South Dakota’s income from video lottery gaming peaked in 2008 but has been dropping – well before the state’s smoking ban in 2010 – according to a report to the state lottery commission.
Net income from video lottery machines was $224.7 million in 2008, and last year’s net income was $176.4 million, for a drop of $48.3 million.
The dropoff in income is important because the state receives half the net proceeds, with machine owners receiving the other half.
Consider that the loss of about $24 million in video lottery income is about the same amount that educators and lawmakers have recently complained was cut from state aid to education two years ago.
When video lottery was adopted, the revenue was supposed to be used to reduce property taxes. As revenue drops, the state will have to cut services or find replacement revenue.
The lottery commission believes the answer is to encourage video lottery casinos to replace older lottery terminals with newer machines that get more play and more revenue. The newer machines are similar to casino slot machines. However, only 18 percent of video lottery machines are the newer machines.
The study’s consultant suggests that the 50-50 split of net machine income between the state and vendor be changed, depending on the type of machine. As an inducement to retire older “legacy” machines, the state’s share of income on the older machines would be increased to 60 percent and then 70 percent, while the government’s split from the new machines would be 30 percent the first year, increasing to 50 percent by the third year. The report also recommended increasing the casinos’ machine limit to 15 terminals from 10 games if the additional games are the newer type.
“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,” lottery commissioner Doyle Estes of Hill City told the Journal in a Sept. 30 story.
In our view, it’s a smart move by the lottery commission to look for ways to recover the revenues that video lottery has been losing over the last five years.
Like it or not, South Dakota is addicted to gambling revenues in all forms to pay for government services. As video lottery revenues drop, services like education get cut or taxpayers have to pay higher taxes.
We support the commission’s efforts to encourage the video lottery industry to modernize its equipment and recover lost revenues.