Jan. 1 law could clip lottery earnings

On New Year's Day, the air in Oregon bars will be a little clearer as a new state law banning smoking in virtually all public places takes effect. Business owners and state officials are worried the ban will have a significant impact on lottery revenue.

"It's going to cut down on commissions I would guess," said Kamen Monier, manager of the Sherman Street Bar & Grill in Lebanon. "It's a bar business; smoking is a real big deal. A lot of our gamblers smoke and they chain smoke."

In 2007, the Oregon Lottery paid the Sherman Street Bar & Grill $145,521 in commissions from sales of $630,515.

Monier said she has laid off four employees since September because of the economic downturn and isn't sure how many of the remaining four she can keep if the bar's lottery commissions shrink.

And it's not just lottery revenue businesses worry about. Many patrons say they are less likely to go to a bar at all if they can't smoke.

"I come here to relax, play the lottery and have a drink," Peggy Dirks, 55, said on recent afternoon at the Lebanon American Legion. "I can smoke and drink at home and save some money, and I don't have to go outside to smoke."

"I probably won't sit and play as long because you have to go outside," said Rick Dimic, 22, while playing a video line game at Shari's Restaurant.

The Oregon Office of Economic Analysis is forecasting a 6 percent decline in lottery revenue during the first three months of 2009. By the second half of 2009, the OEA expects video lottery sales will rebound to within one percent of expected sales absent a smoking ban. In dollars, the OEA forecast amounts to a $9 million reduction in video lottery earnings for the remainder of the 2007-09 biennium and $15 million during the 2009-11 biennium.

If the experience of other areas that have implemented smoking bans is any harbinger of what Oregon is in for, lottery retailers have plenty to worry about.

A ban on smoking in casinos passed by the Atlantic City, N.J. city council in October lasted just 11 days before the council rescinded the ban after casinos reported a sharp drop in winnings.

Lois Rice, executive director of the Colorado Gaming Association, blames her state's smoking ban for plunging revenues.

"It has a dramatic effect," Rice said. "Since the ban started Jan. 1, our revenues have declined 10 to 20 percent."

Lebanon Elks Club manager Bonnie Elliott is worried that the smoking ban will cause members to stay home, costing the nonprofit club money it uses to fund a variety of charitable events.

"I smoke; my husband smokes, and now we're going to be banned," Elliott said. "People come here to relax and socialize. I think a lot of them will stay home to socialize if they can't smoke. It's a real infringement on our rights. Why wasn't it put to a vote of the people?"

Chuck Baumann, Oregon Lottery spokesman, said the Oregon Lottery was fortunate that the legislature allowed 18 months before the 2007 expansion of the Clean Indoor Air Act became law.

"Over that time we've been very mindful of how we can mitigate the smoking ban," Baumann said.

One step the lottery has taken is introducing three new video slot games (know as line games) every six-months. The majority of video lottery players prefer the line games to poker, Baumann said. From 1992 to 2005, video poker was the only video lottery option available.

"Since line games were introduced in May, 2005, until the last fiscal year there was a 50 percent increase in sales," Baumann said. "But now sales have pretty flattened. We're through the honeymoon

period."

Video lottery sales are down about two percent compared to the same period last year, according to the Oregon Lottery. Baumann cited a combination of the newness wearing off the line games and the economy as factors in reduced sales.

Starting Dec. 8, the Lottery will launch it's first-ever television advertising campaign for keno and video lottery. The theme of the ads are "Knights of Fun" and feature a character in knight's armor.

"When the ban begins, hopefully with the things we've planned, it won't be as bad as has been in other places," Baumann said.

Bar owners might be the first to feel the pinch if smokers limit their playing time, but with video lottery pumping $531.6 million into the state coffers between July 1, 2007, and June 30, 2008, a decline in sales could have far reaching effects.

During the 2007-09 biennium, the state distributed about $626 million in lottery funds to education programs, $160 million for economic development and $140 million to fund parks and natural resources.

Shari's is Lebanon's biggest video lottery retailer, with commissions of $187,251 off of $870,305 in 2007. Manager Pam Clifton agrees with the state economists' forecast that a downturn in lottery sales will be of a short duration. She worked at the Corvallis Country Club in the mid '90s, when Corvallis became one of the first cities in the state to ban smoking in bars. Business suffered at first, but then recovered, she said.

Clifton is confident Shari's will not be hit by the smoking ban as much as bars and taverns.

"A lot of people come here to play because it's not a bar atmosphere," she said. "It might help. Some gamblers go to the store (Shari's) in Corvallis because it's smoke-free.

Clifton said because the smoking ban is statewide, she doesn't believe bars will suffer like those in Corvallis did when customers could drive to Albany to drink and gamble.

"I imagine most (players) will come back," Clifton said.

Lebanon Lottery Retailer Proceeds - 2007

Business Lottery Lottery Sales Commissions

Shari's $870,305 $187,251

Linn Lanes $816,239 $160,240

Sherman St Bar & Grill $630,515 $145,521

Peppers Deli $584,892 $140,086

AppleTree $405,003 $104,916

Pizza Factory $430,508 $104,086

Duffy's Irish Pub $355,046 $91,199

Elk's Lodge $322,195 $$85,701

Starlite Tavern $269,705 $72,578

Merlin's Bar & Grill $267,426 $72,390

Fire Pit $239,277 $69,398

Moose Lodge $33,811 $9,711

Pineway Golf $19,306 $5,598

Source: Oregon Lottery