The Economic Impacts of Introducing Slot Machines at Racetracks in Pennsylvania: A Review of the Penn State Harrisburg Study


The Commonwealth Foundation of Harrisburg, Pennsylvania asked us to examine the methodology and conclusions of the January 2001 report, “The Economic Impact of Horse Racing on the Economy of Pennsylvania” (which we refer to as the “PSH Study”) that the Institute of State and Regional Affairs at Pennsylvania State University, Harrisburg prepared for the state’s four racetrack owners. The racetracks are Ladbroke at The Meadows, Penn National Race Course, Philadelphia Park Racetrack, and The Downs at Pocono. We hope our review will contribute to an understanding of the potential economic impacts of introducing slot machine gambling at racetracks in Pennsylvania.

The PSH Study’s authors stated that their goals were “To forecast the [total] economic impact of Pennsylvania’s four racetracks under the premise that, by the year 2002, Pennsylvania’s racetrack operators will be permitted to provide patrons at their tracks with a limited number of slot machines” and “To forecast the increase in economic impacts (net impacts) [our emphasis] that we expect in 2002 if Pennsylvania’s four racetracks were permitted to provide its [sic] patrons with slot machines.” (PSH Study, p.9)

The purpose of the PSH Study, according to the Pennsylvania Horse Racing Association, which represents the track owners who paid for the study, was to provide “a clear and accurate picture of the economic impact that would come from legalizing a limited number of slot machines at Pennsylvania’s four racetracks.”1 The limited number of slot machines used in the PSH Study for forecasting purposes was 1500 machines at each of the state’s four racetracks. We therefore based our review on the economic impacts to the state of Pennsylvania of adding 1,500 slot machines to each of the state’s four racetracks.

Executive Summary

The main conclusion of the PSH Study was that in 2002 the installation of 1,500 slot machines at each of Pennsylvania’s four racetracks would result in a net increase of $332 million in tax revenues, $236 million of which increase would go to state and local governments, and generate 17,700 new jobs.

There are several significant problems with the economic impact analysis in the PSH Study. While the study generally adopts an accepted economic impact analysis technique, the documentation of its analysis is so poor as to fail to meet even the minimum ethical standard of transparency in economic analysis. It contains gross overestimation of certain positive impacts and is misleading in its presentation.

Perhaps most serious, since the PSH Study omitted any consideration whatsoever of the economic costs involved in the introduction of slot machine gambling in Pennsylvania, and provided forecasts only of economic benefits, it is not a valid economic impact analysis. Without full and accurate consideration of costs as well as benefits, an economic impact study cannot be used for understanding the full impacts on a state’s economy of introducing any new business enterprise.

Even judged by its own statements, the PSH Study is more an ideological argument in favor of introducing slot machine gambling ventures into Pennsylvania than it is an objective economic analysis. We base this conclusion on the following arguments made by the PSH Study’s authors:

1) Consumers should have more gambling choices. Limiting people’s ability to gamble at slot machines means they are being denied personal benefits.

“Consumers who have choices are more likely to find their most enjoyable or satisfying activities. That is why multi-screen movie theaters have been so successful competing against traditional, single-screen theaters.” (PSH Study, p.23)

“From a purely economic standpoint, prohibition limits individual choice in the marketplace. If individual choices are limited, it becomes impossible for many persons to spend their income on services that maximize their personal benefit … It is analogous to taking every tenth item off the grocery store shelves.” (PSH Study, p.26)

2) It is paternalistic for a state to deny adults the right to gamble. Politicians are being “Puritanical” and inconsistent when the deny people the opportunity to gamble at “racinos.”

[The argument in favor of prohibiting gambling] “is similar to that for installing vchips in television sets to prevent children from viewing violent programs. Prohibition would extend such paternalism to adults. . . . Our free market system is based on the premise that individuals, free to make their own choices and given enough information to do so, will act in their own best interests.” (PSH Study, p.28)

“American policy-makers apply the remnants of [the Puritanical] ethic inconsistently. For example, the repeal of the nation’s 18th Amendment sanctioned alcoholic beverages, but not gambling.” (PSH Study, p.25)

3) Consumers have more money and time to spend than ever, so they should be able to use this money and time for gambling.

“Consumers today have more leisure time and disposable income than before. Economic logic does not seem to support the argument that these consumers should not be permitted to satisfy their demand for gambling as a leisure activity.” (PSH Study, p.25)

4) State-sponsored gambling ventures are relatively painless ways to collect taxes. “In Pennsylvania lottery tickets are sold by the state as a form of relatively painless taxation.” (PSH Study, p.25)

5) From an economic point of view, gambling is the same as any other leisure activity and should be treated like any other such business. Gambling prohibition is harmful to our free market system.

“In economics gambling is a service with as much validity as the services provided in other parts of the leisure entertainment industry.” (PSH Study, p.25)

“In a competitive market system, the existence of profits attracts competition…. To prohibit gambling to avoid competition strikes at the heart of our free market system.”(PSH Study, p.29)

6) The social costs of expanding gambling are no different than any other expanding business. They are no different, for example, than constructing a new Wal-Mart store.

“Social costs of gambling as an economic development strategy include necessary support infrastructure such as roads, police protection and traffic management, sewer systems, schools and other publicly financed improvements needed by a growing business and resident population…. The introduction of a Wal-Mart store requires road improvements, traffic control, and demand for police protection. It would even increase crime because shoplifters go where the merchandise is. The social cost argument is specious. It is often difficult to separate arguments for prohibiting gambling from arguments against economic growth in general.” (PSH Study, p.29)