Smoking and state lottery earnings

by Dan Lucas

I was recently doing some research into the State of Oregon’s quarterly revenue forecasts, and I ran across an interesting statement. In the December 2012 Lottery Earnings Forecast, it says “[Lottery] revenue fell sharply in the wake of the recession and enactment of the smoking ban.” A smoking ban caused lottery revenue to fall? It seemed like a curious comment in an otherwise dry budget document, and so I dug into it a little.

The smoking ban mentioned in the state’s revenue forecast is the Oregon smoking ban expansion that went into effect in January 2009 that prohibited smoking in restaurants, bars and taverns. Anecdotal evidence after the ban spoke of significant loss of lottery revenue because of the ban, noting that video poker had dropped dramatically.

A study cited by the Oregon Lottery in 2009 projected a decline in video lottery revenue of $145 to $270 million a biennium as a result of the smoking ban, a sizable amount. Lottery revenue in the budget coming out of the 2008 special legislative session, before the smoking ban and recession, had been around $1.3 billion. The latest total forecast for lottery revenue is $1.076 billion for the current biennium. The study also noted “we should keep in mind that smoking and gambling tend to go together”, citing a 2006 Oregon Population Survey that showed only 8% of non-smokers play video lottery games — while 25% of smokers play video lottery games.

Any smoking ban impact on video lottery also has a big impact on overall lottery revenues, because video lottery makes up almost 90% of lottery earnings — significantly more than other lottery games like Megabucks, Powerball or Scratch-its. And those video lottery revenues come from a small group of players. A 2010 Oregonian article reported that half of lottery profits from video games come from about 10% of the players, who each lose $500 or more a month.

This quirk of smoking’s relation to lottery revenue underscores the complexity of public policy making. A law intended to help the health of Oregon workers also had the unintended consequence of reducing the state’s lottery revenues, which reduces the amount of state money available for things like schools and parks. It also heightens the unease some Oregonians already have with the lottery in general as a revenue source.