The following is a position paper on the issue of gambling put forward by the Bermuda Environmental and Sustainability Taskforce.BEST Position Paper: The Gamble of GamingIntroductionBermuda’s Tourism Minister Shawn Crockwell recently announced that a referendum on gambling in Bermuda will be held later this year and that “it is imperative for our tourism revival that the referendum is supported.”This announcement followed the Caribbean Hotel and Resort Investment Summit (CHRIS), during which it was discovered that several competitors to our south, including the Bahamas, Barbados and Puerto Rico, experienced an increase in tourism revenue, occupancy and demand during 2012, while Bermuda did not.Despite much discussion over the past several years, and many strong opinions, gambling is a topic for which we seem to be lacking a comprehensive analysis of all sides, particularly as it relates specifically to Bermuda. It is also unclear whether the apparent “turnaround” in tourism figures for some of our competitors had much if anything to do with legalised gambling. As a result, the Bermuda Environmental Sustainability Taskforce (BEST) decided that it would be prudent to undertake a more objective, researched look at the topic as it is highly important that the public, as well as our leaders, be better informed about the likely effects of gambling, especially if it is ultimately put to us to decide. For the purpose of this analysis, we focus on casino gambling as, based on the 2010 Green Paper on Gaming for Bermuda, this is the only type of gambling that is likely to have any tangible impact on our tourism industry. We have chosen to pose questions at the end of each segment: questions that should really be answered before Bermuda seriously considers legalising casino gambling.What are we trying to achieve with gambling and why?Before making any major decision, it is important to understand exactly what we are trying to achieve and the likelihood that our decision will be able to achieve this. As stated by Minister Crockwell, the ultimate goal of the legalisation of gambling is to “revive” our flagging tourism industry. The Green Paper elaborates that the primary objective is to induce further tourist visitation and, by implication, “to improve the economic conditions of the existing lodging industry which has been hit by falling occupancy rates and revenues,” with secondary goals including the generation of tax revenue to support more robust tourism initiatives.The attraction of new visitors has the potential to create jobs, increase tax revenues and inject much needed foreign investment into the economy, and is undoubtedly a worthy goal given the current environment. We understand, however, that the main reason to legalise gambling is to meet the demands of certain potential hotel developers who, recognising that they are unlikely to reach acceptable occupancy rates, are insisting on a casino as an alternative revenue stream that will enable them to achieve a favourable payback period for their investors. While the conventional wisdom seems to be that new hotel development can only be positive and is somehow required to attract new visitors, this is not necessarily the case. The vast majority of travellers decide on their destination before choosing their hotel and not the other way around, meaning that a new hotel is unlikely to attract many tourists that would not otherwise have visited. Furthermore, there have been two essentially brand new resort developments in recent years, Rosewood Tucker’s Point and Newstead Belmont Hills, both of which have struggled to maintain suitable occupancy rates to remain profitable. Rosewood Tucker’s Point, for example, sought permission for a Special Development Order (SDO) for speculative residential development to subsidise the hotel, while Newstead Belmont Hills went into receivership. According to the National Economic Report of Bermuda 2012, hotel occupancy rates averaged just 55.7 percent in 2012, a 1.1 percent decline year-on-year. “Supply and demand is perhaps one of the most fundamental concepts of economics and is the backbone of a market economy.”Given Bermuda’s already low average occupancy rates, it would appear that we already have an oversupply of accommodation and that further increasing this supply will not increase demand, at least not substantially, but will likely drive down prices by increasing the imbalance between the two. In addition, as prices fall, hoteliers may become unable to support the reinvestment necessary to maintain and improve their properties, leading to a reduction in the overall quality of our accommodation stock.Compulsory question 1: Do we really want to introduce additional hotel supply that will be in direct competition with our existing hoteliers if the developers don’t feel that they can create a hotel development that is a success in its own right? There have been several examples in recent years of speculative real estate developments that have been pushed through on the premise that hotel rooms will follow or the success of the associated hotel will be guaranteed, which has invariably not been the case. Is the legalisation of gambling not just another way to subsidise hotel rooms that we cannot fill and can such a model ever be sustainable?While a new hotel development would create a short-term boost to the construction sector and new jobs within the hotel itself, it would also intensify competition within the accommodation sector and, without an equivalent increase in demand, would likely serve to drive occupancy rates down. This in turn could lead to reduced revenues for, and even the closure of, some existing and already struggling properties, with a resulting loss of jobs. This is completely at odds with the stated primary objective of introducing gambling in the first place. Furthermore, for a small sector of the travelling public, a casino may be a deterrent to visiting Bermuda in the first place (any faith-based tourism contingent being an extreme example) while, for those tourists for whom gambling is a valued amenity, a casino may give a new hotel development a competitive edge over our existing hotels. According to the Green Paper, given Bermuda’s small population, the Island can only support a small number of casinos before casino profits become too low to support the high reinvestment necessary to maintain a high quality product. Switzerland, for example, has just 19 casinos for its 7.99 million people, that is one casino for every 421,000 residents, to which must be added the many people in bordering countries.Compulsory question 2: If Bermuda can support a very small number of casinos at most, should we give this competitive advantage to new developers to the further detriment of our existing hotel partners?Overall, it appears that new hotel development is not something that we should actively be seeking