Year-Old State Lottery, Richest in the Nation, Struggles With Lotto

The California Lottery, although first nationally and fourth worldwide in revenue, will hit its first-year mark locked in an all-out struggle to launch an overdue lotto game, aimed at reversing a sales decline.

For months, Lottery Director Mark Michalko predicted a lotto start-up in September. But throughout the month, officials continually delayed plans to announce the start-up date.

Last week, Michalko conceded the announcement will not come until this month, but he insisted the game will begin before November.

“When we first estimated the date, we were looking into an approximate time frame based on the history of other states,” Michalko said. “The magnitude and complexity of California . . . is what is causing us to go into October.”

“There are no major hitches,” lottery spokesman Bob Taylor said, adding that the kickoff is taking longer than expected because “system testing and documentation of testing is time-consuming. A 15- to 30-day time frame of hitting something this complicated is pretty much on the mark.”

“Both GTECH’s (the lotto contractor) and the lottery’s internal control systems show clearly that we’re nearly ready to begin the lotto game,” Taylor said.

“But, because we want to be absolutely certain the games will operate smoothly and cleanly, we’re awaiting the necessary documentation and reports from testing, which we want thoroughly analyzed by consultants before we start the games.”

The controller’s office and other state agencies are “looking over our shoulder,” Taylor added.

The strain of readying the world’s largest lotto network, with nearly 5,000 terminals statewide and twin computer centers in Sacramento and Los Angeles, is eclipsing the first-year anniversary.

“Staff will be meeting throughout the whole weekend. . . . It’s unbelievable what’s happening. I don’t know how people are holding up. They’re literally working 12- to 15-hour days, six to seven days a week,” Taylor said.

The lottery is employing the same caution it used in kicking off the games Oct. 3, 1985, Taylor said.

Since that date, sales have soared to $2.04 billion, surpassed worldwide by only three national lotteries: Japan, with $2.05 billion in 1985 sales; France, with $2.15 billion; and Spain, with $2.39 billion.

The California Lottery, so far relying on scratch-off ticket games, easily swept past the other 20 state lotteries in the nation. The next-largest is Pennsylvania, with Jan. 1 to Sept. 1 sales of $1.32 billion, compared to California’s $1.97 billion during the same period.

Revenue that has poured into the California Lottery, if it were an industrial company, would place it 183rd on the Fortune 500 list of largest corporations, right behind Hershey Foods.

Schools, the biggest benefactors of the lottery, will receive 34% of the sales--nearly $700 million in the first year of the games.

State schools Supt. Bill Honig said the money will total more than $120 for each child.

Education officials constantly remind the public that the lottery supplies only a tiny percentage of schools’ overall budget, fearing that government and voters will believe that additional funding needs have been fulfilled.

The lottery’s next-biggest winners have been the major contractors: Rhode Island-based GTECH Corp., which landed a $121-million contract to set up the lotto network, and Georgia-based Scientific Games Inc., the scratch-off ticket supplier that engineered the 1984 lottery-authorizing initiative and has secured about $60 million in business from California.

Half the lottery’s revenue has gone back to players, with Eve Spencer landing a $15.2-million jackpot and Irineo Carranza a $10-million prize. They are among the more than 60 players who have won “Big Spin” drawings and will receive their money in equal annual payments--less 20% for taxes--over 20 years.

The lottery has yet to complete studies on who is playing the games, but officials expect figures to reveal a cross-section of the population.

A survey by pollster Mervin Field last fall found that although 70% of California adults, or about 19 million people, had played the lottery, 71% of the tickets were being bought by 18% of the players.

The survey also found that a disproportionate share of “heavy” players were relatively uneducated and from low-income groups.

A subsequent Los Angeles Times Poll showed that two out of three players have a high school education or less, six out of 10 players work in blue-collar and clerical jobs and the vast majority earn from $10,000 to $40,000 a year.

Critics Fear Compulsion

Critics continue to say that the games prey on the poor, luring them into spending even food money chasing their dreams, and plunge thousands into compulsive gambling.

Internally, the lottery has faced several problems, including dishonest employees.

Four people on the staff of the lottery or a contractor were arrested for cheating. And a flurry of counterfeit tickets led to a controversial sting operation, which ended in the arrest of 16 people who were charged with forging tickets.

Meanwhile, the staff has grown from 50 employees on loan from other agencies in temporary quarters to 1,000 workers in more than a dozen offices across California.

The average take has dropped from more than $9 million daily the first month to about $3 million--a decline that lottery officials had expected because interest in scratch-off ticket games traditionally wanes.

They say the decrease, after record start-up sales, has been less sharp than in other states, however.

California figures that its version of lotto will gradually push simultaneous and continuous sales of scratch-off ticket and lotto games to a stable $2.5 billion to $3 billion annually--the largest in the world.

Roll-Over Jackpots

The coming lotto game will give each of the 19 million people age 18 and over in the most populous state the chance to spend $1, pick six numbers from 1 to 49 that match those drawn by the lottery and win a weekly jackpot that state officials say could exceed $50 million and experts say could reach $100 million.

If no one wins the jackpot, or prizes in lesser categories, the money is to be rolled over to subsequent jackpots. The system has triggered “lottomania” in recent years as jackpots soared to $41 million in New York and $40 million in Illinois.

The catch: Odds of hitting the California lotto jackpot will be 1 in nearly 14 million--about seven times worse than the odds of being killed by lightning. Still, they are better than winning multimillion-dollar jackpots during grand prize drawings in the scratch-off games.

Lottery critics asked that lotto be delayed while lottery officials clean up alleged sloppy accounting. But lottery staff officials have assured policy-setting commissioners that bookkeeping is in order.