Playing a Zero Sum Game By Ken Adams August 12, 2015 at 8:03 pm A zero sum game is one in which one player’s success comes at the expense of the other player. It has one winner and one loser. The principle is simple and straightforward, but it creates a great deal of animosity and “cut-throat” competition. Conventional thinking holds that business is generally not a zero sum game – there are enough customers to go around and if need be, a business can cater to a segment of the market with less competition. Still there are times when the principle is applicable to business. When, for example, the population and income and growth are stagnant the competition over existing customers and dollars becomes more intense; business is then a zero sum game. And there are times, when that level of competition can even reach state economies, wherein neighboring states are competing for investment dollars, university students and new manufacturing, warehousing and distribution centers. Under those conditions states can be as competitive and aggressive as businesses or individuals. In the most recent example, Illinois has developed a strategy that targets Indiana. The governor is developing tactics for a direct assault on Indiana’s economy. Governor Bruce Rauner has stated his intent very succinctly: “Believe me, I am going to rip the economic guts out of Indiana,” he told the Chicago Tribune. “I am one of the baddest enemies anybody can have. And when I set a goal, we do it. I don’t care what the headline is. I want the results. And we’re coming after Indiana big time.” For the casinos in Indiana, the casinos in Ohio have already been ripping their guts out, but this brings it all out in the open. It’s a generally accepted principle that large market economies are not zero-sum games. When one gets rich, that doesn’t require other people to become poor; job gains in one state don’t require job losses in another. But Illinois Governor Bruce Rauner must have skipped that lecture in Economics 101. “I am going to try to rip the economic guts out of Indiana,” Rauner told the newspaper, going on to boast, “I am one of the baddest enemies anybody can have.” Rauner promised that Illinois would “methodically and aggressively” move to help itself to the economic detriment of its neighbor. “And we’re coming after Indiana big time. We’re going to deliver jobs out of Indiana and into Illinois.” Rob Garver, Fiscal Times, 4-8-15 In the past, the casino industry has not been a zero sum game except in very small markets with a limited customer base. Casino gaming has been expanding in this country since 1978; some years it expanded faster than others and some years it did not expand at all. But, since the first casinos opened in Atlantic City casinos have been in a long slow expansion phase. Until 2006, there always seemed to be enough for one more state and one more casino. Las Vegas was a symbol of the nation’s appetite for gambling. No matter how many casinos and hotel rooms the Strip had, there was always enough demand for more. A new and grander casino in Las Vegas always created more demand and that created more opportunity for every casino. Outside of Las Vegas, in the fall of 2006 it started to become a zero sum contest. The first casinos opened in Pennsylvania that fall and immediately began to eat Atlantic City’s lunch. Now, in all jurisdictions expect Las Vegas, any new casino has to get its customers from an existing casino. All of the casino customers have been spoken for – they already have a special casino, a loyalty card and their favorite employees. A new casino must lure them away. Luring customers away from a casino is usually done by building the new casino closer to where the customers live. That is how the casinos in Pennsylvania, Ohio and Maryland have succeeded. In the wake of their success is a trail of struggling casinos in Indiana, New Jersey, West Virginia and Connecticut. And at that point, the game was not merely between casinos, but between states. It is the way of the world these days. Gaming is a zero sum game in a dog eat dog world. The rules of the game are becoming recognized by the political leaders in every state. The usual game strategy has two objectives, to keep their citizens’ dollars at home and to steal some of the dollars of the citizens in neighboring states. Lawmakers everywhere have learned the game and like the governor of Illinois they are playing it seriously. States in search of tax revenue have been on the road, trying to attract businesses and citizens from other states. They have passed tax, zoning and building regulations which target areas of dissatisfaction in other states. The classic target is California; for over twenty years, all of the smaller western states have been focused on California to improve their own economy. In that game, when Nevada, Arizona, Utah, Idaho or New Mexico wins, California loses. Fortunately, for California it is still a national magnet that continually draws people to its golden shores. When the expansion of the gaming was debated, no lawmaker in Pennsylvania, Massachusetts, Maryland, New York or Ohio articulated the intent, in the way the governor of Illinois has, but they knew what the result would be. And, clearly the casinos in Pennsylvania ripped the guts out of West Virginia and New Jersey. Casinos and racinos in Ohio certainly bring money to state coffers by taking it from Indiana, Michigan and ironically Pennsylvania. Ripping the guts out of one’s neighbor is the way the game is now played and it certainly is a zero sum game. There are no win-win strategies in it. But it is also a game that will run its course. When this round of expansion is over, the game will be also about played out.