Lottery Sales Plunge; Loser Is Education

Dwindling player interest in California’s games of chance and a faltering economy have caused a dramatic 14% plunge in state lottery sales this year that is producing the lowest return for education since 1987.

With sales of all games except Lotto well below projections, the California Lottery ended the fiscal year June 30 with revenues of $2.133 billion as compared to $2.479 billion last year. No other state experienced as large a percentage drop in sales. Most states, in fact, reported increases in revenues.

“The California Lottery is now 6 years old and the product is matured. The novelty of it has peaked,” lottery Director Chon Gutierrez said, while acknowledging that officials had underestimated the depth of California’s recession and the drop-off in player interest. “If anything, we’re starting to see people say, ‘I think I’ll spend my entertainment dollar on something else.’ ”

Lottery proceeds in California have fallen 19% since sales reached their peak two years ago. Correspondingly, the lottery’s required 34% contribution to education has continued to decline.

This year, state officials estimate, education’s share of lottery profits will be $780 million, or about $125 per student. Last year, schools received $980.5 million, or about $165 per student.

“The school districts have been on the receiving end of this plunge and it’s been one of the things squeezing them at the local level,” said Bill Honig, state superintendent of public instruction. “The point is, this is a risky revenue source. It’s only 3% of our budget but when you lose $200 to $300 million it hurts.”

Although the authors of California’s 1984 lottery initiative intended the games to be only a supplemental source of revenue, Honig said more school districts have come to rely on the proceeds for ongoing expenses. As other revenue sources have failed to keep pace with inflation and growing student enrollment, about 65% of the school districts have used lottery revenue to help make up the difference, he said.

When lottery sales drop precipitously and miss their projections by millions of dollars, schools have to scramble to cut back on expenditures, Honig added. This year, the lottery initially predicted revenues of $2.85 billion. But as sales slumped, officials lowered their estimates to $2.45 billion and did so again as the total fell to $2.15 billion. School districts, in the meantime, had based their budgets on the original projections.

Gutierrez, the lottery director, said next year’s revenues will be estimated more conservatively. During the fiscal year that began July 1, officials are predicting sales will be an even $2 billion, forcing them to eliminate 172 lottery jobs and cut expenditures by $22 million.

Gutierrez said it is hard to pinpoint the cause of the marked decline in sales, but he said national “economic uncertainty” and the Persian Gulf War must have played substantial roles. At the same time, he said, the big Lotto jackpots which usually heighten player interest in all California lottery games have been rare.

Earnings for the long-running Scratcher and Lotto games were significantly below last year’s levels and sales for three games--Decco, Little Lotto and Scratcher--didn’t meet even the reduced projections. Lotto, the lottery’s biggest moneymaker, only managed to meet its earnings goal after a record-breaking $118 million jackpot in April prompted a brief surge in ticket buying.

“I think California must be having a peculiar problem,” said Bill Bergman, executive director of the National Assn. of State and Provincial Lotteries. “Nobody that I’m aware of is experiencing such a big decline over last year.”

Bergman estimates that lotteries will show a growth nationwide this year of about 9%, but he concedes that the phenomenally high growth new lotteries typically experience has helped push that figure up. Sales in new lottery states such as Colorado, West Virginia, Virginia and South Dakota have grown in the range of 25% to 35%, he said. Among the more established lotteries, he predicted sales increases of only about 5% to 6%.

As sales plummet in California, a corps of lottery critics continues to expand. Led by Sen. Ralph Dills (D-Gardena), they blame many of the problems on management.

Wilson Administration officials have been interviewing other lottery directors but have told Gutierrez it is not certain he will be replaced. Gutierrez has been blamed for a decision last year to increase the odds on Lotto that critics, such as Dills, believe was a mistake that caused many to stop playing the game.

To rekindle interest in Lotto, officials nearly doubled the odds of winning in hopes that there would be more super jackpots to draw players and publicity. With higher odds, officials figured there would be less likelihood of a weekly winner and more chance for the jackpots to roll over.

But the move did not produce many more big jackpots and instead angered many players who objected to the 1 in 23 million chance of winning the top prize.

Dills and others also maintain that the lottery’s advertising has been lackluster and that it did little to promote Little Lotto, a game they thought had high potential but turned in a disappointing performance. Introduced in March, Little Lotto offers a top cash prize of $500,000 with odds of 1 in 3.3 million.

Gutierrez acknowledged that as dwindling sales forced the lottery to reduce administrative expenses, one of the first and easiest places to cut was the advertising budget. Most of the cuts, he said, came in the last quarter of the fiscal year, just as Little Lotto was being offered to the public.

Jim Hosker, president of the National Assn. of State and Provincial Lotteries and the executive director of the Kentucky Lottery, blamed California’s problems on a restrictive lottery law.

He said California is prevented from taking many steps that have made other lotteries more profitable. He said the law here severely limits “instant” payoff, prevents any expansion of prizes and makes it difficult to offer more than one Scratcher game.

Lotto: Some Losing Numbers

EARNINGS

Here is a look at the revenues of various California Lottery games for July, 1990, through June, 1991.

Game Projected Earnings Actual Earnings Lotto $1.2 billion $1.34 billion Scratcher $500 million $445 million Topper $140 million $153 million Little Lotto $210 million $98 million Decco $100 million $94 million Total $2.15 billion $2.13 billion

EDUCATION

The decline in lottery sales has meant a decrease in the program’s contributions to education in recent years.

Fiscal Year Total Lottery Sales Contribution Per Pupil to Education Contribution ‘90-’91 $2.1 billion* $ 780 million* $126* ‘89-’90 $2.5 billion $ 980 million $165 ‘88-’89 $2.6 billion $1 billion $178 ‘87-’88 $2.1 billion $ 804 million $142 ‘86-’87 $1.4 billion $ 504 million $ 92

*Preliminary figures SOURCE: The California Lottery