Lot­ter­ies fight ‘jackpot fa­tigue,’ com­pe­ti­tion

22 states re­port de­cline in rev­enue; casi­nos blamed.

Austin American-Statesman - - MORE OF TODAY’S TOP NEWS - By Elaine S. Povich Tribune News Ser­vice

With lot­tery pro­ceeds flat or de­clin­ing, and states re­luc­tant to raise taxes to make up the dif­fer­ence, pres­sure is mount­ing to keep play­ers play­ing and money rolling in.

In 22 of the 44 states with lot­ter­ies, rev­enue de­clined between 2014 and 2015, the most re­cent year for which com­pre­hen­sive num­bers are avail­able. Twenty-one states also saw de­clines from 2013 to 2014.

“Jackpot fa­tigue” — a drop off in lot­tery play un­til jack­pots get un­usu­ally huge — is con­tribut­ing to the de­cline, as well as fewer mil­len­ni­als play­ing, and com­pe­ti­tion from other forms of gam­bling. The ex­plo­sive growth of casi­nos in par­tic­u­lar has hurt some lot­ter­ies, as in West Vir­ginia, where gam­blers are drawn to the state’s own casi­nos, as well as new casi­nos in nearby Mary­land and Penn­syl­va­nia.

In West Vir­ginia, the lot­tery’s rev­enue de­creased 2.6 per­cent in 2016. In Rhode Is­land, rev­enue was down 3.2 per­cent in 2016, and in Mis­souri, rev­enue was down 3.3 per­cent in 2015. Of­fi­cials in many other states are fac­ing sim­i­lar num­bers.

Roughly half of Amer­i­cans bought a lot­tery ticket in the past year, ac­cord­ing to a 2016 Gallup poll, down from 57 per­cent in 1999, when only 37 states had lot­ter­ies.

David Brunori, a pro­fes­sor of pub­lic pol­icy at Ge­orge Wash­ing­ton Univer­sity who has writ­ten about state tax pol­icy, blames jackpot fa­tigue and new gam­bling op­por­tu­ni­ties for the down­turn, and said states are turn­ing to more so­phis­ti­cated advertising cam­paigns to keep in­ter­est up. If the ads weren’t run­ning con­stantly, lot­tery rev­enue would be even lower, he said.

Brunori noted that rev­enue in the 44 states that have lot­ter­ies was about $21.4 bil­lion in 2015. That’s not a huge amount com­pared to the $2.2 tril­lion states raised by all meth­ods in 2015, but “it’s $21 bil­lion in taxes they don’t have to im­pose on peo­ple, and that’s 99 per­cent” of the rea­son they do it, he said.

Some states fun­nel lot­tery money into the gen­eral bud­get, but most re­serve it for a spe­cific pur­pose, such as pay­ing for schools. Colorado uses most of its lot­tery pro­ceeds for en­vi­ron­men­tal pro­tec­tion, while Mas­sachusetts sends the money to lo­cal gov­ern­ments. In West Vir­ginia, the lot­tery helps fund schools, se­nior ser­vices and pro­grams to at­tract tourists. In craft­ing the cur­rent state bud­get, West Vir­ginia law­mak­ers used some lot­tery dol­lars to fund Med­i­caid, rather than raise other taxes to cover that cost.

The re­liance on lot­tery in­come means states have to con­tin­u­ally fight to main­tain bet­tors’ in­ter­est with new games and new ways to win. To boost in­ter­est and raise more money for the 44 states that par­tic­i­pate, the multistate Mega Mil­lions con­sor­tium re­cently an­nounced it was dou­bling ticket prices to $2 start­ing in Oc­to­ber and re­struc­tur­ing prizes. Ok­la­homa, which saw sales di­min­ish last year, in­creased prize amounts this year.

States also are in­creas­ing their lot­tery advertising bud­gets in an at­tempt to rake in more rev­enue. Mas­sachusetts State Trea­surer Deb­o­rah Gold­berg, who over­sees the lot­tery, early this year asked the Leg­is­la­ture to in­crease the lot­tery’s advertising bud­get from $8 mil­lion to $10 mil­lion to help it com­pete with casi­nos.

