Wednesday, November 12, 2008

As Lottery Sales Level Off, NY Depends on Tracks by Michael Hill --

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With lottery ticket sales growing slowly, New York is increasingly depending on video gaming machines at horse tracks to keep gambling revenue flowing into state coffers.

Almost 13,000 video lottery machines have been installed at eight harness tracks from Yonkers to the Buffalo area since 2004, and another 4,500 are planned for the Aqueduct thoroughbred track in Queens.

While the machines have fallen short of initial revenue predictions, they still generate a growing pot of money to augment modest growth in lottery ticket sales. The terminals made $581 million after payouts since the start of the fiscal year in April _ almost 13 percent of all revenue from lottery games. That's up from 5 percent of revenue a couple of years ago.

"If we hadn't gotten into the video lottery business, we certainly would not have been able to maintain our levels of growth over the past several years," said Lottery Division spokesman John Charlson. "It's added an entire new product line."

By law, a portion of all revenue from lottery tickets and video lottery machines goes to fund education.

New York's taste for lottery revenue has grown exponentially since the first 50 cent tickets were offered for sale _ in banks of all places _ in 1967. Lottery officials are constantly approving new products to boost growth, like the rapid-fire Quick Draw video lottery game in 1995 and multistate Mega Millions drawing in 2002.

But revenue from traditional jackpot games is growing slowly or, in the case of Lotto, dropping. Industry officials call it "jackpot fatigue" _ the phenomenon of ever higher payouts needed to attract attention and draw sales.

Despite the weak economy, revenue from traditional lottery sales was up slightly April through October compared to the same period in 2007, thanks to strength in scratch-off games.

More robust revenue gains come from the racinos and their video terminals _ the blinking, beeping machines with screens that can simulate slot machines and other games. Payouts from these video lottery terminals, or VLTs, are based on chance and controlled centrally by the lottery.

The eight racinos have opened one by one since the 2004 debut of Saratoga Gaming & Raceway, each boosting the Lottery's bottom line as a new revenue stream began flowing.

More than half of all racino revenue came from Empire City at Yonkers Raceway, which opened in 2006 and is the only video gambling operation located in the lucrative New York City-area market. Revenues at Yonkers were up April-through-October compared to 2007, even as the economy sputtered. In fact, revenues were up at all racinos except for the one at Monticello Raceway.

The racinos are defying trends in the gambling industry, which is feeling the pinch from the economic downturn. Gambling industry analysts believe that the racinos, particularly Yonkers, siphoned business from full-blown casinos in Atlantic City and in Connecticut.

In other words: New York area residents were gambling local.

"Yonkers, at least in the beginning of this year, has benefited significantly from the fact that people don't want to spend money for the gas to go to New Jersey or Connecticut," said Bennett Liebman, a gambling expert and executive director of the government law center at Albany Law School.

But Liebman warned that gambling is not a recession-proof business and racino revenues could still falter.

Still, state leaders continue to endorse more VLTs. There are plans for Delaware North Cos. of Buffalo to run 4,500 video slot machines at Aqueduct in 2010. It would be the first legal video gambling site in New York City.

Liebman said Aqueduct could compete with customers with Yonkers, which is just north of the city.

Charlson disagreed, saying the newest racino would be competing primarily against casinos in neighboring states. He said in an e-mail: "We think the total pie will get bigger at the expense of out-of-state facilities."

A tenth racino at the other thoroughbred track in Queens, Belmont, has been suggested, though Assembly Speaker Sheldon Silver has balked at the idea of operating two racinos within 15 minutes of each other.

In upstate New York, plans are under way to move the underperforming Monticello gambling operation from its old harness track site to a posh resort down the road while doubling the number of VLTs to 3,000.

Developers have promised a minimum of $38 million a year.