Unaffordable Losses: Estimating the Proportion of Gambling Revenues Derived from Problem Gamblers

Together with estimates of the costs associated with treating problem gamblers and dealing with the disruption they cause, estimates of the proportion of revenues derived from problem gamblers represent one of the most important factors in the calculus of rational public policy in this controversial field. In this paper, we first present a review of the literature on the social costs of problem gambling, including several studies that have examined the contribution of problem gamblers to gambling industry revenues. We then present an approach that we have developed and provide illustrations from two different United States jurisdictions. We then look at the relationship between reported and actual expenditures to assess the reliability of the approach we have developed. Our review of the existing literature on the social costs of problem gambling discloses conceptual and methodological flaws that are sufficiently serious as to call the resulting estimates into question. Tentatively, we conclude that the proportion of gambling revenues derived from problem gamblers can range widely and depends on variables that include the menu of gambling games available in a market area, the prize structures of these games, and the length of time the games have been operating. The results of this paper indicate that not all forms of commercial gambling are alike in the extent of the negative externalities associated with their operation, a widespread assumption that seriously impedes the formulation of rational public policy in this field.