Sunday, May 18, 2008

Schwarzenegger wants to double lottery profits

SACRAMENTO — Gov. Arnold Schwarzenegger calls the California lottery an "underperforming asset,'' and there's solid evidence that the state does rake in fewer dollars per resident than many others in the lottery business.

But exactly how would the state double lottery profits — the centerpiece of the governor's plan to close a $17.2 billion budget deficit?

Consider these possibilities: How about playing the lottery online? Or sliding your credit card into a machine to buy tickets, instead of waiting in line to fork over cash to a convenience store teller?

Actually, forget the convenience store — how about purchasing a $10 or $20 scratcher (most tickets now go for $1 to $3) on the way out of Target or Costco? Or while you're waiting to catch a flight at the airport?

As legislators take up the governor's lottery plan and its lure of an immediate $15 billion check, they will have to decide where to draw the line. Many Democrats cringe at the thought of state government aggressively peddling tickets, convinced that it's mostly poor people blowing their grocery money who buy them.

But there's a rub: The governor is depending on investors to front the $15 billion he seeks from the lottery, but the more the Legislature regulates the games, the less money those investors are likely to pay. And the less California gets from the lottery, the more it will have to cut programs or raise taxes.

"If we're going to Advertisementexpand it, we need to figure out how, and what's the right mix,'' said state Sen. Dean Florez, D-Bakersfield, an expansion proponent who is chairman of a committee that oversees the lottery. Florez said it would be appropriate to sell tickets at popular retail outlets such as Costco, but not at schools or universities. And he would balk at aggressively marketing toward young adults; people 18 or older are now allowed to buy tickets.

"I would not want to see marketing with `American Idol' or Snoop Dogg or MTV type of themes,'' he said.

There are two ways to ramp up sales: sell more tickets where they're sold now or add more outlets. The state is already trying to do both, but the governor's plan would increase those efforts many-fold, said Lottery Director Joan Borucki.

The lottery is hamstrung by restrictions voters put in place when they approved it in 1984. The rules, which Schwarzenegger wants voters to waive in a November ballot initiative, require that 34 percent of revenues be devoted to education, and at least half go toward prizes, with the rest for administration of the lottery.

What that means is lottery players are less likely to win in California than elsewhere: Of every dollar played, 54 cents is returned in prizes. Other states offer payouts as high as 72 cents. Some states that have boosted prize payouts have seen revenues double.

Research also shows California lags in the number of retailers selling tickets relative to the population. Borucki said the state needs to fix both shortcomings, which she said work hand-in-hand: The lottery has a poor image because people don't win often enough, and that makes retail outlets less willing to sell tickets.

"When all of a sudden you have a lot more winners and a lot more excitement, the brand image will improve, and you won't have as much of a negative image,'' Borucki said. That image "stems from people not seeing anybody winning, not hearing about winners, and they're not sure who's getting all the lottery money. And we're not selling tickets where everybody shops, so there's not a lot of convenience.''

All that would presumably change if voters relax the lottery rules. But Schwarzenegger's plan has to win bipartisan legislative support to make it to the ballot, and some Democrats are wary of a huge lottery expansion.

To make the governor's proposal pencil out, the state would have to start selling tickets in places such as laundromats, movie theaters and airports, predicted Sen. Leland Yee, D-San Francisco. "Maybe even a bus stop,'' Yee said.

Borucki, the lottery director, didn't deny that; she said the state would look to install self-serve terminals in popular retail outlets. Outdated terminals would be replaced with ones that take credit cards, and new games with poker and blackjack themes likely would be introduced. (To avoid drawing opposition from Indian tribes, the state does not contemplate offering video terminal gambling.)

"We'd be basing our budget on the weaknesses of people, and I think that's a horrible way of banking your future,'' Yee said.

The lottery has collected data it says shows that those who play reflect the state's population as a whole. But Yee and others don't believe it.

"They are individuals living paycheck to paycheck, and instead of buying food or clothes,'' he said, "they're going to spend it in on the lottery.''

However the debate unfolds, one thing is certain: Doubling lottery profits from $1.2 billion to $2.4 billion, as Schwarzenegger's plan envisions, would be nothing short of a massive undertaking.

"It's one of the most ambitious goals to increase lottery sales that I'm aware of,'' said Jason Dickerson, a lottery expert at the nonpartisan Legislative Analyst's Office. "I'm not sure you're going to find anything comparable.''



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