Promoting Powerball to Close Budget Gaps

States are gussying up their lotteries to woo more players

The Arizona Lottery has spent the last four years ramping up efforts to get players to part with a dollar. It raised its average jackpot by 8 percent and introduced pricier scratch-off games that cost from $5 to $20 and yield bigger winnings, up to $1 million. The tickets now come in brighter colors on thicker paper, and more of them get displayed in bigger cases to catch the eyes of would-be winners lining up at grocery and convenience stores. The lottery also increased its advertising budget by roughly 50 percent, rolling out marketing campaigns specifically geared toward Latinos.

“What we saw was people were pulling back on their expenditures unless they had some value-added propositions,” says Jeff Hatch-Miller, a former state legislator and the lottery’s executive director. The bet paid off: Ticket sales increased 20 percent from 2009, reaching a record $584 million this year.

Gambling income, while a consistent source of funds for schools and public health programs, generally isn’t a big contributor to state coffers. In 2009 states collected an average of 2.4 percent of their revenue from horse track betting, casinos, and lotteries, according to the Nelson A. Rockefeller Institute of Government, a think tank in Albany, N.Y. In today’s bad economy lottery ticket sales have become an increasingly important source of revenue for public officials trying to plug gaps in their budgets. “You have politicians not wanting to raise taxes right now,” says David G. Schwartz, director of the Center for Gaming Research at the University of Nevada at Las Vegas, “so lotteries are good ways to raise money.”

Arizona wasn’t the only state to figure that out. Lottery income decreased nationwide in 2009 for the first time in more than a decade, prompting many of the 43 states that operate lotteries to redouble their efforts to win back players. This year, 26 of them saw revenues increase, and total sales were up 3 percent, to $56 billion, according to LaFleur’s, a lottery research company in Rockville, Md. Record sales were posted in 16 states besides Arizona. In 2010 the state borrowed $450 million against future lottery revenues to help close a $3 billion budget deficit.

Officials across the country are now debating measures meant to bring in even more money. Tennessee requires that players pay with cash to play the numbers, but lawmakers on the Senate Lottery Stabilization Task Force may let its lottery ticket sellers accept credit and debit cards. In New Jersey, Democratic Assemblywoman Annette Quijano has introduced a bill to clear the way for sales on smartphones.

The Florida Lottery launched a pilot program in March with Wal-Mart Stores, which had never ventured into U.S. lottery sales (outside Puerto Rico) but agreed to try them out in 30 of its grocery stores. Lottery officials hope the retailer will eventually welcome its games at the chain’s bigger supercenters, “the brick wall that every lottery in the country has wanted to break through,” says David Bishop, deputy secretary of the Florida Lottery.

The last frontier may be cyberspace. Many states have been exploring ways to sell tickets online and modernize their websites, which usually only list winners and explain contest rules. The Minnesota State Lottery now lets lotto players subscribe to an online service that automatically plays their numbers for up to a year with just a few clicks of the mouse. Bettors sign up for a game and the number of drawings they want to enter over a minimum of six weeks, then sit back and wait for the lottery to alert them to any winnings. The development doesn’t sit well with Republican state Senator David Hann, who calls state efforts to encourage gambling during a tough economy “reprehensible.” Says Hann: “We have a situation where a lot of people are struggling financially. The last thing we should be doing is telling people to go out and gamble.”

In Arizona the lottery has contributed $2.7 billion in profits to state programs since 1981. A group convened last year by Republican Governor Jan Brewer, the Commission on Privatization and Efficiency, recommended in October that the state hire an outside contractor to run the lottery in hopes of netting more money. Hatch-Miller, the Arizona Lottery’s director, insists his agency’s push to raise revenues was never meant as a way to “twist money out of people’s hands” so that underfunded state programs would benefit, noting, “We believe strongly this is entertainment.”


    The bottom line: Efforts to boost revenues at state lotteries during the recession resulted in record ticket sales in 17 states this year.

    Before it's here, it's on the Bloomberg Terminal.