphia will soon surpass Atlantic City as the #2 gambling destination in the country. But one after another the States are passing laws allowing gaming and casino construction, and the trend bids fair to fill the country with casinos. I suppose some folks' goal is to have everywhere in the country within a half hour's drive of a casino.

This trend will eventually be self-defeating. Everywhere, the same arguments are being issued in favor of casino construction, and the primary one is tourist dollars. But if people don't need to travel to gamble, most will choose to keep it local. The tourist dollars will dry up, and the local dollars will usually not make up the difference, because all the calculations are based on there being a small number of casinos compared to the demand. Once there is such an overabundance of supply, casinos will begin to fail.

Notwithstanding the fact that gambling is stupid, it is certainly very popular. The twenty-two states that permit gaming reported total revenues near $35 billion in 2011 (see here for more details). If twice as many gaming venues are opened, how likely is it that revenues will double? What is the total market for gaming likely to be if everyone can gamble locally?

Who knows, maybe we'll one day spend as much for gaming as we do for medicine (about $2.5 trillion); I can just hear gaming proponents salivating over that! Not likely, though. The market for entertainment is finite, and totals just over $100 billion for movies plus cable TV (90% of that is cable: see this summary). With those out of the way, gaming exceeds everything else. I don't see this as a good time to invest in the stock of casino operators!

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