PIERRE – While many contend a smoking ban in 2010 cut into gambling revenues, a new report shows that video lottery’s difficulties began years earlier.
Video lottery revenue began to stagnate in 2005-2006 and dropped in the two years before the ban began. The ban accelerated a trend that was already under way, concluded a report by Union Gaming Analytics, a Las Vegas-based company, which was delivered last week to the South Dakota Lottery Commission. The report also suggested that the state increase its take of total revenues generated.
Video lottery’s share of South Dakota’s gambling market stood at 60.7 percent in 2002 and, by 2012, had fallen to 42.2 percent. The report offers the deepest look at video lottery since the electronic poker, blackjack, keno and bingo games became legal in 1989.
During that same decade, documented play at Deadwood casinos and estimated play at tribal casinos doubled. Their market shares grew: Deadwood from 19.4 to 25.6 percent and tribal casinos from 16.4 to 26.5 percent.
Video lottery also lost some market share to other South Dakota Lottery products. Scratch tickets nearly doubled in sales and jackpot lotto sales did double. Their shares also went up: scratch tickets from 1.5 to 2.4 percent and lotto tickets from 2.1 percent to 3.3 percent.
Lottery officials wanted the study because they sought a detailed map of the current market, including competition from neighboring states, as well as a blueprint for possible changes that can be made in the next few years to increase video lottery’s revenue to the state treasury and to the businesses that own and manage the terminals.
“Every time I read it, I get more information,” commissioner Roger Novotny, of Fort Pierre, said.
Many of the recommendations aim at getting more line-up games, which are similar to casino slot machines, into establishments. As of Aug. 31, the terminals statewide stood at 18 percent line-up and 82 percent legacy terminals, most of them VLC 8700s, which have been around for 20 years or more and were declared obsolete long ago by the commission.
Consultant Rich Baldwin suggested the 50-50 split of net machine income — the money lost or left behind by players after winnings are paid — be changed: For legacy machines, state government should increase its take to 60 percent then 70 percent; while line-up games would be at 30 percent for the first year and 40 percent the second year before settling at 50 percent.
The report also recommended allowing establishments to have 15 terminals rather than the standard 10, if the additional five are new line-up games.
“This really is a call to arms. We need to take this report as a call to action,” commissioner Doyle Estes, of Hill City, said. “If the industry doesn’t change, we’re not going to get the share of income the state of South Dakota has gotten over the last 25 years.”
A decade of gaming
Net machine income from video lottery was $207.7 million in 2002 and was down to $176.4 million in 2012. Deadwood casinos, meanwhile, rose from $66.3 million to $107.4 million and tribal casinos climbed from an estimated $56 million to $110.9 million.
Scratch tickets during that period went from $5.1 million to $9.9 million. Lotto sales increased from about $7 million to $14 million.
Video lottery peaked at $224.7 million of net machine income in 2008, with state government receiving nearly $112 million. NMI fell to $220.1 million in 2009 and $215.5 million in 2010. Those numbers are for the state fiscal year, which runs July 1 through June 30.
The smoking ban’s approval in November 2010 set off a steep decline. NMI fell to $191.8 million for 2011 and kept dropping in 2012 to $176.6 million. Fiscal 2013 saw the start of a rebound, for at least one year, to $184.6 million.
Not all counties struggled in the wake of the smoking ban, however. Yankton climbed 6.5 percent in 2012 and 7.7 percent in 2013. Davison grew 0.1 percent and 7.8 percent. Beadle increased 3.9 and 3 percent.
Some smaller counties also showed two consecutive years of gains, such as Deuel, Turner, Stanley, Bon Homme, Hutchinson and Jones.
The Lottery Commission will meet again in five to six weeks to further discuss the report and recommendations. Chairman Bob Hartford, of Pierre, asked the commissioners to rank the 19 recommendations as part of developing a strategic plan.
“I think the whole process needs to be done again,” said Hartford, who previously was the chief executive for the South Dakota Music and Vending Association, whose members are some of the largest businesses involved in video lottery.
Some of the recommendations can be accomplished by the commission through rule changes, but most need approval by the Legislature.
“We need to prioritize what we want to change, or to accept, and what we need to do that,” Hartford said.
Video lottery revenues 2013
Minnehaha County: $51 million
Pennington: $26.6 million.
Union County — North Sioux City: $12 million
Brown County: $11.5 million.
Yankton $7.5 million
Codington County at $6.4 million
Davison County $6.1 million
Hughes County $5.8 million
Beadle County $5.3 million
Brookings County $4.5 million
Lincoln: $4.4 million
Meade County was $3.1 million
Fall River was $2.5 million
Clay: $2.2 million
Butte: $1.9 million
— Based on unaudited numbers from the lottery office for fiscal year 2013
Follow @pierremercer on Twitter.