Lottery deal raises concern

Critics: Checkout sales at Dollar General sites target poor Texans

State lotteries have long been dogged by accusations their games prey on the poor, who studies show tend to play more often and spend more money than high-income players.

This month, the Texas Lottery Commission is poised to make tickets available at every checkout aisle in the state’s nearly 1,500 Dollar General stores. The agency also will plaster each store with Texas Lottery advertisements.

The commission expects the deal, which has yet to be officially announced, will dramatically increase lottery sales.

Dollar General’s own description of its customers indicates the state’s biggest major lottery sales push in years will land heavily on poorer Texans.

“We generally locate our stores and plan our merchandise selections to best serve the needs of our core customers, the low and fixed income households often underserved by other retailers,” the company stated in its 2018 annual report. In a 2016 presentation to investors, a Dollar General executive called its core customers its BFF — best friends forever — and described them as “living paycheck to paycheck” and relying on government assistance.

An analysis by Kantar, a global market research firm that conducts annual surveys of shoppers, shows that nearly 30 percent of Dollar General shoppers have household incomes under $25,000, the federal poverty rate for a family of four. More than half have household incomes less than $50,000. While the chain has made inroads with more affluent shoppers, “the core shopper is at or around the poverty line,” said Simon Johnstone, a Kantar analyst.

For lotteries, in-lane sales represent an exciting frontier that will make it simpler for players to buy their tickets and nonplayers to be lured into an impulse buy. “An in-lane lottery solution allows retailers to both be a destination store for lottery games,

and gives the chance to upsell to every other shopper in the store,” FasTrak, a lottery company, explained in a promotion.

That it’s debuting in Texas in a chain catering to lower-income shoppers, however, “is disturbing,” said Rep. Garnet Coleman, D-Houston, a longtime critic of the lottery who said he hadn’t heard of the new partnership. “We know the whole presence of a dollar store is to seek out people who earn less money with bargains.”

So “unless they’re also teaming up to put them in Gucci stores,” the Texas lottery seems to be concentrating the sales effort on lower-income residents, said Ross Rubenstein, a Georgia State University professor who has studied state lotteries.

In a written statement, Texas Lottery Commission spokeswoman Lauren Callahan said such a conclusion is “incorrect,” adding that “we don’t target any one player.” She said the new campaign has been years in the making and that “Dollar General is just the first of several major retail chains the TLC anticipates will introduce in-lane sales in the foreseeable future.” She added the agency is working with H-E-B stores, and soon hopes to add “major pharmacy and grocery chains.”

Crystal Ghassemi, a spokeswoman for Dollar General, stressed the stores were patronized by a wide range of customers. “In no way, shape or form is this target marketing to any lower-income Texans,” she said. “There’s a whole host of Texans we serve every day.”

‘A tax on poor people’

The North American Association of State and Provincial Lotteries, the trade association that advocates for lotteries, calls the claim that games disproportionately sell to the poor a “myth.”

“People from all walks of life and all income levels like to play lottery games,” it states on its website. “Across the United States, players bought more than $73 billion in tickets in 2015. Clearly, the industry didn’t achieve sales of that magnitude by focusing on low-income players.” It cites several studies showing that the games draw many players from a wide range of income levels.

A body of research analyzing lotteries in states across the country has found otherwise. Except for the occasional massive jackpot game, which draws out more wealthier players, numerous studies have found that lottery players are disproportionately lower-income who as a group spend more on the games. That has led scholars to describe lotteries as an upside-down “regressive” tax, which collects money from the less-well-off and redistributes it for the general welfare.

“The regressivity is real and constant,” said Charles Clotfelter, a Duke University public policy professor considered a pioneer in lottery research. “The unfortunate aspect of the whole picture is that states choose this product, the sale of which they monopolize, to impose the highest implicit taxes on of any product they tax, including tobacco and alcohol.”

Studies in Texas have found a similar pattern. “The results of our research seem to confirm the fears of lottery critics,” the authors of a 1999 study examining where three lottery game tickets were sold concluded. “All of the Texas lottery games are found to be regressive.”

“They say they don’t do it, but they absolutely target the poor,” said Rep. Steve Toth, R-The Woodlands.

State law requires the Texas Lottery Commission itself to produce regular demographic profiles of its customers. The latest, a 2018 survey conducted by the University of Houston’s Hobby School of Public Affairs, determined that Texas players came from all income levels.

Yet it also found the lower a player’s education, the more they spent on tickets; those with a high school education or no diploma spent almost four times that of a person with a graduate degree. The highest-spending income group was players who earned less than $20,000 a year.

When combined with lawmakers’ general distaste for government-sanctioned gambling, such findings occasionally cause unease among elected officials. In 2013, a majority of the Texas House voted to abolish the lottery commission. Many of those casting those votes voiced concern about the game’s reliance on lower-income players — “a tax on poor people,” Rep. Scott Sanford, R-McKinney, said.

Yet beginning in 1997, proceeds from the games have gone primarily to public education, and the state has become accustomed to receiving the $1 billion-plus the lottery contributes annually to public schools. After surprising themselves by doing away with the games, lawmakers quickly reversed course, approving it for another 12 years.

“Money talks & principal goes by the way side,” Toth tweeted following the about-face. “We will continue to take from the poor.”

“The dramatic pendulum swings again demonstrate the tightrope the agency walks in balancing legislators’ disdain for the lottery with a desire for the money it raises,” the Sunset Advisory Commission summarized in its report three months later.

Drive for record sales

Thanks in part to savvy marketing, the Texas lottery has printed ever more money for the state. In the 2019 fiscal year, which ended in August, the games raised a record $1.6 billion for the state’s public schools — $186 million more than the previous record set in 2018. The agency funneled $19.4 million to the Texas Veterans Commission and $50 million to the general fund from unclaimed prizes.

Yet “we are never satisfied with where we are,” Director Gary Grief said at the commission’s August meeting. “And for the past 24 months we’ve been working on an initiative that we believe has the potential to dramatically expand our retailer base, allow our products to be more universally accepted at retail, and ultimately help drive us to new sales and revenue records in the future.”

Lotteries have been trying for years to unlock so-called in-lane sales. Yet the technical complications of how to link sales at cash registers across stores has meant game purchases have been limited to only one or two “touch points” in individual outlets. The problem was solved by adopting the same system used for gift card sales, which will effectively make Texas lottery sales self-service, turn every cash register into a lottery terminal and transform every checkout lane into a sales pitch.

One of the fastest-growing retailers in the country, Dollar General’s huge Texas footprint of 1,485 stores — more than McDonald’s, with many outlets in rural areas — made it a valuable partner for the lottery.

Thanks to the new initiative, “We are going to grow our retailer base in one year more than we have in the last 20 years combined,” Texas lottery operations director Ryan Mindell said at the meeting.

In addition to ticket sales, “it also gives us an incredible opportunity for in-store merchandising,” he added, citing the promotional benefits not only of multiple purchase points, but signs at checkouts, hung on freezer doors and emblazoned across the floor. “So the customer is going to see lottery many more times in that store, and (be) much more present than they are with the traditional lottery retailers that we have now.”

“Outstanding,” responded lottery Chairman J. Winston Krause. “Keep up the good work for the schoolchildren of Texas and veterans.”