Placing a Bet on Video Gaming

When New York lawmakers cobbled together a budget agreement in October authorizing the use of slot machines and video gambling terminals in the Empire State, they opened the door to games of chance that critics call the "crack cocaine" of gambling.

At a time when many states are starved for cash, New York's agreement to allow the games -- which can be a tremendous source of revenue but are extremely addictive -- could be a harbinger of things to come.

"I don't know what the expansion is going to be in video lottery terminals," said David Gale, executive director of the North American Association of State and Provincial Lotteries. "But I do know that it's something lotteries could look at if they wanted to increase net revenues and profits to the state."

Video gambling terminals are common across the country, but not always legal. Bars, restaurants and truck stops in many states use the games to boost their bottom lines. These so-called "gray machines" are often unregulated.

But in five states -- Delaware, Oregon, Rhode Island, South Dakota and West Virginia -- the games are maintained as part of an official lottery organization. New York is now prepared to join to this group, but must first contend with lawsuits designed to block the move.

For the states that embrace it, video gambling generates hundreds of millions of dollars a year in revenue. It is also one of the few games of chance with serious growth at a time when most are stagnating. And it is one of the few revenue streams proving immune to the current recession.

"Video lottery terminals (VLTs) continue to represent one of the fastest growing sectors of the U.S. lottery industry. In fiscal 2001, VLT net machine income increased 15.7 percent for the five U.S. (states) authorized to operate VLTs," said Terri La Fleur, publisher of La Fleur's Magazine, which reports on the global lottery business.

"In comparison, growth from traditional lottery games, such as lotto or daily numbers games, has slowed considerably," said La Fleur. Last year's total lottery sales were $38.6 billion, an increase of only 3.4 percent over year 2000 sales, she said.

However, critics contend that the social costs of video gaming outweigh its fiscal benefits.

"It's a bipartisan rape, pillage and rob of the taxpayer and even of those that don't pay taxes," said Tom Grey, executive director of the National Coalition Against Legalized Gambling.

Grey points to the handful of states that have banned video gambling as evidence of the public disgust the games can generate.

South Carolina was home to roughly 34,000 terminals before banning them last year, shutting down a $1 billion industry. Georgia's House and Senate recently voted to outlaw the games as well after many of South Carolina's games began moving south. And in 1996, half of Louisiana's parishes voted to ban the games.

Despite their alleged social costs, video gaming machines do generate a lot of money. South Dakota's government, for example, reaps tens of millions of dollars a year from the industry.

That state's first venture into the lottery world began slowly with a daily numbers game in 1987. Two years later, South Dakota added video gaming, with 750 terminals open for play during the first week of business. Today, the state has roughly 7,900 terminals spread over 1,400 locations.

Revenue from the games pays for a big chunk of South Dakota's $2.4 billion budget. During fiscal year 2001, video gaming machines generated $195 million in sales and deposited $96.5 million into state coffers. By comparison, the state's other lottery games, including instant tickets and lotto, brought in only a combined $5 million.

Concern over the social costs of video gaming prompted an initiative drive to ban the games. Opponents of the ban argued it would force South Dakota to raise taxes while pulling the rug out from under businesses that had invested in the machines.

Last November, voters rejected the ban by a 53-47 percent count, a close vote that analysts say reflects the tough choices the games present -- they bring in a lot of money, but that money comes with its own price tag.

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