“It’s very crit­i­cal as we move into this new era we fo­cus on the fact that we will be com­pet­ing with those that have had the ca­pac­ity to brand them­selves,” Gold­berg said at a hearing on the bud­get, re­fer­ring to a new casino project in the state.

Gold­berg is a pro­po­nent of on­line video sales, which the Leg­is­la­ture has not ap­proved. An on­line lot­tery bill last year passed the Se­nate but not the House.

Many states con­tract with advertising agen­cies to cre­ate and pro­mote the lot­tery, in­clud­ing com­ing up with new and ex­cit­ing games pe­ri­od­i­cally, said Carolyn Hape­man, spokes­woman for the New York State Gam­ing Com­mis­sion.

West Vir­ginia Lot­tery spokesman Randy Burn­side said his state in­tro­duces 40 dif­fer­ent in­stant games a year, and other states pur­sue a sim­i­lar strat­egy.

“You have to stay up with the in­dus­try prac­tices with your gam­ing mix,” he said. “It’s a con­stant process of game de­vel­op­ment and in­tro­duc­tion.” Video ads for the West Vir­ginia Lot­tery show peo­ple white­wa­ter raft­ing and bik­ing as a coun­try band plays: “Home is where we love to play . ... Dreams can come true, it could hap­pen to you, West Vir­ginia Lot­tery.”

West Vir­ginia state Sen. Charles Trump, a Repub­li­can, in­voked the lot­tery dur­ing this year’s leg­isla­tive ses­sion. He pro­posed a $52.5 mil­lion bond issue, backed by lot­tery money, to make pre­vi­ously au­tho­rized im­prove­ments to state parks. It failed, but he suc­ceeded in call­ing at­ten­tion to the lot­tery and what it pays for.

“I don’t think it’s a stretch to say that the state is de­pen­dent to a great de­gree for im­por­tant pro­grams on the lot­tery,” Trump said. “Yes, the state is look­ing all the time at ways to ex­pand or pro­tect it.”

One way to gauge lot­ter­ies’ im­por­tance to state bud­gets is to com­pare their rev­enue to that of the cor­po­rate in­come tax, an­other small, but im­por­tant, source of state dol­lars. Cor­po­rate in­come taxes amount to an av­er­age of 3 per­cent of state rev­enue while the lot­tery con­trib­utes 1 per­cent of state rev­enue. But in a hand­ful of states, lot­tery rev­enue ri­vals or ex­ceeds cor­po­rate in­come tax rev­enue.

Two states had sig­nif­i­cantly higher net lot­tery pro­ceeds than cor­po­rate in­come tax col­lec­tions: West Vir­ginia, where the state gar­nered $520 mil­lion on $659 mil­lion in lot­tery sales in 2015 com­pared to $189 mil­lion in cor­po­rate in­come tax col­lec­tions, and Rhode Is­land, where the state raised $383 mil­lion on $543 mil­lion in lot­tery ticket sales in 2015 com­pared to $176 mil­lion in cor­po­rate in­come tax col­lec­tions. Na­tion­ally, state lot­ter­ies gen­er­ated $66.8 bil­lion in gross rev­enue in fis­cal 2015, which ex­ceeds the $48.7 bil­lion gen­er­ated by cor­po­rate in­come taxes. How­ever, $42.2 bil­lion of the lot­tery in­come went into prizes and $3.2 bil­lion went into ad­min­is­tra­tion (in­clud­ing advertising), leav­ing net lot­tery pro­ceeds of $21.4 bil­lion.

AN­TO­NIO PEREZ / CHICAGO TRIBUNE

A cus­tomer pays for scratch-off tick­ets from a vend­ing ma­chine, on the pos­si­ble last day of Powerball games at the Har­wood Con­ve­nient Store in Har­wood Heights, Illi­nois, Wed­nes­day.

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