f i s c a l

For the First Time, a Smaller Jackpot

Trends in State Revenues from Gambling

Lucy Dadayan and Robert B. Ward

Introduction

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his report examines the four major types of legalized gam-bling from which states earn significant revenues — lotter-ies, casinos, racinos, and pari-mutuel wagering. Lotteriesand pari-mutuel wagering are legal in most of the states, while 12states have casinos. Racinos are now operational in 12 states.

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Thirty-two states have some type of Native American casinos.Comprehensive data on state revenue from Native American casi-nos are not available.

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States derive the bulk of gambling-related revenues from twomajor sources — lotteries and casinos. While casinos experienceddramatic growth during the 1990s, that trend shifted downwardover the past decade. In recent years, much of the growth hasshifted to racinos, as more states have approved such facilities.Pari-mutuel betting, once the major source of gambling revenuefor states, now represents less than 2 percent of such revenue.All states except Hawaii and Utah collect revenue from lotter-ies, casinos, racinos, or pari-mutuel wagering. (In Alaska, legalgambling occurs only where sponsored by Native Americantribes.) When normal revenue growth softens during economicdownturns, states often consider expanded gambling operationsamong other options for balancing budgets. In the past year, atleast 25 states have proposed or considered such proposals. In Illi-nois, Governor Quinn signed the Video Gaming Act, makingvideo gaming terminals legal in Illinois. Massachusetts GovernorPatrick proposed opening Vegas-style resort casinos in the state.Hawaii, one of two states with no state-sanctioned gambling, isgiving the possibility serious consideration at the urging of Gover-nor Lingle. Colorado increased the limit on maximum bet from $5dollars to $100, extended authorization for casino operations to 24hours daily, and legalized additional forms of gambling devices.

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Overall Trends in Gambling Revenue

The Rockefeller Institute of Government collected and analyzeddata from four major types of gambling: lotteries, casinos, racinos,and pari-mutuel wagering. We obtained lottery revenue data forfiscal years 1977-2007 from the U.S. Census Bureau. The NorthAmerican Association of State and Provincial Lotteries (NASPL)also reports annual state lottery revenues. The NASPL and Census

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State-local gambling revenuesfrom lotteries, casinos, andracinos declined by 2.8 percentin fiscal 2009, preliminary datashow — the first such decline inat least three decades.

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Preliminary 2009 figures for 39early reporting states indicatean overall decline of 2.6 percentin income from state lotteries,the largest source of gamblingrevenue.

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Total state-local revenues fromcommercial casinos declined by8.5 percent, from $4.9 billion infiscal 2008 to $4.5 billion infiscal 2009.

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The 12 states that have racinoscollected $2.9 billion in fiscal2009, a 6.7 percent increasefrom last year. Most of theincrease is attributable to therevenues collected by Indiana,which legalized racinos in FY2008.

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At least 25 states haveconsidered expanding gamblingoperations as part of budget-balancing efforts in the pastyear.

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Gambling revenue from existingoperations tends to grow moreslowly than state tax revenues,although during the recentrecession gambling revenuehas not declined as sharply asmajor tax collections.

The Nelson A. Rockefeller Institute of Government

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Independent Research on America’s State and Local Governments411 State Street

