Atlantic Lottery Corporation spokesman Robert Bourgeois said the drop was expected. A provincial smoking ban came into effect July 1.

"Based on our experience from other provinces, we expected that, with the smoking ban, there would be a decline in revenue," Bourgeois said. "Our experience also tells us that, over time, the revenue should come back to what it was before the ban."

That turnaround has taken about six months to happen in other jurisdictions, Bourgeois noted. The lottery corporation recorded about $10.4 million in VLT sales in Newfoundland and Labrador this July. That compares to about $12.7 million in sales for the same month in 2004.

The province had budgeted for a drop in gambling revenues this fiscal year, primarily because of the smoking ban, Finance Minister Loyola Sullivan said.

The government expects to haul in $114.5 million in lottery cash this year, compared to $117 million in 2004-05. That's a drop of about two per cent. The province also froze the number of VLTs this year, and plans to reduce them in future years.

"It's been shown in other jurisdictions that when smoking (bans) came in, revenues traditionally have gone down overall within bars and establishments, and then they gradually creep up to historic levels," Sullivan said. "So we anticipated that ... and I guess we'll monitor it over the course of this year to see where it takes us."

Sullivan said the province will not draw conclusions based on just one month's data. But he suggested the first weeks of the smoking ban may be the worst for sales.

"As time goes on, it may be moderated somewhat," Sullivan said.

He insisted the ban is the right policy, for health reasons.

Marcel Etheridge, president of the Beverage Industry Association, said the numbers don't jibe with what he's heard from tavern and bar owners across the province.

"This government is trying to paint a picture that the bar industry is wrong, we're over-exaggerating," Etheridge said. "I wish from the bottom of my heart - I'll tell you this - I wish I was exaggerating because there's friends of mine and families going to lose their business, lose their income, can't put their kids through school."

Etheridge said the comparison to last July's figures was flawed, and said the numbers should be matched up against those from the last six months or more.

VLT revenues for the first six months of 2005 were not immediately available on Tuesday. But according to ALC figures, VLT revenues in April, May and June of 2005 averaged just over $12 million.

That means a drop in the range of 15 per cent, post-smoking-ban, compared to the average of those three months, immediately before the ban.

Etheridge said the VLT figures only tell part of the story. Sales are down through the bar industry, he noted.

"When the smoking ban kicked in, what happened to the industry? The industry got the (crap) kicked out of it."