Effort to create Nevada lottery picks up steam despite casino industry opposition

A legislative proposal allowing Nevada to operate a state lottery could slice into the revenue stream of Northern Nevada casino operator Truckee Gaming.

But it wouldn’t be a large chunk of the company’s cash flow, said CEO Ferenc Szony.

Truckee Gaming is a retailer licensed by the California Lottery to sell tickets from a store adjacent to the Gold Ranch Casino & RV Resort in Verdi. The store’s lottery terminals sit on the California side of the state line in Floriston. Truckee employees who manage the lottery store are considered California workers, subject to state income taxes.

“It's a bit of an accounting nightmare for us,” Szony said.

But when the Powerball or other jackpots hit the nine-figure range, the lottery store is a busy place.

According to the California Lottery, Gold Ranch is the state’s second-largest seller of lottery tickets during multimillion-dollar jackpot events, trailing only the lottery store in Primm Valley. That outlet, operated by Las Vegas-based Affinity Gaming, is just across the state line from the company’s three Primm casinos. A spokeswoman for the lottery did not provide a revenue breakdown.

Szony considers the lottery store a marketing tool that draws customers to Truckee Gaming’s small Verdi casino, which has 250 slot machines, four food outlets, a gas station and a convenience store.

“We’re not making big bucks off the lottery, but it's something fun and different to have,” Szony said.

Nevada’s relationship with the lottery could soon change. A proposed constitutional amendment sponsored by Assemblyman Cameron (C.H.) Miller (D-North Las Vegas), AJR5, would repeal the state’s 159-year-old constitutional ban on lotteries. Miller said in an interview with The Nevada Independent that revenue generated by a lottery would be directed toward youth mental health programs.

As with any constitutional amendment originating in the Legislature, AJR5 must pass two successive legislative sessions and then be approved by a simple majority of voters at the next general election before implementation. Miller’s proposal would have to pass the Assembly and Senate this year and in 2025 before voters could weigh in on the ballot question in 2026.

Gaming insiders suggested Nevadans wouldn’t see lottery tickets or scratch-off card sales from a Silver State retailer until 2027 or even 2028, given the amount of time needed to set up and implement rules and regulations on a future Nevada lottery.

Nevada is unique among the five states without a statewide lottery. Hawaii and Utah don’t have any forms of legal gambling, while Alabama and Alaska have only tribal casinos.

“We have a revenue issue and we need additional revenue sources,” Miller said. “It’s outdated for us not to have this revenue stream.”

Proposals to adopt a Nevada lottery have occasionally come up over the past decades, but have been easily swatted down by the state’s powerful casino industry. But with changing legislative and political dynamics, the industry is now on the defensive as it seeks to defeat the proposal and pour water on the idea that a lottery would be a revenue boon for the state.

Despite the opposition from the state’s casino industry, which produced a record $14.8 billion in gaming revenue in 2022, Miller said he is hopeful the resolution will be successful. He said legislative leaders told him “it was a reasonable time” to introduce the measure.

“This is a new day and new conversations can be had about a new future,” Miller said. “I think that is probably a window into how things have changed, and why we can potentially get it across the finish line. I just don't know how hard or intense that opposition will be, because it's a different time.”

Still, gaming industry leaders including Szony do not believe a Nevada lottery would provide the revenue stream proponents are touting.

“You can't just do your own Nevada version. You have to tie into the national [multistate] lotteries,” Szony said. “The state really has to figure it out.”

He suggested a lottery won’t attract business from the tourist market but from state residents.

“A large portion of our state’s overall gaming comes from outside Nevada. A lottery is not going to benefit from that business,” Szony said.

Support and dissent

Nevada lawmakers last looked at a state lottery about a decade ago and, as in years past, the state’s casino industry helped ensure the measure never made it across the finish line.

Gaming consultant Brendan Bussmann believes it’s highly unlikely lawmakers would buck the state’s casino lobby and allow the question to reach voters.

“Opponents should be wary of that effort because it would likely pass on the ballot should it ever be presented to voters,” said Bussmann, managing partner of Las Vegas-based B2 Global.