until such time that we have successfully increased the demand for rooms by significantly increasing our number of air arrivals. Following this logic, it would appear that the desire to attract new hotel development is not a valid reason for legalising gambling. However, if a casino can achieve increased visitor numbers or materially increased visitor expenditure, and increase tax revenues and jobs as a result, then the legalisation of casino gambling is an option that we should be actively exploring.Will a casino achieve what we want?The 2010 Green Paper assumes that the introduction of casino style gambling will increase visitor numbers simply because casino gambling is an activity that is important to some travellers and is something that is offered by several of our competitors. This assumption lacks substance. Virtually all evidence seems to suggest that a casino will not, in itself, attract large numbers of new visitors to the Island. A study on Illinois riverboat casinos, for example, found that only 4.6 percent of gamblers travel more than 100 miles to the casino, and that 97.7 percent of all Illinois gamblers stay less than one day, and apparently casinos in the smaller resort towns of Switzerland failed relatively quickly after opening. Furthermore, the Illinois study concluded that casino gambling had been “a ‘dismal failure’ in promoting tourism and economic development” and, because job creation and economic development are dependent on bringing new tourist dollars into a community rather than merely transferring sales from local businesses to the casino, there [had] been no significant economic development.”The Green Paper acknowledges that “excessive expansions [of gambling] in other jurisdictions did not lead to the growth in tourism that [was] the main goal of the enabling legislation,” and suggests that a small number of high quality establishments could possibly overcome this issue. There is currently intense competition in the casino space, however, and even some well-established luxury establishments in Monaco, which are likely to be the only type of casino with any potential for attracting visitors from overseas, have struggled to make money in recent years.The Green Paper recognises that competition from well-capitalised and long-established casinos, which already have a loyal following of gamers, along with more recent casinos, would be a significant challenge. This competition is particularly intense in the North American market, with gambling bills being proposed in twenty US states in 2010 alone, New York and Massachusetts (two of Bermuda’s key tourist markets) both considering “new, flashy resort style casinos,” and commentators asserting that the market for casinos in the Mid-Atlantic states, if not the US as a whole, has reached saturation point. In fact, stiff competition has apparently already led to sharp declines in casino revenues in a handful of states including Delaware and New Jersey, with online gambling adding still further competition to the traditional brick and mortar establishments.Compulsory question 3: Would we want to enter an already saturated market that is seemingly on the downward slope and is under threat from an online alternative?If so few people are willing to travel more than 100 miles to visit a casino, it seems highly unlikely that they will take an international flight, particularly when there so many much closer options already available. Furthermore, the key reason that people travel is to experience something different to that which they can find on their doorsteps. Instead of trying to make ourselves increasingly similar to the competition, and indeed the very markets from which we seek to draw visitors, it would seem economically prudent to be seeking to differentiate ourselves. In fact, the number one challenge for tourism development in Bermuda identified in the Bermuda National Tourism Master Plan is a lack of clear positioning and brand identity. Would a casino fix that, or further confuse the Bermuda product? Similarly, “our unique cultural and natural resources with international appeal” were identified as one of our top strengths that needs to be leveraged, second only to our historical legacy as a high-end destination. Following on from this, the number one strategic objective of the Master Plan to reinvent the tourism industry is to “Build unique and create competitive positioning.” We only become less unique and less competitive by trying to mirror our competition, so the argument that we need to follow our competitors into the casino market seems counter-intuitive. Furthermore, given the high cost of flights and labour, Bermuda will continue to be an expensive destination and it is therefore even more important that we can offer a unique experience over the competition.Compulsory question 4: Would we want to risk eroding our competitive advantage by aligning ourselves with the competition?Instead of attracting large numbers of tourists in its own right, “some tourists will likely participate in gambling if it were available.” While it can be argued that this will increase visitor expenditure, studies seem to suggest that this increase in tourist expenditure on gambling will be balanced out by subsequent reductions in visitor expenditure elsewhere. The National Opinion Research Centre (NORC), for example, has found a drop-off in income from restaurants and bars following the introduction of casinos and, using Atlantic City as an example, one witness noted that “in 1978 [the year the first casino opened], there were 311 taverns and restaurants in Atlantic City. Nineteen years later, only 66 remained, despite the promise that gambling would be good for the city’s own.” Nobel-winning economist Paul Samuelson has described gambling as “sterile transfers of money or goods between individuals, creating no new money or goods.” In other words, unless casinos can, in their own right, attract the tourists to patronise them, the money gained by casino operators and their employees will be money lost by businesses and employees elsewhere, and local businesses are likely to suffer rather than benefit from the introduction of a casino.Compulsory question 5: Would we want to increase competition for existing local businesses, particularly given the current difficult economic conditions?While a casino would offer an alternative source of nightlife, we should be asking the question whether we even have the threshold visitor population to support such a facility. Based on interviews of hotel management and other tourism industry professionals, Bermuda formerly featured a higher level of entertainment and other evening activities. This was also when Bermuda had higher visitor numbers to support such entertainment. Again, we must be careful not to confuse correlation with causation and it is likely that the reduction in evening activities is