Is the #Ilani Casino going to cannibalize the Oregon lottery?


Opening day at the Ilani Casino

The word Ilani means “sing” in the Cowlitz language. The Cowlitz Indian Tribe is surely singing the praises of the thousands of Oregonians gambling at the tribe’s new $510 million Ilani Casino near La Center, WA.

The attitude at the Oregon Lottery is not quite so buoyant.

In September 2016, the state’s Office of Economic Analysis (OEA) predicted a decrease in lottery sales of approximately $120 million per year in the 2015-2017 biennium due to the opening of the casino, particularly because of a slowdown of the rate of Video Lottery growth.

The Video Lottery is the Oregon Lottery’s cash cow.

You know the typical casino ad. The gorgeous blonde’s crystal blue eyes gaze adoringly at the urbane, fashionably dressed man as he places a bet. The couple is surrounded by smiling, equally fashionable friends enjoying the gaiety.

You almost expect Jay Gatsby to stroll into the scene from West Egg and enjoy the fun.

The raw reality at video lottery sites in Oregon is usually quite different. On a recent afternoon, all the machines at one site in Hillsboro were being used only by solitary, slightly disheveled men and women in jeans and sweatshirts.

All of them looked hypnotized by the glow of the screen in front of them. Almost motionless, except for the rapid movement of their hands to push the play buttons, they sat mute in the dim light.

MIT anthropologist Natasha Dow Schüll knows such people well. In her book, “Addiction by Design,” she shows how the rhythm of gambling at electronic terminals puts people into a trancelike state in which gamblers keep playing not to win, but so they can stay “in the game” and maximize their “time on device.”

Oregon voters overwhelmingly approved the lottery in 1984. It launched in 1985 at a Portland event featuring an 84-foot-tall inflatable King Kong, perhaps symbolizing the behemoth the lottery would become.

Oregon’s approximately 11,909 Video Lottery terminals deployed throughout the state are now a major part of a rising river of lottery money flooding Oregon. The money has turned the state into an addict as Oregon’s total lottery take has gone from $87.8 million in 1986 to $ 1,230,189,728 in the Fiscal Year Ended June 30, 2016. Video Lottery has been responsible for most of that growth, taking in $876,475,310 in FY16, 71.3 percent of total revenue.

To say the least, the Oregon lottery is a very big business.

The Ilani Casino has already shown it can attract huge crowds and their gambling dollars and the Cowlitz expect millions of guests. Who wouldn’t prefer to gamble at a Vegas-style over-the-top casino just 25 miles north of downtown Portland instead of at a dark, claustrophobic room in a roadside strip mall.

So, will Ilani cannibalize sales from state lottery operations?

Some studies offer strong evidence that it will. An analysis of the relationship between Indian casinos and state lottery revenue in Arizona found that a 10 percent increase in the number of casino slot machines was associated with a 2.8 percent decline in lottery sales. Another study found that riverboat gambling expenditures had a negative and statistically significant impact on state lottery revenues, while a third study found that an increase of $1 in commercial casino revenues reduces net lottery revenues by $0.56.

In Maryland, the opening of casinos affected lottery revenue almost immediately, with traditional lottery sales decreasing by 2.2 percent in fiscal year 2013 and 1.7 percent in 2014, raising fears of a continuing downward slide. But revenue has since rebounded to $1.76 billion in FY15 and $1.9 million in FY16.

Pennsylvania’s lottery was on a roll, too, with steadily increasing sales, but beginning in 2006, when casinos began to open across the state, lottery sales leveled off and then declined. The hardest hit locales in terms of traditional lottery sales were close by areas within a one hour drive. But, as in Maryland, the downward trend was temporary. Pennsylvania’s lottery sales have gone up every year since 2010 and in FY16 the lottery posted record revenue of $4.1 billion.

In Massachusetts, lottery sales didn’t decrease statewide after a casino opened in June 2015, but lottery revenues for agents nearer the casino grew more slowly on average than the rest of the state.

Ilani’s impact on the Oregon Lottery may well follow the pattern in other states, with sales affected most significantly in the Portland Metro Area, particularly in areas that border Washington, and with video lottery being the hardest hit.

According to a March 2017 report by the Oregon Office of Economic Analysis, more than half of Oregon’s statewide video lottery sales occur within the Portland Metropolitan Statistical Area (MSA). About 11 percent of statewide video lottery sales occur within just the northern portion of the Portland MSA – from the St. John’s neighborhood through the Parkrose neighborhood, including Hayden Island.

Anecdotal evidence, plus statistical analysis, indicated that the border effect with the State of Washington, which does not have video lottery in its bars and restaurants, was large, the report said.

This is particularly true directly across the two interstate bridges in Portland. If these northern Portland zip codes see a 40-50 percent decline in video lottery sales, the report said, that means total statewide video lottery sales would decline 4.5 to 5.5 percent. Factoring in additional losses of around 10-15 percent throughout the rest of the Portland region brings the total impact to nearly 12 percent, relative to no casino baseline.

But if the experience of other states holds true, the negative impact of Ilani on even video lottery games in Oregon may not last.

Richard McGowan, a professor at Boston College and an expert on the economics of gambling, explains that the limited impact of casinos on lottery receipts is because the customer bases for lotteries and casinos also don’t overlap as much as people might assume. “Most lottery tickets are bought on impulse when people go in to buy milk and gasoline,” McGowan said. “You have to plan to go to a casino.”

Ilani is, however, likely to impact Oregon’s entertainment venues over the long term. Gaming serves as a substitute for other forms of entertainment, so the more Oregonians go to Ilani to entertain themselves, the less money they will spend in Oregon. But that’s another story.









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