States' cut of revenues leveling off

Jun 24, 2008 7:02 PM

by GT Staff | States’ revenues from commercial gambling – casinos, lotteries, racinos and racetracks – have now reached $23 billion annually, but revenue growth has slowed dramatically in the past three years, according to a new study released by the Rockefeller Institute of Government in New York.

According to the report released last Friday, state revenue growth from all gambling activities fell by almost half in 2006 and 2007, compared to the previous two years, and was well below the long-term annual growth rate of 5.1 percent.

"For more than two decades, states saw lotteries and casinos as a bonanza of new dollars for education and other programs," the report noted. "Gambling revenue is now at an all-time high, but growth is slowing.

"From a fiscal perspective, state-sponsored gambling now resembles a blue-chip stock – reliably generating large amounts of cash, but no longer promising dramatic growth in revenue."

In addition to casinos, lotteries and racetracks, the new study includes revenues from racinos, where slot machines and table games are placed in existing racetracks.

Not included in the survey were statistics from Native American gaming, which often provides little revenue sharing with states. States’ revenues from all gambling sources were $14.9 billion in fiscal year 1998, the first year for which comparable data became available. Since then, revenues have grown overall by over 56 percent, topping $23.3 billion last year.

The slowing trend in growth began about three years ago. Between fiscal 2005 and 2007, tax revenues from gambling grew 8.7 percent. In the two previous years, the growth rate was nearly twice that.

"Gambling has been a fiscal winner for state governments, but the bonanza years may be ending," said the study’s co-author and Rockefeller Institute Deputy Director Robert B. Ward. "Continued resistance to gambling and softness in the industry mean that most states have to look elsewhere to solve this year’s budget problems."

As a percentage of their state budgets, gambling revenue varies widely from state-to-state. Nevada relies the most on gambling revenue with 13.4 percent of its budget in the last fiscal year coming from gaming revenue.

West Virginia is second at 8.9 percent, with Alabama, Arkansas and Wyoming relying the last on gambling.

The overall gambling revenue of $23.3 billion is broken down as follows: $17.4 billion from state lotteries, $5 billion from casinos and $900 million from racinos and racetracks.

Here’s a closer look at each gambling market:

Casinos: Currently 12 states have commercial casinos, with Nevada home to 60 percent of them. Those facilities produce more than 20 percent of all the state revenue from casinos nationwide.

The Rockefeller study revealed that states’ casino revenue was flat in the first three quarters of fiscal 2008, increasing by only 0.7 percent, which indicates a "likelihood of a sharp drop from the 4.3 percent in the preceding year."

If you remove Pennsylvania’s newly-opened casino from the mix, the 11 states showed a 0.3 percent decline in gaming revenue. Four states – Illinois, Indiana, Michigan and New Jersey – experienced revenue declines, with New Jersey’s the largest at 7 percent.

Racinos: Currently seven states operate stand-alone racinos. Overall revenues rose dramatically in the first three quarters of the fiscal year – from $336 million to $798 million, for a 137 percent increase.

The increase was mostly due to the opening of new racinos, particularly in Pennsylvania and Florida; Iowa was the only state to show a decline in revenues.

Racetracks: Pari-mutuel betting is the oldest form of state-sanctioned gambling, but as other forms of gambling proliferate, pari-mutuel revenues have declined steadily.

Of the 37 states where pari-mutuel betting is allowed, 28 states reported slumping revenues from 2006 to 2007, with 13 states reporting double-digit declines.

About half of all pari-mutuel revenue is generated in four states: California, New York, Louisiana and Pennsylvania.

Lotteries: Currently 42 states have lotteries, which generated $17.4 billion in 2007, a 2.8 percent increase over 2006.

The strongest growth was in the Southeast region, where revenue grew 6.8 percent, followed by the Far West states, at 6 percent.

Of the 42 states, 19 reported revenue growth over the past two years, with three states – Montana, Oregon and North Carolina – enjoying double-digit increases.

However, 23 states showed a decline in lottery revenues, the largest being 28.1 percent for Iowa.