Abstract
As communities around the nation consider laws restricting smoking in public places, a key political and economic issue that often arises is the effect that such laws have on the sales and profits of particular sectors. The gaming industry has been active in opposition to such ordinances, citing large prospective losses. This article analyzes the revenues of three gaming facilities in Delaware following the implementation of a smoke-free law in December 2002. Revenues are found to have declined significantly at each of the three facilities, with relative magnitudes of losses corresponding to the availability of alternative gaming venues in the region.
Introduction
As communities around the nation consider laws restricting smoking in public places, a key political and economic issue that often arises is the effect that such laws have on the sales and profits of particular businesses or sectors of the local economy.
Introduction
The gaming industry has been active in opposition to such ordinances, citing large prospective losses.
Introduction
The experience of gaming facilities in Delaware following the implementation of a smoke-free law provides a useful case study for evaluating the empirical relevance of such claims. Delaware has three gaming facilities located at racetracks: Delaware Park, Dover Downs, and Harrington. They offer video lottery terminals (VLTs)-slot machines-that operate under the auspices of the Delaware Lottery. The Delaware Clean Air Act-implemented November 27, 2002- prohibited all smoking at these facilities.
Introduction
After examining the raw data on statewide net proceeds for the Delaware "racinos, " Mandel, Alamar, and Glantz (2005) concluded that there was no statistically significant effect of the smoking ban.
Introduction
1 In a subsequent response, Pakko (2006) found that after correcting for data errors and using a more robust estimation 1 See also the "Erratum" subsequently published in Tobacco Control (Glantz and Alamar, May 2005) . methodology, the model used in Mandel et al. revealed a significant decline in revenues.
2
In this note I take a closer look at the data, examining revenues of the three racinos individually and considering some of the idiosyncratic features of the data and of the markets served by the three gaming facilities. After adjusting for the irregular reporting period of the data and considering distinct seasonal effects, I find that revenues at each of the three racinos declined significantly after the implementation of the smoke-free law. The effect is modeled as a permanent decline in the level of revenues relative to trend-a specification that is evidently consistent with the data.
2
Moreover, the relative magnitudes of losses at the three Delaware racinos correspond to the availability of alternative gaming venues in the region, suggesting consumer flight. Efforts to mitigate revenue losses associated with the smoking ban engendered additional costs for racino operators, further reducing the profitability of gaming in Delaware.
Data
Monthly data on racino net proceeds and the number of VLTs in service are available from the Delaware Lottery. The data are reported monthly, covering four-or five-week intervals, with the reporting period ending on the last Sunday of the month. The irregular reporting periods differ from quarter-to-quarter and from year-to-year, so that standard seasonal adjustment techniques do not fully account for this feature of the data.
Data
[ Figure 1 ] 
Regression Analysis
To estimate the effects of the smoke-free law on the net proceeds of the Delaware racinos, a simple regression model was estimated. The model is a modified version of the one used in Mandel et al. (2005) :
Regression Analysis
The dependent variable is the natural log of calendar-adjusted real net proceeds, converted to constant dollars using the CPI-U. The regressions include a constant, trend, and trend-squared terms.
Regression Analysis
6 They also include the variable MACH, the 5 Mandel et al. assert that initial revenue losses were "mainly caused by inclement weather" (p. 10), but do not control for this factor in their analysis. 6 The trend terms are based on the variable TIME, specified as t*100. As cited by Mandel et al. (2005) , the inclusion of a quadratic trend specification is intended to account for the slowdown naturally associated with the maturing of the industry after a period of rapid initial growth; moreover, it is supported by the data. before. An adjustment for potential first-order serial correlation of the residuals is also included in each of the regressions.
Regression Analysis
[ Table 1 ] Table 1 shows the results of these regressions. Seasonal dummy variables were found to be highly significant in each case. More important, the coefficients on the smoking-ban dummy variable are negative and statistically significant for each of the three racinos, as well as for the statewide total.
Regression Analysis
An alternative approach to controlling for seasonal effects is also considered:
Regression Analysis
A second set of regressions uses seasonally-adjusted (real) net proceeds as the dependent variable, obviating the need for seasonal dummy variables. The Census X12 seasonal adjustment procedure was used to produce seasonally adjusted series for nominal revenues, which were deflated to 2004 dollars using the CPI-U.
Regression Analysis
[ Table 2 ] Table 2 reports the results of regressions using the seasonally adjusted data.
Regression Analysis
The results are very similar to the regressions using seasonal dummies. However, point-estimates of the losses attributed to the smoking ban are uniformly lower.
Regression Analysis
Using these results as a conservative estimate, the smoking-ban dummy variable accounted for average monthly revenue declines of 15.8 percent at Delaware Park, 8.6 percent at Dover Downs, and 12.1 mary13@example.net. 10 Because Delaware
Regression Analysis
Park is the largest of the three facilities, the losses in net proceeds at that location account for a large share of the statewide loss-estimated to be 14.9 percent. 
Discussion
All three racinos experienced significant revenue losses following the implementation of the smoke-free law. However, the magnitudes of the percentage losses differ considerably: the percentage decrease for Delaware Park was nearly twice as large as that for Dover Downs, with Harrington's losses midway between the two. As suggested by Dunham and Marlow (2003) , the changes in net revenues documented here might reveal only a part of the overall effects of smoking 12 Dover Downs (2004b).
Discussion
-9 -restrictions. Smoke free laws may also "lead owners to alter prices, output, and other business attributes in ways that affect the welfare of all customers and workers."
Discussion
For example, Dover Downs is the only Delaware racino with an onsite luxury hotel. This asset was actively leveraged to buffer gaming revenues from the effects of the smoking ban: "As a result of the [Delaware Clean Indoor Air] Act, we redirected our marketing efforts to attract more casino customers to our hotel by providing additional complimentary and discounted rooms" (Dover Downs, 2004b ).
Discussion
This effort may have stemmed revenue losses from gaming, but it also represents an additional source of profit loss.
Discussion
In mid-2003, faced with sharply declining gaming revenues, the Delaware legislature authorized a 25 percent expansion in the maximum number of VLTs.
Discussion
Delaware Park and Dover Downs responded by embarking on construction projects to expand their facilities. The authorizing legislation also extended operating hours and imposed an additional state surcharge on revenues of the Delaware racinos, further increasing costs and reducing profit margins for the operators.
Discussion
Finally, one additional issue is relevant from public finance perspective:
Discussion
Prior to the implementation of the smoke-free law, total revenues at Delaware Table 2 are associated with losses of $94 million dollars per year since the implementation of the smoking ban, corresponding to state revenue losses of $33 million annually.
Conclusion
The evidence clearly indicates that the Delaware Smoke Free Air Act resulted in statistically significant revenue losses at each of the three Delaware racinos. The patterns of losses suggest customer diversion to competing gaming venues.
Conclusion
Moreover, responses to revenue declines following the smoking ban engendered additional costs that reduced operating margins. Losses in business profits therefore exceeded the estimated revenue declines.
Conclusion
As state and local governments consider the efficacy of public smoking bans, the issue is often cast in terms of public health versus economic impact. However, there are few cases for which disaggregated data are available to examine the impact on a specific sector or particular businesses. The data from Delaware racinos therefore provide a valuable case study for illustrating potential economic losses that should be weighed against the public health benefits of smoke free laws. 

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