Bayou Business Review, Dec. 13, 1999

In several of my recent columns, I have been critical of a federal judge’s finding in the Microsoft case that the software giant has a monopoly because there are and will be profit in coming up with new and better operating systems. A new operating system could take over Microsoft’s market lead. A more appropriate use of the term "monopoly" can be found here in Louisiana.

Players International, which operates a pair of riverboat casinos in Lake Charles, has agreed to pay a fine of more than $10 million to the state in a case where corruption on a grand scale has been alleged. What has been charged is that Former Gov. Edwin Edwards, his son Stephen Edwards and an old friend of Stephen Edwards, Ricky Shetler promised to get the casino company licenses and to help limit any competition that may face Players. Shertler has pleaded guilty and testified that he transferred more than $550 thousand from Players to the two Edwards men.

The Gaming Control Board levied the huge fine, but some state legislators are upset that Players got off so easily (but there are sure to be other charges). None of these charges of corruption should be surprising to our legislators, who set the whole process in motion in the first place.

When casino operations were established in Louisiana the legislature put limits on how many casinos could operate in the state. The legislature only allowed one land-based casino and fifteen riverboat casinos. Of course, the legislature did this with full knowledge that around the state our Native American Nations would be free to operate casinos as well. With the number of casinos, both land and riverboat, fixed by a constitutional amendment, profits were expected to be huge. Sort of.

Competition is a funny thing. If the number of firms doing business is limited to a handful, competition changes form, from competition among the many by giving customers a better deal, to competition among the many for the few slots available by giving the key decision makers a better deal. In this case, the better deal seems to have gone to our former governor, his son and his son’s friend. There are profits in Casinoland, if one can get a slot. Competition for the few slots, by turning into a bidding war, raises the price of admission to Casinoland until there are no profits left once the admission price is taken into account.

By limiting the number of casinos that could operate in the state, the legislature and the voters of this state who approved the changes in the constitution to allow casino gambling pretty much guaranteed the profitability of these operations. I am told that the Louisiana casinos do not "pay off" as well as the more competitive Mississippi casinos. The low pay-out rate or high price of gambling in Louisiana is not because of all the corruption in obtaining licenses. Instead, the corruption in getting the licenses is because of the high price of gambling in the state—and the high price of gambling is because we only allow a few to operate.

I am reminded of a quote from one of the great classical economists, David Ridardo, a British stockbroker who wrote over 150 years ago "Corn is not high because a rent is paid; rent is paid because corn is high." Gambling prices (the part that is not paid out in prizes) not high because of the corrupt payments to government officials; corrupt payments are made because gambling prices are high and they are kept that way with licensing.

Players and Isle of Capri in Lake Charles have both paid plenty in recent campaigns to keep slot machines out of Delta Downs, the racetrack in nearby Vinton. The first election on slots at Delta Downs kept slots out of the racetrack. A few weeks ago another election was held and now slots can be played at the track. The point is that in two elections, Players and Isle of Capri put down plenty of money in a campaign to keep competition out.

Our limits on licenses forced any casino business that wanted to operate in Louisiana to compete for licenses according to the rules we laid down. Our rules seem to have been that the governor would be important in the decision, and one must pay for that resource. Players played by Louisiana rules. How can anyone be surprised?

Now we see the true face of monopoly—the use of the government’s force to keep competitors at bay. Monopoly was Players’ game. Microsoft plays a different game; its called hardball.

(See my article on a single land-based casino in Thibodaux Magazine, 12/90, also on my web page at www.geocities.com/rmcoats/casino.html)