Miller found support from Culinary Workers Local 226, which said in February it was on board with a Nevada lottery that would provide “sustainable funding to youth mental health and education.”

“And you know, if the Legislature doesn't do their job, then we'll make sure that we get somebody in there that does,” Culinary Secretary-Treasurer Ted Pappageorge said in an interview earlier this month.

Miller considered introducing a lottery resolution in 2021 in his freshman term, but it was suggested by colleagues it wouldn’t be a good idea.

“I was advised that may not be the best time to bring such a bill where there might be some significant opposition,” he said.

He received some backing for the proposal from Assembly Speaker Steve Yeager (D-Las Vegas) during Tuesday’s IndyTalks forum in Reno.

“Why are we funding California and Arizona education when we could keep that money here?” Yeager asked. “So I think there's a responsible way to do it, and that's why we're starting the process.”

Assembly Minority Leader P.K. O'Neill (R-Carson City), however, said there wasn’t a need for a state lottery and said “it hasn't delivered to the other states what they said it would, and suckered people into doing it.”

The Nevada Resort Association, which represents the state’s largest casino operators, said in a statement to The Nevada Independent that “lotteries cannot produce the vast array of meaningful careers found in Nevada’s resort industry.”

Resort Association President Virginia Valentine agreed with Miller that “more needs to be done today to address our youth’s mental health challenges.” However, she said “lotteries provide almost no employment and create no economic development or capital investment,” unlike the casino industry’s 385,000 jobs statewide. Gaming revenue in Nevada is taxed at 6.75 percent.

“The gaming industry is by far the state’s largest taxpayer, paying $2.1 billion in industry-specific taxes and fees in fiscal year 2022,” Valentine said. “Unlike states with lotteries, 35 percent of Nevada’s general fund revenue comes from the gaming and resort industry.”

Lottery efforts in Nevada

The resolution marks the second time in 12 years that Nevada lawmakers have had an opportunity to debate a constitutional change for a state lottery. Efforts in 2011 and 2015 never made it out of committee.

According to a 2012 UNLV research paper, there have been more than two dozen legislative attempts to implement a Nevada lottery, starting in 1887. That year, both legislative houses approved the establishment of a lottery corporation, but the bill was vetoed by then-Gov. Charles Stevenson.

State lawmakers passed another lottery proposal in 1899, but the measure was defeated in the 1901 session.

The issue remained quiet for almost 70 years until 1968, when a sweepstakes corporation qualified a lottery ballot initiative that was rejected by voters. Seven years later, two separate proposals were brought up in the Legislature, but both died in committee.

Since 1977, 24 proposed lottery measures have been introduced in the Legislature. All died in committee or were rejected by either the Assembly or Senate.

In 1990, Nevada voters approved a minor constitutional change allowing for the restricted operation of lotteries conducted by charitable or nonprofit organizations in the form of raffles or drawings on their own behalf.

Nevadans flock to California lottery sites

Through their lottery outlets, Affinity Gaming and Truckee Gaming receive a percentage of all ticket sales — 4.5 percent from self-service terminals and 6 percent when handled by a clerk.

The stores can earn a bonus — one-half of 1 percent, capped at $1 million — if they sell the winning ticket on a multimillion-dollar lottery jackpot. Last year, the owner of an Altadena, California, service station earned a $1 million bonus after selling the winning $2.04 billion ticket in the Powerball drawing.

Szony said the Verdi store has never earned the $1 million bonus, but has sold tickets that qualified for a retailer bonus, including a ticket worth $150 million to the customer.

“We take that money and we pay a bonus out to our employees,” Szony said. “It's kind of like found money.”

Still, he questioned if a Nevada lottery would generate enough revenue to make it a worthwhile venture. He said Gold Ranch only draws large crowds when jackpots reach $600 million or more.

“The real big question is when you start making it a government entity, how much is it going to cost the state to run the thing?” Szony said. “You have to hire the staff to put together the distribution system.”

The Primm lottery location is known for long customer lines when Powerball reaches astronomical jackpot figures. Miller suggested those patrons are mostly Southern Nevada residents.

Bussmann agreed that Primm could see a business drop-off should a Nevada lottery come to fruition.

