Current proposals under consideration in the Pennsylvania General Assembly would grant limited gambling licenses to horse racetracks across the Commonwealth in an attempt to bolster the struggling industry. These gambling monopolies would be extremely valuable to the license holders and could potentially be the single largest corporate welfare subsidy program in Pennsylvania’s history.
A valuation of the eight potential gambling licenses in Pennsylvania is in excess of $2 billion. Based on the comparable transactions and income valuation methods of appraisal, a very conservative estimate of the value of the two Philadelphia slots licenses is approximately $1.0 billion ($500 million each), while the two licenses in Pittsburgh are valued at $600 million ($300 million each). The remaining four licenses are assigned a collective $500 million value.
If state policymakers feel compelled to legalize additional forms of gambling through the creation of gambling monopolies, they should do so in a competitive manner that grants no special favors and benefits the largest number of Pennsylvanians. Therefore, instead of handing these highly lucrative monopolies to politically connected individuals and businesses, Pennsylvania policymakers should auction these gambling licenses to the highest bidder.
Matthew J. Brouillette, President, The Commonwealth Foundation
Corporate welfare—the practice of handing out taxpayer dollars or other incentives to politically connected individuals and businesses—is nothing new in Pennsylvania politics. But the practice could reach a new dollar level in 2003 with the current proposals to put slot machines at Pennsylvania’s horse racetracks.
The horse racing industry is the latest collection of businesses seeking a place at the public trough of taxpayer subsidies distributed by the government. But why is this industry lobbying politicians for financial assistance?
Horse racetracks—in a manner similar to drive-in movie theaters of yesteryear—have increasingly failed to attract the public’s entertainment dollars as people choose to spend their money at different venues. Understandably, the horse racing industry wants to remain viable for many reasons, not the least of which is for the individuals and families whose livelihoods are directly connected to the racetracks.
However, as most businesses across Pennsylvania struggle to make ends meet under some of the nation’s most onerous taxes and continue to deal with a sluggish economy, few job creators can ever expect the kind of attention or potential assistance from government that the horse racing industry has been able to attract. But what exactly is this politically powerful industry poised to receive from Governor Rendell and the General Assembly?
The following is an amalgamation of testimony presented to both the Pennsylvania Senate and House Finance Committees on April 30, 2003, by Jeff Hooke, a Washington, DC-area investment banker who specializes in mergers, acquisitions, corporate finance and valuations. Mr. Hooke’s analysis reveals that current proposals in Pennsylvania to subsidize the horse racing industry by granting them gambling monopolies would amount to a $2.1 billion cash giveaway. This unprecedented level of corporate welfare is fully explained in Mr. Hooke’s assessment.
Although gambling will continue to be debated as a social policy issue, the Commonwealth Foundation views it as an extremely important economic policy issue. Ultimately, we believe that it is individuals—not politicians—who must decide whether or not they will gamble with their own money. Regardless of how limited or expansive legalized gambling opportunities become in Pennsylvania, the reality is that government will never be able to protect people from themselves. Nor should we expect or want it to.
The challenge of living in a civilized society—in contrast to a totalitarian one—is to effectively use the power of persuasion to encourage our neighbors to make responsible choices, instead of wielding the compulsory power of government. There are risks, of course, that are inherent with the exercise of individual freedom. And it is true that poor decisions by individuals can and do impact innocent people in our families and communities. However, a free society must respect the rights and choices of individuals—even those we don’t agree with—while holding them accountable for the consequences of their bad decisions.
That being understood, if policymakers feel compelled to legalize additional forms of gambling through the creation of monopolies, they should do so in a competitive manner that grants no special favors and benefits the largest number of Pennsylvanians. Therefore, instead of handing these highly lucrative monopolies to politically connected individuals and businesses, Pennsylvania policymakers should auction these gambling licenses to the highest bidder.
Government, of course, should not be in the business of propping up failing businesses such as the horse racing industry. But if policymakers are determined to provide assistance to entertainment venues that are going the way of drive-in movie theaters, it could be done without handing them billions of dollars in additional cash through gambling monopolies.