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Albany, NY 12203-1003

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(518) 443-5522

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Bureau figures track closely for most years. However, neitherNASPL nor Census data were available for fiscal year 2009 as of thewriting of this report. We obtained lottery revenue data for fiscalyears 2008 and 2009 from individual state lottery agencies for 39 ofthe 42 states that raise revenues from lottery operations.Forcasinosandracinoswereportrevenuenumbersforfiscalyears1998-2009.Weuse1998asthestartingpointbecausecompara-blestate-leveldataoncasinoandracinorevenueswerenotreadilyavailablebeforethatyear.Wecollectedcasinoandracinorevenuedatafromindividualstategamingregulatoryagencies.Separateracinodatafortwoof12states—RhodeIslandandWestVirginia—wereunavailableforfiscalyears1998to2007.Theracinosinthesetwostateshostvideolotteryterminals(VLTs)only.TheonlyothertworacinostateshostingVLTsareDelawareandNewYork.TheseVLTsaregenerallyconsideredpartofthestatelotterysystemandrevenuestostateandlocalgovernmentsfromVLTsarecountedinlotteryrevenuesreportedbytheCensusBureau.Therefore,forhis-toricalanalysis(asinFigure1),wereportrevenuesfromVLTsaspartoflotteryrevenues.However,forfiscalyears2008and2009(asinTa-ble1)wereportrevenuesfromVLTsaspartofracinos.Finally, pari-mutuel wagering data for fiscal years 1977-2008were obtained from the U.S. Census Bureau. We also report reve-nue figures for pari-mutuel wagering for the first three quarters offiscal 2009, since the fourth quarter figures were not available asof this writing.States’ revenues from gambling rose continuously from 1998to 2008, before dropping in 2009. Income from lotteries, commer-cial casinos, racinos, and pari-mutuel wagering combined in-creased by 60 percent, from $15 billion in fiscal year 1998 to $24billion in fiscal year 2008 (see Figure 1), for an average annual in-crease of 4.9 percent. After adjusting for inflation, revenues fromthe major sources of gambling increased by 26 percent from fiscal1998 to fiscal 2008.A significant proportion of the growth in gambling revenue isattributable to new casinos, racinos, and other operations, al-though the precise amount of such increases is difficult to deter-mine. An estimated $2.3 billion of states’ 2008 gambling revenuesis attributable to lottery, casinos, and racinos operations broughtonline after 1998. Excluding such revenue, overall collections fromstate-sanctioned gambling activities rose by 43 percent over theperiod. That figure likely overstates revenue growth from gam-bling activities that were already online in 1998, however, becausesome states that had existing lotteries and casinos have expandedsuch operations in the past decade. Over the past three years,year-over-year growth in gambling revenue has softened signifi-cantly. State revenue from all gambling activities rose by 2.7 per-cent from fiscal 2007 to 2008. In the preceding year, revenuegrowth was more than twice that level, at 5.8 percent. Much of theincrease in gambling revenues in fiscal 2008 was due to expansionof racino operations. As detailed later in this report, in fiscal year

Fiscal Studies For the First Time, a Smaller Jackpot: Trends in State Revenues from Gambling Rockefeller Institute Page 2 www.rockinst.org

2009 revenues from lotteries and casinos have seen declines, likelyinfluenced by the current economic downturn. States have seenperiods of slower growth in gambling revenue in the past busi-ness cycles. For the period for which we have data on combinedrevenues from lotteries, casinos, racinos, and pari-mutuel gam-bling, 1998 through 2008, every individual year showed an in-crease in revenue. Before that period, data on collections from thelargest source of state gambling revenue — lotteries — show anunbroken string of annual increases dating to 1977-78, the firstyears for which currently comparable Census data are available.Looking at the last two fiscal years, currently available datashow overall revenue collections from lotteries, casinos, and racinosdropped by 2.8 percent from fiscal 2008 to fiscal 2009 — the firstsuch decline in at least three decades. Of the 41 states with majorgambling revenue and for which information is available, 28 statesreported declines over the year, with 14 states reporting decreasesof more than 5 percent. Only 12 states showed growth in revenuecollections from the three major sources of gambling. Tables 1 and 2show state-by-state revenue collections and percent change in major gambling revenue from fiscal year 2008 to 2009.Gambling revenue plays a consistently significant, if relativelysmall, role in state budgets. State revenues from lotteries, com-mercial casinos, racinos, and pari-mutuel wagering combinedamounted to no less than 2.1 percent and no more than 2.5 per-cent of state own-source general revenues (taxes, charges, etc.) be-tween fiscal years 1998 and 2007.

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VLT Revenues Included in Lotteries

24,12923,496

25,000

22,20020,72719,871

20,000

17,67317,92718,21116,92417,33215,60415,47315,77915,84915,02615,05013,782

15,000

12,16412,26612,08113,201

m i l l i o n s

11,939

$

10,000

5 031

2,4172,7483,2573,4933,6884,0034,3784,6424,8175,0314,87012,16412,26612,08111,93913,20113,78215,02615,60416,92417,67317,92715,05015,47315,77915,84917,33218,21119,87120,72722,20023,49624,129

05,00010,00015,00020,00025,000