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How Is Big Tobacco Doing Decade After Major Settlement?

November 7, 2011

Over a decade ago, the major four tobacco companies in the US entered into a major settlement agreement with 46 states. The settlement required Phillip Morris, RJ Reynolds, Brown & Williamson, and Lorriad to pay $206 billion dollars to these states over a 25-year period. As a Chicago personal injury lawyer, I was always curious to see how Big Tobacco would be doing a decade later. As it turns out, they are doing just fine.

According to the Centers Disease Control ("CDC"), adverse health effects from cigarette smoking cause an estimated 443,000 deaths in the US or nearly one in five deaths in the US. More deaths are caused by tobacco use than by all deaths from HIV, illegal drug use, alcohol use, motor vehicle accidents, suicides, and murders combined. Ninety percent of all chronic lung diseases are caused by smoking. Ninety percent of lung cancer deaths in men and eighty percent of lung cancer deaths in women are also caused by smoking.

In 1998, the largest US tobacco companies entered into a Master Settlement Agreement ("MSA") with all US states except four (who previously settled with US tobacco companies). The 46 states that signed the MSA sought recovery for massive healthcare expenses incurred by states from tobacco use. In exchange for $206 billion and limitations on marketing practices, the tobacco companies received blanket protection from private personal injury and wrongful death lawsuits for harm caused by tobacco use. Many experts believe shielding these companies from individual lawsuits saved the tobacco industry far more than what they agreed to pay out to the states under the MSA.

To date, the big four tobacco companies have paid out around $80 billion to the states. So how are these companies fairing now? According to anti-smoking advocate, William Godshall, the tobacco industry has made out pretty well from the Master Settlement Agreement. "With unprecedented future legal protection granted by the state A.G.'s in exchange for money, it appears that the tobacco industry has emerged from state lawsuits even more powerful." Renowned economist Kenneth Warner, PhD, of the University of Michigan, has also concluded the tobacco industry is doing just fine. Some have suggested Big Tobacco is struggling. However, those struggles seem to be based more on the number of cigarettes sold rather than total income generated from those sales.

In 1997, 480 billion cigarettes were sold in the US. In 2006, the number of cigarettes sold declined to 380 billion. The CDC reports the numbers have stabilized since 2006. In fact, nearly one and five working Americans continue to smoke cigarettes.

Despite the fact cigarette consumption appears down in the US, income generated by the tobacco industry from sales is up. For example, in a 2006 study on teenage smoking published by Tobacco Control, high school seniors in 1997 generated $737 million in revenue for the tobacco industry. In 2002, that same revenue rose to almost doubled to $1.2 billion--even though the number of cigarette packs smoked by high school seniors was down. According to an industry analyst, operating income from domestic cigarette sales (which excludes other forms of tobacco) has grown from $7.195 billion in 1996 to $9.269 billion in 2010. This rise in income has occurred despite the fact cigarette sales have declined over 40 percent during that time. So, in short, although the number of cigarette sales are down, revenue generated from cigarette sales are up. For these reasons, Big Tobacco in the US seems to be doing just fine after its $206 billion dollar settlement a decade ago.

Sources Used:

MedPage Website, Big Tobacco Out Billions, But Still Kicking After Settlement, October 8, 2011.

CDC Website, Health Effects From Cigarette Smoking, Last Reviewed March 21, 2011.

Wikipedia, Tobacco Master Settlement Agreement, Last Modified October 20, 2011.

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