Tuesday, September 2, 2008

Tribe In The Media: Increase In Connecticut Lottery Sales

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This installment of the Tribe In The Media series is a New York Times article discussing the increase in Connecticut lottery revenue while casino slot revenue in the state has been declining:

Slots Revenue Falls as Lottery Sales Rise
By Gregory B. Hladky
New York Times
August 29, 2008

Slot machine revenues at Connecticut’s casinos have dropped just as state lottery sales are rising, two trends that may be linked by high gas prices and the region’s ailing economy.

Some gamblers who have less to spend these days and do not want to use up money on ever-costlier gasoline are buying lottery tickets rather than driving to casinos to play the slots, say some of those who study the industry.

“To go to a casino is a much more expensive proposition than to buy a lottery ticket. And the lottery is right around the corner,” said Paul R. Sternburg, vice president for sales and marketing for Connecticut’s lottery operation. “I think we’re going to have another good year.”

The problem for Connecticut taxpayers is that the increase in lottery revenues will only partly offset the decrease in slot machine revenues, a critical piece of the state budget.

The state, which gets 25 percent of casino slot revenue, saw its share drop by more than $19 million in the fiscal year 2007-8, to $411.4 million. Lottery revenue increased by $4 million for the same period, to $283 million for the fiscal year that ended June 30.

Officials at the Mohegan Sun and Foxwoods Resort Casino and MGM Grand at Foxwoods said the drop in play at their slot machines amounted to a 9.4 percent reduction in the state’s share of revenue in July compared to the same month last year.

While the increase in gasoline prices may be keeping some players out of the casinos, some gambling executives say increased competition from slot machine and video lottery operations in neighboring states may be an even more important factor in their loss of slot revenue.

Overall revenues at Connecticut’s casinos totaled more than $2.53 billion in 2007, according to the newly released Indian Gaming Industry Report. The study, written by the economist Alan Meister for the Casino City Press, said the state’s two casinos showed an increase of only 1.6 percent over the prior year.

New York, which expanded gambling facilities at six racetracks in 2006 and 2007, had an increase of 94.3 percent in revenue from racetrack slot machines or video lottery games last year, to $828.2 million. Rhode Island’s expanded gambling operations boosted revenue by 10.2 percent, to $448 million in 2007, and an establishment in Maine had a 15.3 percent boost, to $43.3 million.

Connecticut’s tribal casinos are trying to compete with major expansions. The Mashantucket Pequots opened the new $700 million MGM Grand at Foxwoods casino in May. The Mohegan Sun’s Project Horizon expansion is expected to cost $925 million by the time it is completed in 2010.

“People are still coming here,” said Mitchell G. Etess, chief executive of the Mohegan Sun casino. He said that there continue to be large crowds for sporting and other entertainment events, but that people were not gambling as much as they once did.

“I think they’re prioritizing their spending,” Mr. Etess said. He said he believed there could be a link between reduced gambling on slot machines and increased lottery sales. “We actually could be seeing that,” he said.

But not everyone agrees that slot revenue declines and increased Connecticut lottery sales are linked.

Barry Cregan, interim president of Foxwoods, said the main problems were the economy and “gas prices at $4-something a gallon.” But he said he doubted there was any “correlation between lottery sales and slot machines.”

Mr. Sternburg said that the lottery was competing with the casinos “for the same discretionary dollars,” and that gas prices and the sluggish economy were playing a significant role.

The director of the Center for Gaming Research at the University of Nevada at Las Vegas, David G. Schwartz, calls the potential effect of the poor economic climate on gambling “a very interesting test case.”

“Are we going to see across-the-board declines in gambling revenues?” he asked. “Are people playing the lottery more?”

Mr. Schwartz said many of the people who like playing the slot machines at Foxwoods or the Mohegan Sun were from Massachusetts, New York, Rhode Island and Pennsylvania. And if they are staying home and buying lottery tickets because of economic troubles, they would be playing their home state lottery games.

Higher travel costs could also help the Connecticut casinos by encouraging people in the Northeast to stay closer to home to gamble rather than taking increasingly expensive trips to places like Las Vegas, Mr. Schwartz said.

Paul A. Young, executive director of the Connecticut Division of Special Revenue, said he did not “discount the issue of the economy” in the decline of state slot machine revenues. But he said he thought a more important factor was that Connecticut casinos were facing increased competition from slot operations in neighboring states.

Rhode Island has more than 4,750 video lottery machines operating at the recently expanded Twin River greyhound racetrack in Lincoln. Begun in 2006, the operation’s expansion was completed last fall.

Mr. Cregan said video lottery terminals had become so sophisticated at emulating slot machine-style games that “the customer sees it as a slot experience.”

The head of Connecticut’s state budget office, Robert L. Genuario, said he did not think the state should worry too much about rises or declines in gambling dollars. “I’m not counting on an increase in the lottery to make up for less slot revenue,” he said.

But Mr. Schwartz said continuing state efforts to boost lottery sales during hard economic times could put officials in a difficult position of encouraging citizens with shrinking incomes to gamble.

“A lot of people would find that in bad taste,” he said.