Has Riverboat Gambling Reduced State Lottery Revenue?

Abstract

PUBLIC FINANCE REVIEW Elliott, Navin / RIVERBOAT GAMBLING AND LOTTERY REVENUE Over the past decade, most states have introduced lotteries, and many now license casinos. To what extent does the presence of licensed casinos cannibalize revenues from state-sponsored lotteries? To what extent does pari-mutuel betting cannibalize revenues from state-sponsored lotteries? Based on pooled cross-section data for the period from 1989 to 1995, this research reveals significant cannibalization of lottery revenues by both casinos and pari-mutuel betting. Nevertheless, states, in general, gain by having both lotteries and casinos. In the case of pari-mutuel betting, however, the substitution is so severe that, at existing effective tax rates, lost lottery revenues outweigh states' receipts from pari-mutuel betting.

Market Cannibalization Within and Between Gambling Industries: A Systematic Review

“…The highest figure was obtained by Elliott and Navin (2002), who found that the introduction of a casino corresponded to an 83-cent decline in state lottery revenues for each dollar played. The results of this study were later questioned by Fink and Rork (2003), whose calculations, based on a revised methodology, showed only a 56-cent decline in lottery revenue for each dollar increase in casino tax.…”

“…All eight studies found cannibalization of lottery products from casinos (Cummings, Walker, & Cotti, 2017;Economopoulos & Stolle, 2012;Elliott & Navin, 2002;Fink & Rork, 2003;Room, Turner & Ialomiteanu, 1999;Siegel & Anders, 2001;Steinnes, 1998;Walker & Jackson, 2008), but the estimated degree of this substitution varied. The highest figure was obtained by Elliott and Navin (2002), who found that the introduction of a casino corresponded to an 83-cent decline in state lottery revenues for each dollar played.…”

“…Results were contradictory, with some research studies reporting that the relationship is insignificant (Garrett & Marsh, 2002;Siegel & Anders, 2001) or complementary (Walker & Jackson, 2008) and others finding that the presence of pari-mutuel betting in a state diminishes the profitability of the lottery (Davis, Filer, & Moak, 1992;Elliott & Navin, 2002). The work by Elliott and Navin (2002) used crosssectional time series dating from 1989 to 1995 to study the impacts that casinos and pari-mutuel betting have on state lottery revenue. Results suggested that pari-mutuel betting cannibalizes state lotteries so strongly that states may even suffer net revenue losses.…”

The Economic Winners and Losers of Legalized Gambling

“…The authors' empirical analysis finds that a 10 percent increase in the number of slot machines is associated with a 2.8 percent decline in lottery sales. Elliott and Navin (2002) examine the impact that the introduction of riverboat casinos between 1989 to 1995 has on state lottery sales. They find that riverboat gambling expenditures have a negative and statistically significant impact on state lottery revenues.…”

“…Fink and Rork (2003) build on this work by examining data on 48 states from 1988 to 2000 and using actual tax receipts from all forms of commercial casinos. Also, like Elliott and Navin (2002), the authors perform a Heckman two-step selection correction, but in the first stage the authors model the adoption of a commercial casino, rather than the adoption of a state lottery. Their analysis finds a strong cannibalization of state net lottery revenue by commercial casino tax revenue.…”