States Face Downturn In Lottery Revenue

EVER since New Hampshire planted the first seed in 1963, state lotteries have grown like magic beanstalks. In the last fiscal year, America's 34 state lotteries made a record $28 billion. But some states, many of which have sponsored lotteries for more than a decade, are not making as much money as they used to.

Statistics show that nine states posted declines in net income in 1993, and revenues for jackpot lotto games, once the flagship lottery product, have dropped by 3 percent. These trends have left lottery officials in some states wondering where all the gamblers have gone. (State role questioned, Page 7.)

``When you're talking about gambling, you're talking about the entertainment business,'' says Ed Stanek, commissioner of the Iowa lottery. ``People get tired of the same thing over and over again.''

With more lotteries, casinos, bingo parlors, horse tracks, and video terminals competing for the same discretionary dollars, some analysts suggest that the gambling market in the United States may soon reach its apex.

``There is a definite saturation point in state-sponsored gambling,'' says Robin Widgery, president of the Social Systems Research Institute in Flint, Mich. ``There are only so many people who will play the lottery.''

According to Mr. Widgery, state lotteries that hope to maintain current revenue levels will have to lure new gamblers from two pools: Upper-income people who play the lottery for entertainment, and lower-income people who think of it as an investment.

``Down the road, all forms of gambling will have to justify themselves,'' Widgery says. ``You can only lose so many times before you start to realize that there's not much of a chance.''

``The odds of winning the lottery are about as good if you have a ticket or if you don't,'' says Arnie Wexler, executive director of the New Jersey Council for Compulsive Gambling. ``But we've got governors running around saying, `Buy a lottery ticket and help the state.' ''

Budgetary voids

When lottery revenues bottom out, Mr. Wexler warns, some states will have budgetary voids that legislators may not be able, or willing, to fill. Since lottery proceeds in some states are earmarked for programs like education, Wexler says losses in the lottery may ultimately hurt the programs that those lotteries were designed to help.

``The problem is that states are addicted to lottery revenue,'' Wexler says.

But lottery advocates describe these declines as a minor realignment in an otherwise booming business. According to analyst Bruce La Fleur, unaudited figures for the 1994 fiscal year show that overall United States lottery revenues climbed by 13 percent.

``Instant games have grown in popularity because there are a large number of players who want smaller prizes and more of them,'' says William Bergman, executive director of the North American Association of State and Provincial Lotteries.

Scratch-and-win tickets, video lottery terminals, and games like Keno (in which a drawing is held every five minutes) offer players immediate gratification, Mr. Bergman says, rather than expecting them to wait for the weekly lotto drawing.

Instant games also produce more prizes: In some instant games, the odds of winning at least a free ticket are 1 in 7, according to Bergman. By contrast, the odds of winning some lotto jackpots run as high as 1 in 23 million.

Diminishing returns

The ascendancy of instant games is evident in Michigan, where net lottery income fell by 10 percent in 1993. According to James Kipp, commissioner of the Michigan lottery, players have strayed from lotto in part because of a phenomenon he calls ``jackpot fatigue.''

Rising jackpot totals nationwide have led some players to develop the attitude that ``if it's not over $50 million, it's not worth playing,'' Mr. Kipp says. As a result, the threshold for luring casual and first-time players rises every year.

Bergman calls this phenomenon ``the jading of America.'' Even though the minimum payoff in most lotteries is $2 million or $3 million, he reasons that gamblers have, in effect, grown greedy. ``People have forgotten that $2 [million] or $3 million is still a lot of money,'' he says.

But Bergman argues that the lotto decline can ultimately be written off as the low point of a cyclical pattern: ``I don't see any drastic losses in the near future in lotteries, because the average player only spends $5 a week.

``Clearly, there will come a time when the law of diminishing returns will set in,'' he says, ``but it will happen in casinos before it happens to lotteries. Many people don't think of the lottery as gambling.''

In Illinois, where lotto sales have fallen 28 percent in six years, lottery director Desiree Rogers points a finger at the media, noting that newspapers and television stations do not cover the lottery unless the jackpot rises to a mind-boggling level.

In July, Ms. Rogers unveiled a campaign to win a new generation of players. Adopting the slogan, ``Somebody's gonna lotto, might as well be you,'' the campaign focuses on, ``getting people not to think so hard about spending a dollar,'' she says.

The Illinois campaign involves:

* Advertisements explaining that even the lowest jackpot pays $100,000 a year for 20 years.

* A toll-free number players can call to subscribe. If they win, players receive a check automatically.

* Advertising that converts to a special lotto message when the jackpot gets high.

Such state-sanctioned efforts to promote gambling make Wexler uneasy. He contends that mass-market advertisements add another level of social acceptance to a gambling product that is already available in hundreds of thousands of outlets.

``You go to the store to buy a loaf of bread, and you're in a gambling establishment,'' Wexler says.

``We're becoming a nation of gamblers, and states are pushing the idea that all you have to do is win the lottery and you're set for life. There's something wrong with that.''

Gamblers' hot line

Wexler, whose organization runs a counseling hot line (1-800-GAMBLER), notes that in 1986, only 16 percent of callers claimed addiction to the lottery.

Last year, he says, the number rocketed to 54 percent. Twelve percent of those calls, he adds, were from teenagers.

``I'm not going to say that no one has a problem with the lottery, but it's usually too slow for a hardened gambler,'' says Rogers of Illinois. ``All we want is one dollar. We don't want your food or milk money.''