Smoking bans mean less business

The anti-smoking movement will tell you, over and over again, that smoking bans do not harm businesses. Two economists at the Federal Reserve Bank in St. Louis beg to differ:

Smoking was banned in all Illinois casinos in January 2008. We explore the effects that the smoking ban has had on Illinois casino revenue and attendance. Our empirical methodology extends and enhances that of previous literature in that we observe a natural experiment in comparing the performance of Illinois casinos with out-of-state casinos (no smoking ban) that share a market with Illinois casinos. Estimates suggest that revenue and admissions at Illinois casinos declined by more than 20 percent ($400 million) and 12 percent, respectively. Calculations reveal that casino tax revenue to state and local governments declined by approximately $200 million.

The study, Casino Revenue and the Illinois Smoking Ban was released in June by the Federal Reserve and written by Assistant Vice President Thomas A. Garrett and Michael R. Pakko (pictured above; just appointed Chief Economist & State Economic Forecaster at the Institute for Economic Advancement at the University of Arkansas at Little Rock) and is one of the strongest possible signals that smoking bans of all kinds have real impacts.

It also notes, quite clearly, that it’s hardly wise to take anti-smoking advocate claims about this subject at face value. The authors note on page 2 that “Research on the effects of a smoking ban on casino revenue has to date focused on the state of Delaware, which implemented a smoke-free law in December 2002. In the first study on the subject, Mandel, Alamar and Glantz (2005) found that the smoking ban in Delaware had a negative but statistically insignificant effect on gaming revenue. After correcting for errors in the Mandel, Alamar and Glantz (2005) study, Pakko (2006) found that the smoking ban in Delaware casinos resulted in a loss of $6 million, which represented a loss of over 12 percent relative to the average monthly revenue in the year preceding the smoking ban. In a subsequent study, Pakko (2008) examined the effect on individual casino revenue in Delaware as a result of the smoking ban, with a total revenue effect of approximately 15 percent. Finally, Thalheimer and Ali (2008) estimate a system of slot machine demand equations for the three Delaware casinos. They find that the smoking ban in Delaware reduced gaming demand by nearly 16 percent.” (Emphasis added; the Mandel, Alamar and Glantz study was produced by anti-tobacco activist researchers.)

The current study notes that in 2007, prior to the imposition of the smoking ban, Illinois casinos generated almost $2 billion in revenue and about $805 million in state and local governmental tax revenues. A careful review of the data from the Illinois casinos compared to competing casinos geographically close by in neighboring states of Indiana, Iowa, Missouri and Michigan showed that the smoke-free Illinois casinos had revenue drops of 20% and attendance drops of 10% in 2008 overall; the authors concluded that “the impact of the smoking ban on total admissions amounts to around 10 percent, with our point estimates indicating a downturn of 9 to 13 percent. These estimates imply substantial losses in tax revenue for the state and local communities which host casinos: total casino tax revenue was down by approximately $200 million.”

The only Illinois casino which did not see as much of an impact is located in Peoria and more than 90 miles away from the next closest gaming facility. That suggests that where smoking-allowed and smoke-free casinos are located close to each other, the smoking-allowed facility is going to do better absent other factors, but location and competition make a difference.

“Casinos aren’t the only businesses to suffer with legislated smoking bans,” added Chris McCalla, legislative director of the International Premium Cigar & Pipe Retailers Association (IPCPR). “And when business goes down, employees are eliminated or the businesses close. That means loss of jobs and loss of tax revenues. Nobody wins.

“We’re not against individual business owners declaring no smoking on their premises. It’s their right to do so. It’s local, state and federal governments that should not interfere with the rights of individuals.”

What about restaurants? Anti-smoking advocates shriek with authority that smoking bans do not hurt restaurants and bars, but in a footnote on page 1, Garrett and Pakko wrote:

“Recent studies include Phelps (2006), Adams and Cotti (2007), and Fleck and Hanssen (2008). Phelps (2006) and Adams and Cotti (2007) used nationwide county–level employment data and examined the change in employment in bars and restaurants after communities adopted a smoking ban. Neither study found significant employment changes at restaurants, on average, but both find statistically significant employment declines at bars, with loss estimates ranging from 4 percent to 16 percent. Fleck and Hanssen (2008) analyzed quarterly restaurant data for 267 California cities over 25 years. They find a statistically-significant 4 percent decline in revenue that is attributed to smoking bans.

The anti-smoking lobby wants people to think they have truth on their side. This new study, along with others it cites, begins to paint a much more balanced picture that is, in fact, much closer to the truth.