WINNIPEG — Smoking bans in Manitoba are proving somewhat hazardous to the health of the gaming industry.

The provincial government's gaming revenues are forecast to drop this year by $27 million - about 10 per cent - according to figures in the provincial budget.

"The reduction in lottery corporation revenues this year is based on a provincewide smoking ban starting Oct. 1, plus the existing smoking ban in Winnipeg and Brandon," Finance Minister Greg Selinger said Monday.

Gaming revenues have traditionally risen every year, but the situation has changed since Brandon and Winnipeg enacted municipal bylaws last year to prevent smoking in public places, including bars.

Add to that a provincewide smoking ban set to take effect this fall, and revenues will drop for the first time in recent memory.

"We had predicted this. We knew it was coming," said Scott Smith, the minister responsible for lotteries.

The revenue projections would be down a further $27 million, said Smith, except for the fact the provincewide ban will only take effect halfway into the government's fiscal year, which started April 1.

"Next year the decrease will be higher, obviously, because it will be a full year," said Smith.

Bar owners, convinced that smoking bans invariably result in lost business, have pressed for concessions from the province. Earlier this year, the government started allowing bars to operate their video lottery terminals on Sundays, and to offer new games such as keno, a numbers game similar to bingo.

The province's next step is to replace its aging fleet of video lottery terminals with new machines that will offer more games and, the government hopes, entice gamblers to spend more.

"Most all technology now has the ability to have not just one or two or three or four games, but numerous games, so people can change from game to game," said Smith.

The government will announce in the coming days what kind of machines it plans to purchase, at a total cost of up to $100 million. The machines will also be equipped with electronic messages to encourage responsible gambling, said Smith.

The Opposition Conservatives have supported the smoking ban and believe that the financial losses to the province and bar owners will only be temporary.

"It is our expectation and our hope that over time, this will work itself out ... and bar owners and restaurants will adjust, and people will adjust as well," said Tory gaming critic Kelvin Goertzen.

"If we look back (after) a couple of years, I think that we're going to see that perhaps the decline has come back and that revenue has been restored."