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The Historical Impact of Recessions on Gambling Activity

Economics / Gambling Feb 08, 2020 - 03:53 PM GMT

By: Submissions

Economics

The United States continues to reap benefits from the burgeoning gambling industry. This is evident from the personal consumption expenditures from the three main types of gambling, i.e. pari-mutuel wagering, casino gambling, and lottery.

For instance, in 1996, the personal consumption expenditure stood at $50.291 billion but doubled to $109.260 billion in 2007. In 2018, the figure rose to a jaw-dropping $142.553 billion. While this may be a good trend, the industry, just like any other, isn’t recession-proof. Or is it?

In this article, we’ll take a look at the impact of recession on gambling activities, especially when it comes to the economy and overall finances.


Gambling Revenue and Recession

From 1998 to 2007, the gambling industry enjoyed a significant and steady increase in revenues. The figures stood at 2.1% to 2.5% for revenues from states where gambling was legal. This was close to a decade, and from this steady rise, everyone expected the gambling revenues to continue rising.

The US would have reaped more from gambling had it not passed the PASPA act of 1992. This encouraged an initial surge in offshore gambling with over $40 billion spent online on offshore betting sites. In 2017, this figure blew to $150 billion every year. While a sizeable share returned to the country, a huge chunk remained offshore.

Nevertheless, after a prosperous 9 years for the gambling industry, things took a turn for the worst when revenues started declining in 2008. As you may have guessed, this was the same year when the infamous 2008 financial crisis hit the US.

The recession caused a 4.7% dip in commercial casino revenues to stand at $107.215 billion. The decline in revenues started in February and went downhill every month from then compared to a similar period the previous year. The downward spiral continued into the first few months of 2009.

This sudden decline in revenues in the gambling industry during the recession led to several studies looking to uncover how recession affects gambling activities.

How Recession Affects Gambling Activities

As is the norm during a recession, many companies take several measures to reduce expenditure. One of the most severe measures taken is cutting off employees. For the lucky ones, they may get away with salary or wage cuts.

With reduced or no income at all, people tend to reduce their expenses and this includes gambling expenses. The uncertainty and anxiety brought by job losses and reduced income often lead to fear and others succumb to the pressure of having to find another job.

According to a study by Muraven M, Baumeister RF on self-control, stress, and anxiety show a positive correlation to gambling behavior. Muraven argues that the fight to stay in control of the situation (sudden strain on income) results in a quicksand situation. The more you try to deal with the situation, the more it consumes you.

The explanation behind this is that adapting to such negativities takes a lot of self-control strength, leading to reduced self-control performance. As a result, emotional difficulties contribute to problem gambling, and the situation worsens as emotional stability degrades.

Apart from increased emotional difficulties, unemployment opens up huge chunks of time, often spent at home. Unlike when working when there’s no time to spare, many unemployed people will end up bored, and as the saying goes, an empty mind is the devil’s workshop.

The only way to keep your mind busy is by gambling and this may lead to the development and sustained problem gambling. According to studies conducted by Mercer KB and Eastwood JB, boredom is a leading cause of gambling.

It’s not all gloom though. In a report by Mikesell on State Lottery Sales and Economic Activity, Mikesell states that recession has a positive effect on gambling. How so?

According to the report, a recession leads to reduced spending power on the population. Therefore, even if a gambler decides to place a bet, they’ll do it on a small scale. This is where lotteries come into the picture.

Lotteries offer gamblers a chance to hit jackpots that run into the millions of dollars with a small investment. With such an opportunity staring down at the gambler, it’s almost impossible to resist the urge to take a chance at turning their financial situation around. With this report, it’s easy to see why lotteries are the only type of gambling that seems to be recession-proof.

Increased gambling opportunities is also a positive impact associated with recession. Many gamblers, especially those in states where gambling is illegal, prefer offshore betting. Nevertheless, after the PASPA act was repealed by the Supreme Court in 2018, many states started legalizing gambling while others are still in the debate stage.

As tax revenues drop during a financial downturn, gambling may provide a solution if legalized. According to studies conducted by Richard B and Calcagno et al, economic developments pushed up to 13 countries to legalize casino gambling.

In both studies, it’s expected that the legalization of gambling will continue in the years to come due to high unemployment rates.

In Conclusion

While it may seem straightforward how recession impacts gambling activities, the correlation is still fuzzy. Some studies show increased activity during a recession while others show reduced activity during financial downturns.

However, one thing is for sure, and that is the increased gambling activity in the United States. From 2009 when revenues dropped to $102.215 billion, the personal consumption expenditure has been on a steady rise to hit $142.553 billion and this is expected to rise in the coming years as more states in the United States legalize gambling to avoid lost revenue in taxes to offshore betting.

Copyright 2020 © S N Chatterjee - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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