Cigarette Ban Causes Illinois Casino Revenues to Plunge

Published December 15, 2009

Casino tax revenues in Illinois are going up in smoke, apparently because of the state’s ban on smoking cigarettes in public places, according to a report by economists at the Federal Reserve Bank of St. Louis.

A statewide smoking ban took effect January 1, 2008, and state and local tax revenues from Illinois casinos declined $212 million that year. St. Louis Fed researchers Thomas Garrett and Michael Pakko focused on determining why this is so. They concluded gamblers like to smoke, and because they may not smoke in Illinois casinos, the state’s casinos are losing business.

“Regardless of the underlying specific reasons, a general observation seems to be that smoking and gambling constitute what economists call ‘complementary goods,’ meaning that they tend to be consumed together,” Garrett and Pakko wrote in “No Ifs, Ands or Butts: Illinois Casinos Lost Revenue After Smoking Banned.”

They added, “[T]he decline in revenue stands in sharp contrast both to the growth of recent years and to the performance of casinos in nearby states. “

Can’t Blame Bad Economy
The Illinois Casino Gaming Association earlier had blamed a 19 percent decline in casino revenues on the smoking ban, but defenders of the ban blamed the weak economy. The Garrett/Pakko report appears to debunk the bad-economy defense.

Their analysis reveals that while Illinois casinos saw big declines in business, revenues increased slightly at casinos in neighboring Iowa and Missouri and were flat in neighboring Indiana.

“We were not surprised about our results,” Garrett says. “An approximate 20 percent loss in revenue was claimed by the industry, so it didn’t come as a surprise that our analysis arrived at a similar result.”

Casino Revenues Drop $400 Million
In total, casino revenue in Illinois declined more than $400 million. Garrett and Pakko concluded that casino revenue in Illinois would have been approximately flat in the absence of the smoking ban, putting the state’s casino performance in line with the experience in Indiana.

Garrett and Pakko noted in their report, “[A]fter taking account of other factors, we found that the smoking ban was associated with a statistically significant decline in admissions of 12.3 percent.  Estimates for surrounding states showed small declines in each state, but in none of the cases was the decline statistically significant.  So, not only did customers tend to gamble less and, therefore, generate lower revenue for the Illinois casinos (as indicated in the Illinois Gaming Board’s annual report), they also attended the casinos less often.”

Steve Stanek ([email protected]) is a research fellow at The Heartland Institute and managing editor of Budget & Tax News.

Internet Info

“No Ifs, Ands or Butts: Illinois Casinos Lost Revenue After Smoking Banned”: