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The Honolulu Advertiser
Posted on: Sunday, February 3 ,2002

No sure bets among gambling models

By Wali Osman

The economic and financial arguments for adopting some form of commercial gambling in Hawai'i always have been based predominantly on hypothetical conditions. In reality, there have been no viable casino businesses in the dollar-denominated Pacific to offer firsthand evidence of potential success.

The $250 million Tinian Dynasty Hotel & Casino is a world-class facility, but the gambling section hasn't lived up to its billing.

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If the Hawai'i Legislature does indeed decide to study the issue, it would do well to send a delegation to the island of Tinian in the Commonwealth of the Northern Mariana Islands in the western Pacific. There, they can see how a world-class hotel and casino has performed on a splendid but isolated island.

The Tinian Dynasty Hotel & Casino is a privately-held concern, so there is not much public information on its financial performance. But what appears clear from the outside is that the hotel has not done particularly well. Aside from its completion amid the Asian financial crisis, the conditions that would have made the casino work have never been fulfilled.

The hotel was targeting, among others, gamblers who go to Macao and other locations near Hong Kong. Bringing those gamblers to the casino required special charter flights between Hong Kong and Tinian.

They never materialized. Because most Japanese tourists, which make up 70 to 80 percent of all tourists to Guam and the Northern Marianas, do not gamble, the main clientele for the hotel became local residents and visitors from Guam.

Given the struggling economies of Guam and the Northern Marianas since the mid-1990s, there are not that many financially strong gamblers among local residents. So the $250 million hotel, which is, by every account, a world-class facility, has yet to get on track to realizing its potential.

Gambling facilities on the U.S. Mainland also should be studied closely. Nevada's success, especially Las Vegas, is no guarantee that it would work elsewhere.

Atlantic City has struggled for years to become viable and some still question its viability. New Orleans also offers some insight into making commercial gambling a viable industry.

Las Vegas works because it has gone through decades and billions of dollars of investment to build an infrastructure that has become an experience. Gambling now is only part of the Las Vegas experience. It has recently added facilities for children, families and business to expand its market and appeal.

More important, Las Vegas works because it is within driving distance of California, which has more than 30 million residents and some of the nation's richest techno-financial companies, which employ tens of thousands with above-national-average wages. Oregon and Washington also have notable urban and high-income populations.

There are Las Vegas enthusiasts in other neighboring states, the rest of the country and worldwide. Also, most Las Vegas experiences are indoors while most Hawai'i tourist experiences are outdoors to take advantage of the state's unique ecosystem. Las Vegas' success is never a credible argument that gambling will work in Hawai'i.

State financial stabilization also is used as an argument for other forms of commercial gambling such as a state lottery. Again, California offers a good example with respect to benefits and costs. Lottery generates some money for education, but it is a regressive tax. The poorest tend to buy the most lottery tickets, hoping to win and get out of poverty. Because the chances of winning large sums are infinitely small, one in 10 million to 20 million, the poor keep hoping that they will win.

We can expect proponents to argue economic and financial merits, especially the need to create jobs and income in a weak economy already dominated by tourist services. Opponents will stress negative consequences, not all necessarily economic and quantifiable. Before the Legislature makes any decision, it must study the whole range of social, economic and financial issues connected to commercial gambling.

Perhaps the weakest argument is that 47 states allow it. We don't need to be and shouldn't want to be like the other states. Hawai'i's appeal, after all, is in its uniqueness — a group of islands in the middle of the Pacific with extraordinary aesthetic resources — offering an experience no other state can. It is highly unlikely that commercial gambling would enrich that experience. On the contrary, it may harm it.

Wali Osman, a former Bank of Hawaii economist, is Bank of Hawaii senior fellow for the Pacific economies at the East-West Center.