RI’s New Budget Armageddon — Falling Lottery Revenues

RI’s New Budget Armageddon — Falling Lottery Revenues

Rhode Island has a new fiscal problem — falling revenue from the lottery commission.

This is just the latest complicating fiscal issue facing the already over-burdened budget. Presently, Rhode Island is facing a reported $237 million budget shortfall. Increasing lottery revenues have been a constant, but now the golden goose is showing signs of decline.

“I'm surprised at the traditional lottery and the VLT [video lottery terminal] being down. There's no obvious explanation as to why revenues are declining -- are people just playing less?” said gaming expert Clyde Barrow in an interview with GoLocal on Wednesday. 

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“This is the first I've seen of this. Mohegan Sun and Foxwoods are having year-to-year declines recently due to increased competition in the region. This, I don't know what the obvious decider is, other than people are choosing to cut back on gaming,” added Barrow.

Others point to the rise of sports apps like DraftKings, antiquated marketing, or a decline or over saturation of the market. The population of New England has barely grown in the past two decades, but the number of gaming facilities has exploded and more are coming online in Massachusetts. 

Others warn that the revenue drop at the lottery commission is a signal that Rhode Island needs to change some fundamentals in spending. 

“The question is what do we do during this period while we wait for new sources of revenue - questions such as do we need to spend millions of dollars on state public relations personnel, should we fund a new stadium in Pawtucket, can we consolidate state departments, do we need a legislature with increasing budgets and decreasing results..........a cost/benefit analysis of these questions should result in generating new revenue,” said business consultant and former Dean of the University of Rhode Island Business School Ed Mazze.

The reasons for the drop in revenue are pinned on a range of causes depending on who you talk to.  GoLocal spoke to a number of fiscal experts, gaming researchers, and political leaders and the responses were varied.

Why Rhode Island Officials Need to be Worried

According to the recently released state audit of the lottery:

First, online gaming was a drop of nearly $9 million — from $164.5 million in 2016 to $155.6 million in 2017.

Second, instant games dropped from $96.2 million to $94.2 million — a $2 million decrease.

Third, video lottery, aka slots at Twin River and Newport Grand dropped over $6 million from $488.7 million to $482.4 million.

Fourth, expenses increased by more than $3 million.

The bright spot was table games which increased over $14 million — from $125.8 to $140 million. But, Rhode Island beware as Springfield and Everett, Massachusetts are in full development. Both of those facilities are going to further impact Rhode Island even when Twin River’s facility in Tiverton comes online.

The interpretation of the diminishing revenues is being interpreted differently. “The VLT decline would be attributed to increased competition from nearby Plainridge and also increased promotional marketing from competitors, including Plainridge and Foxwoods,” said Patti Doyle, spokeswoman for Twin River.

Barrow had a different take, however, as Plainridge has been operational for two years now, meaning the recent numbers are down from the previous year, when there was already "new" competition.

"There's no new competition that's entering the market. Foxwoods and Mohegan Sun continue to be competitors, so does Plainridge, and Twin River's been winning that competition," said Barrow. 

 

The Future is Complex

“We know there will be new competition coming in -- the Wynn Boston Harbor and MGM in Springfield. There might some be some marginal competition there.  The biggest threat to Twin River is the Mashpee Wampanoag but right now that's still not going anywhere,” said Barrow. 

Senate President Dominick Ruggerio anticipates that falling gaming revenue creates a slew of budgetary challenges.

“The new Tiverton casino is one important way in which the state is seeking to mitigate anticipated revenue losses due to increased competition from Massachusetts. The transfer from Newport to Tiverton, and the inclusion of table games at the Tiverton facility, is necessary to improve their competitive position,” said Ruggerio. "In anticipation of the difficult budget year ahead, Chairman William Conley and the Senate Finance Committee have already begun budget hearings, starting last month with a review of human service agency budgets. Decisions regarding specific budget items will be made in the context of the overall budget picture next year."

“I think Tiverton will help overall -- you might see a negative impact on Twin River initially but that will be more than offset in new revenue Tiverton will capture,” said Barrow

Speaker of the House Nick Mattiello is more optimistic of the future. He claims in the long-term that Rhode Island will realize a net gain when Tiverton come online.

“Through legislative action taken over the past several years,  including the table game expansion in Lincoln and placing the Tiverton facility on the ballot, which was approved by voters, the state has been responding to the long projected decline in revenues that was to accompany new gaming authorized in Massachusetts.  Once the Tiverton facility is open, the positive impact is factored into current and future budget projections.”

Mazze warns not to overestimate the impact of Tiverton on revenues.

“For over a decade there has been talk about what will happen when state lottery revenue no longer meets its targets because of increasing competition from Connecticut and Massachusetts gambling facilities as well as other entertainment options customers have in Rhode Island. So it is not surprising that Fiscal 2017 lottery revenue has decreased," said Mazze. "There will be a small and short-term uptick when Tiverton opens in 2018. It has been expected that the efforts of the state's economic development activities will make-up the lost revenue. This has not happened yet but may over the next five years.”