largely a result of the reduction in visitors, rather than the other way around. If the introduction of a casino does not materially increase visitor numbers, which seems plausible, it will only act to increase competition for existing local entertainment operators, who are already likely to struggle during the off-season.Compulsory question 6: Again, would we want to increase competition for our existing local entertainment operators, and would we want to introduce an essentially non-Bermudian entertainment experience that our visitors can get for less money elsewhere?In terms of job creation, while any initial development would create a temporary boost to the construction sector, this would be very short-term. Furthermore, as discussed in the Green Paper, Bermuda could only support a small number of casinos at best so the number of jobs created within the casinos themselves would be limited and the increased competition to existing local businesses has the potential to lead to job losses elsewhere. Two studies of riverboat casinos in Illinois, for example, concluded that for every one job created by the riverboats, most of the surrounding communities probably lost one or more jobs from pre-existing businesses. In addition, many of the jobs created in casinos tend to be low wage positions, which can be helpful in areas suffering from chronic unemployment and underemployment. This is not necessarily the case in more successful economies such as ours, however, and these are the types of jobs for which we already employ a large number of non-Bermudians. Per the 2010 Census, for example, “Non-Bermudians registered the largest proportional share within the service, shop and market sales workers group. This reflects the relatively high number of guest workers in fields such as waiter, chef, cook ...” While some jobs for Bermudians would be created, it seems unlikely that the net gains would be large and they may even be negative in the longer-term.Lastly, in terms of the secondary goal of generating tax revenue to support more robust tourism initiatives, it is important to ask ourselves exactly who will be paying these additional taxes, and whether these revenues can outweigh the additional costs to Government of both regulating casino gambling and mitigating any adverse social impacts.What are the potential downsides?While the cited benefits tend to be relatively easy to quantify, the potential downsides of gambling are documented to be far-reaching but much more difficult to measure. Furthermore, the perceived benefits tend to be over-emphasised while the potential downsides are ignored or played down. According to the US National Gambling Impact Study Commission (NGISC) Report, for example, “almost all studies [on gambling] have been conducted by interested parties. These typically have gone no further than to estimate local jobs and income from the gambling industry.”The potential downsides are, however, very real. As stated in the NGISC Report, which was based on hearings throughout the US, testimony on a number of relevant topics, a review of thousands of articles and comments, and considered academic research and new research, “along with the real benefits of gambling come equally undeniable and significant costs.” Furthermore, while the NGISC found that any economic benefits tended to be concentrated in a small geographical area, the social costs were diffused throughout a wider geographical region making them less apparent. In Bermuda, however, given our small size, it is likely that any social costs will be more pronounced as they will be concentrated within our 21 square miles.Social costs include increased crime, suicide rates, homelessness, child neglect, abuse, lost productivity of problem gamblers, divorce and bankruptcies. The director of the Atlantic City Rescue Mission, for example, noted that at least 22 percent of the homeless served by the Mission cited gambling as their cause of homelessness and, in a survey of nearly 400 Gamblers Anonymous members, 57 percent admitted to stealing an average of $135,000 to finance their gambling habit. Similarly, 19 percent of Chapter 13 bankruptcies in the state of Iowa involve gambling-related debt and those bankruptcies increased at a rate significantly above the national average in the years following the introduction of casinos.Most of the social costs associated with gambling result from problem gamblers, which studies have shown to form a relatively fixed percentage of any population. The issue with introducing casinos is that “The key to addiction is proximity: The more access, the greater the problem,” and the legalisation of gambling has even been described as “a public policy that creates addicts.” Importantly, these social costs are primarily a result of the local population frequenting casinos, which explains why certain jurisdictions, including Monaco and the Bahamas (which are often cited as examples of the type of casino gambling that we are trying to emulate) actually have laws in place to prevent local citizens from gambling. While this does seem to be a viable method of minimising the negative social effects of gambling and therefore maximising the overall benefits, it could raise questions around civil liberties, may be difficult and expensive to implement and regulate, and may reduce the ability of casino operators to make a profit in the off-season. It is also worth noting that, if casino gambling is legalised for locals, it could become more difficult to resist the re-legalisation of the slot style gambling machines in local establishments that were banned not so long ago, presumably for good reason.The social costs of casino gambling have both economic and emotional effects on a community. There is the tangible cost of additional policing, psychologists, counsellors and problem gambling hotlines recognised in the Green Paper, increased costs to both social services and charities to address the problems created, and increased court costs and costs of incarceration (the cost of incarceration in Bermuda being reported to be about four times the cost in the US) caused by increased crime. In addition there is the emotional cost of these problems to members of the public and their families at a time when we are already struggling as a community with issues such as gang violence, and any increase in crime and homelessness would likely be very visible in a small jurisdiction such as Bermuda, which could actually deter the exact same visitors that we sought to attract through the introduction of casino gambling in the first place. Furthermore, the introduction of gambling has been found to increase commercial property values which, while positive for already wealthy commercial property owners, could be detrimental for local retailers and other businesses that are already struggling to remain profitable in the current economic climate.