“You would get people into convenience stores today that you don’t see on a video poker machine,” Bussmann said. “Many people, who currently do not have any reason to go in today, would go in for a scratch ticket or Powerball ticket.”

Affinity Gaming was known as Herbst Gaming when it acquired the lottery outlet in 2008 as part of a $400 million purchase of Primm’s casinos from then-MGM Mirage. According to a 2009 Las Vegas Review-Journal article, California Lottery officials said the outlet’s total ticket sales in 2008 were more than $8.9 million.

A spokeswoman for Affinity Gaming declined to comment.

Casinos and lotteries in the same state

In a 2018 study, The Pew Charitable Trusts and the Nelson A. Rockefeller Institute of Government found that so-called “sin taxes” on alcohol and gambling had a limited effect on state budgets.

“Gambling taxes also come with caveats, including almost no growth in lottery revenue, greater competition as casinos proliferate, and weakening growth in tax collections as a result,” the study’s authors wrote. “Competition is a significant contributing factor, suggesting that as more states legalize these activities, states already collecting gaming revenue could see further erosion in these tax streams.”

Bussmann said gaming consumers have “a finite amount” of discretionary income, but added that “[a lottery’s] potential impact on casinos would likely be negligible.

As casino expansion moved beyond Nevada, starting with New Jersey in 1978, Silver State gaming companies entered markets where they had to coexist with long-standing state-run lotteries. New Jersey’s lottery launched in 1970. Iowa’s riverboat casino industry began in 1994, nine years after the state lottery was unveiled.

Casinos in Pennsylvania are among the hundreds of retailers that sell lottery tickets, including Boyd Gaming’s Valley Forge Casino and Harrah’s Philadelphia Casino and Racetrack, which is operated by Caesars Entertainment.

Massachusetts’ state lottery began in 1972 and the commonwealth prioritized protecting that business when casinos were approved in 2011. State lawmakers required all casino operators to become licensed state lottery agents, including MGM Resorts International’s MGM Springfield and Wynn Resorts’ Encore Boston Harbor. Both casinos have self-service lottery kiosks on their properties.

Kansas launched a lottery in 1987, but the laws were amended nine years later to include casinos.

The Kansas lottery owns the slot machines and table games at its four casinos, including Boyd Gaming’s Kansas Star Casino in Mulvane. Boyd shares the gaming revenue with the lottery but the agreement doesn’t include nongaming amenities. Kansas Star is also a lottery retail location.

In Maryland, the lottery and six casinos are regulated by the Maryland Lottery and Gaming Control Agency. MGM National Harbor near Washington, D.C., and Caesars Entertainment’s Horseshoe Casino Baltimore are lottery ticket retailers.

Valentine said the economic benefits from a lottery compared to the casino industry would be insignificant.

“Lotteries provide almost no employment and create no economic development or capital investment,” she said.

Coexisting in Mississippi

One relevant example of launching a new statewide lottery comes from Mississippi.

The state legalized casinos in 1992, 27 years before the lottery came into existence. However, casinos and lotteries were both legalized when lawmakers finally got around to passing regulations in 2018. The state sold its first lottery ticket a year later. Mississippi was the first new state lottery in more than five years.

Casino operators did not attempt to block the Mississippi lottery, but chose to successfully lobby against the authorization of slot machines in truck stops.

Several casinos are among the state’s 1,822 lottery outlet locations, including Boyd Gaming’s Sam’s Town in Tunica and IP Casino in Biloxi, Caesars’ Harrah’s Gulf Coast in Biloxi and Full House Resorts’ Silver Slipper in Bay St. Louis.

A Boyd spokesman declined to comment.

In the 2022 fiscal year, Mississippi sold $432.8 million in lottery tickets, with net proceeds of $122.8 million to the state. Lottery sales began at the end of 2019, and the state hit the $1 billion total sales mark in November 2021. As a comparison, Mississippi’s 26 casinos collected $2.57 billion in gaming revenue in 2022, the seventh-highest total of all states, according to the American Gaming Association. Gaming taxes to Mississippi last year were $975.6 million.

— This story is used with permission of The Nevada Independent. Go here for this and other Nevada Independent stories.