Behind the Lines: Podcast You Lose Again!
Once upon a time, the Texas lottery was the most successful in the world. Then the politicians got hold of it. The rest—and the lottery’s rosy future—is history.
“YOU LOSE!” SO READ the headline of the cover story of TEXAS MONTHLY in June 1993, the first anniversary of the Texas lottery. Author Robert Draper told of the huge odds against winning the lottery and lamented how Texas had forsaken its petro-past. “Now that the state can no longer stake its fortune on the labors of a few independent-minded winners,” he wrote, “it seeks to profit from the 11 million Texans whom the state has converted into losers.”
Draper’s article notwithstanding, the Texas lottery went on to break all records as the most successful start-up in the history of the industry since the states took over the numbers racket from the Mob. But—You Lose Again!—those days are over. The already-formidable odds against winning have been made even more formidable, so that the state can gobble up some of the prize money previously paid to winners. Lottery sales have gone into a death spiral; they are millions of dollars below last year’s, and hundreds of millions of dollars short of the rosy projections made by the Legislature to balance its budget. The amount of revenue received by the state is down accordingly. The only thing worse than a successful lottery, it seems, is an unsuccessful lottery.
There will be those who say, “I told you so”—that Texas is getting what it deserves for basing its future upon the continuing gullibility of its citizens. But the sudden downturn in the fortunes of the Texas lottery is not simply a case of the public coming belatedly to its senses. The lottery is a victim of the greed and indifference of its own stewards—the Texas Legislature and the state lottery commission. They violated the first rule of government: If it ain’t broke, don’t fix it.
My own feelings about the lottery, like those of many Texans, are ambivalent. It brings in a lot of money, but it also brings in a lot of baggage. Politics, government contracts, and gambling are an explosive mix. There is too much money at stake, too many temptations, and too much opportunity to expand the lottery one day into casino gambling in the form of electronic slot machines like video poker. But the promise of easy revenue is irresistible, and so is the political appeal of a so-called voluntary tax. I volunteer only when the Lotto jackpot climbs above $20 million. When it reached $50 million just before my wife’s birthday last October, and I got a fortune at a Chinese restaurant that read “Invest wisely. Big things are coming,” I bought her $100 worth of tickets instead of blowing the same amount on a celebratory dinner. It was great fun—until our pile of slips produced one $3 winner and regret for a lost crème brûlée.
Still, you don’t have to love the lottery to want it to prosper, which it has been doing—until last year. Its annual sales for 1996 were $3.4 billion, a full billion dollars higher than any other state lottery had chalked up in its fifth year of operation. Its annual profit—that is, the state’s share of the ticket purchases—was more than $1 billion. But the figures for the last four months of 1997 tell an entirely different story. The Legislature projected a $599 million increase in the state’s share of lottery revenue during the next two-year budget cycle. Instead, the current pace of ticket sales will produce a decrease of $282 million. The difference between the budget and reality is $881 million. Since the history in other states where the lottery has slumped is for sales to get worse before they level off, the likelihood is that the final gap will reach $1 billion.
If these were hard economic times, a billion-dollar shortfall would force the state to pass a tax bill or make deep spending cuts. Fortunately, times are good, tax revenues are up, and Texas is expecting a budget surplus large enough to cover the lottery’s shortfall. But don’t think that an extra billion dollars couldn’t make a difference. It could do wonders for Governor George Bush’s proposal to have all children reading by the third grade. It’s enough money to give every school teacher in the state a $4,000 raise. It’s enough money to build forty prison units. It’s enough money to reduce school property taxes by the same amount that the Legislature, at Bush’s urging, lowered them in 1997. Whatever your preference might be, the opportunity is gone.
THE LOTTERY IS DIFFERENT FROM anything else that the State of Texas does. It is a business, and it cannot be successful unless it is run like a business, with a constant emphasis on the bottom line. A lottery ticket is a discretionary purchase; in contrast to collecting taxes, the state must actively campaign to separate people from their money. Without marketing, a lottery will wither away. Without winners, a lottery will wither away. These are the simple imperatives of the lottery business. Once the lottery got caught up in politics, however, its business side became secondary to its political side, for both the Legislature and the lottery commission. The lottery became subject to all the uncertainties of politics: greed, moralism, ambition, partisanship, and an aversion to bad press, to name a few. Decisions were made for political reasons, without regard to their business consequences, by people who never really understood how the lottery worked.
The secret to a successful lottery is never to let the public think of its participation as gambling. Opponents of the lottery criticize the state for luring the poor to buy tickets with the promise of instant wealth, but the odds are so long—16 million to one against winning the six-number Lotto jackpot—that most players know that they are probably going to lose. If all a lottery had to sell was the dream of getting rich quick, many players would soon get disillusioned and quit.
When disillusionment sets in, a lottery is said to be “mature.” It is down to its core clientele. This is why the typical pattern of a lottery’s sales is to rocket upward for several years, then reach a plateau as new customers (from population growth and coming of age) are offset by what is known in the industry as lapsed players. The longer it takes to reach the plateau, the higher the plateau will be, and the more income the state will receive, year after year. Florida and Texas had almost identical sales for the first and second years. Then Florida leveled off at $2 billion a year while Texas kept climbing to almost $4 billion. The goal of every lottery is to make its initial thrust last as long as possible.
The way to achieve this is to promote the lottery as entertainment, not gambling. Even if people lose more than they win (and almost everyone will), they will feel that they got their buck’s worth if they tune in to the drawing of the winning numbers or play with a calculator to figure how to spend their winnings or form office pools with co-workers to win a big pot. They also have to win now and then. As long as the lottery is fun, people buy tickets. When it stops being fun, they quit.
From its inception in May 1992, when the first scratch-off ticket was sold, the Texas lottery had exceeded all expectations. The take from its first day of sales was the best of any lottery anywhere. To keep up the pace, marketing by the lottery and its advertising firm, GSD&M of Austin, had to be intense. New scratch-off games had to be introduced regularly, before players tired of (losing) the old ones, and each one was sold to the public by wrapping the lottery in Texas mythology, just as GSD&M had earlier come up with “Don’t Mess With Texas” for its anti-litter campaign. There was Lone Star Millions and the Texas Two-Step, Cactus Cash and Fiesta. Eventually, GSD&M came up with “Scratchman,” a character who became the lottery’s symbol. All this effort by the state to pick the pockets of its citizens is hardly ennobling, but once its budget has become dependent upon a lottery, there is no other choice—even when things go wrong.
THE DOWNFALL OF THE TEXAS LOTTERY began in New Jersey. In October 1996 J. David Smith, the national sales manager of Rhode Island—based GTECH Holdings, was convicted in New Jersey on federal charges of fraud, bribery, conspiracy, and money laundering. GTECH operates the Texas lottery and has 70 percent of the world market for online games. At Smith’s urging, GTECH had hired a well-connected political-consulting firm to advocate expanding the New Jersey lottery to include video keno; the firm then kicked back $169,500 to Smith from its $30,000-per-month retainer. The headline on the story about the verdict in the Dallas Morning News read “GTECH Cases Not Expected to Affect Company’s Management of Texas Games.” Hah!
FACEBOOK
RSS
TUMBLR
TM
Read Later