Falling revenues hit state lottery

Ticket sales by the California lottery are off about 10 percent compared to a year ago, a drop lottery officials are pinning on a bad economy. But California Lottery officials say they don't think the lagging sales will interfere with efforts to modernize the lottery and revamp it to give more revenue to the state.

For the first four months of the 2008-2009 fiscal year, the California Lottery sold $985 million worth of lottery tickets, down from $1.09 billion for the same period a year ago.

But last year's lottery sales were also down from the year before. The lottery sold just under $3.1 billion in tickets during the last fiscal year, down from $3.3 billion in 2006-07 and $3.6 billion during 2005-06.

There is sometimes an idea that gaming is recession-proof, but that isn't true, said Lottery spokesman Al Lundeen. In fact, lottery sales often track the general state of the economy. Sales hit a peak during the height of the housing boom three years ago, but stood at only $2.9 billion during the 2003-04 fiscal year.

Lundeen also said a lack of big jackpots so far this fiscal year has likely reduced sales.

"Most of the decline is in what we call the draw games, the Mega Millions or Super Lotto Plus, the games that are driven by the big jackpots," Lundeen said.

When either game rolls over-that is, one of the bi-weekly drawings passes without a winner, rolling millions of dollars of losing tickets into the next drawing's jackpot-it increases interest, he said. Sales particularly go up when a jackpot tops $50 million. That hasn't happened very often so far this fiscal year, he said, and the Lottery also hasn't seen any of the $300 million jackpots that spur huge short-term sales.

Lottery officials are hoping to use the falling sales figures to convince voters of the need to change the rules governing the state lottery. According to the 1984 voter initiative that created the lottery, 34 percent of the proceeds have to go towards education. This has resulted in lower prize payouts, lower consumer participation and actually lower payouts to education, according to lottery director Joan Borucki.

"You have more winners, people feel better about playing, you get an increase in sales," Borucki said. "The sooner we're able to do it the better. If I had my druthers we would start doing it this month."

She pointed towards states where a modest increase in payouts had a multiplier effect on sales. In Florida, she said, higher payouts from "scratcher" tickets tripled their sales between 2002 and 2006. In New York, higher payouts led to a 250 percent rise is sales between 2000 and 2007-accompanied by a 238 percent increase in revenues to the state.

This past spring, Governor Arnold Schwarzenegger floated the idea of "securitizing" the lottery-essentially, selling it to an outside operator, who would give a big up-front payoff and further payments down the line. The Legislative Analysts Office weighed in on the proposal, saying that the $37 billion upfront payment the Administration predicted was unlikely to come true. But their report also noted the lottery was underperforming compared to other states and said changes in the lottery were worth investigating.

Many agree that securitizing the lottery will not work without the ability to increase payouts and revenue going forward. At the Governor's request, the Assembly Budget Committee put forth AB 1741, the Lottery Modernization Act. It made several the necessary changes, and easily reached the two-thirds vote requirement for changing the constitutional amendment.

But any additional changes-such as actually increasing the payout and securitizing the lottery-would have to go ahead of voters. Borucki said she didn't know of any well-funded opposition that might pop up to block an initiative, outside of groups critical of gambling in general. While some education groups have been skeptical of changes in the lottery in the past, Borucki said they have so far remained neutral on the securitization idea.

"Education, in the long run, probably makes out better as far as funding goes," she said of the plan.

The lottery is hardly the only gaming operation that's seen revenues weaken-or the only one whose performance could have an effect on the state's bottom line. The growth in tribal gaming revenues have fallen off steadily, along with other economic indicators, according to figures from Alan Meister of the Analysis Group, which tracks tribal gaming. Nationwide, tribal gaming revenues grew 15 percent in 2005, 10 percent in 2006, five percent in 2007 and at less than two percent so far this year.

Just last week, the United Auburn Indian Community announced they would scale back expansion plans at their Thunder Valley Casino due to the economic downturn. Meanwhile, a pair of the biggest tribal casinos in southern California announced major layoffs last week. The Pechanga Casino said it would lay off 368 workers, eight percent of it's workforce, due to the downturn, while the Morongo casino is letting go of 95 workers.

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