Texas Is Next Target : Lotteries on a Roll Nationwide

Paul Archer, long a crusader for temperance and public morals here, found himself badly overmatched by the latest sin to hit this out-of-the-way corner of the Bible Belt.

Thanks to Archer, the Women’s Christian Temperance Union and tradition, there is not a liquor store within seven miles of Ottawa. But soon, there will be legal gambling. For, try as he might, Archer, 76, manager of the local senior citizens’ center, could not keep Franklin County’s 7,170 voters from siding with the rest of Kansas in support of a new state lottery in last November’s election.

Archer sat in his living room, relaxed after an afternoon nap, and denounced the lottery as a sin and a swindle. “Gambling is wrong, a waste of time. People get to gambling, and it gets addictive,” he declared.

Preparing Legislation

But even as he spoke, lawmakers in Topeka were preparing legislation that will put the lottery into operation.

“If Kansas can pass a lottery by almost 2 to 1, it ought to pass about anywhere,” said outgoing Gov. John Carlin, a Democrat who spent the last of his eight years in office pressing for adoption of a lottery here.

Kansas was joined by Montana, Idaho, South Dakota and Florida in approving lotteries last November, bringing the number of states that have approved them to 27, plus the District of Columbia. When the latest lotteries are in operation, roughly 70% of the American people will be able to gamble as easily as they walk to the neighborhood grocery store.

Holdout States in Deep South

Most of the remaining holdout states are in the Deep South, and, as the experience in Kansas shows (the lottery won by a margin of 64% to 36%), the Bible Belt is beginning to fall into line. Even the U.S. Army is planning a lottery for soldiers stationed overseas.

In some ways, what is happening with lotteries represents more of a revival than a new phenomenon. The American Revolution was funded partly by lottery revenue; Benjamin Franklin was a player and Horace Greeley printed New York state lottery tickets in the early 19th Century. However, as lotteries grew large in the 1800s, so did scandals involving rigged winners and organizers who fled with the money. Such abuses prompted all states to outlaw them by 1893.

The lottery was first re-established in New Hampshire in 1964. Thirteen more Northeastern states approved them by the end of the 1970s, all using the rationale that revenue would fund public improvements, education, health care or aid to the elderly. The lotteries remained small, however, with sales a decade ago of less than $1 billion annually.

But over the last five years, as Western and Midwestern states have embraced them, legalized gambling has once again become an accepted part of American life. In 1986, Americans bought nearly $15 billion worth of lottery tickets, more than 2 1/2 times the take in Nevada and Atlantic City casinos combined.

Faced with reduced federal revenue and reluctant to raise direct taxes, state officials often find lotteries an attractive way to raise funds--about $5 billion was raised for public purposes by state lotteries last year.

They find help getting the games started from a handful of companies that plan and fund pro-lottery election campaigns and then win lucrative contracts to organize and produce the games. The companies, in turn, have become success stories, with gross revenues growing at an average of 20% a year.

“Gambling is one of the oldest vices of mankind. You’re not going to change mankind. So what is happening is that government is harnessing it and finding ways of using it for its benefit,” said Saul F. Leonard, gaming industry analyst for Laventhol & Horwath in Los Angeles.

Leonard noted that lotteries have prospered even while voters refuse to embrace casino gambling. Measures to approve casinos lost in Florida last November and in Galveston, Tex., earlier this year. The pari-mutuel industry, facing competition from lotteries, casinos and card clubs, remains in the doldrums.

Only North Dakota voters defeated a lottery last November, largely out of fear that it might have diverted money from charities, the beneficiary of North Dakota’s sanctioned blackjack. Undaunted by that loss, lottery industry executives boldly predict that another five states, North Dakota among them, will adopt lotteries this year.

A major push has begun in Texas--the largest state without a lottery and a place where state officials, plagued by the collapse of oil prices and its resulting economic dislocation, are facing a projected $4-billion budget shortfall. Once Texas comes into the fold, the rest of the South will follow, industry executives say.

‘Geometric Growth’

“It has been a geometric growth,” said Mark Michalko, director of the California Lottery, the richest in the nation with $2 billion in sales in its first year. “We’re dealing with such enormous dollars and such enormous levels of participation that those states that do not have lotteries cannot ignore it any longer. . . .

“The introduction of Lotto and the realization of really large prizes is what has put lotteries on the front page. That has been what has made national news. That is what has made all of these states start to take a look at the idea of a lottery.”

Computerized Lotto games, in which players pick a series of numbers and match them against winning numbers drawn by the state, have resulted in jackpots in the tens of millions of dollars. That is because if no one picks all the numbers--odds are one in 14 million of picking all six numbers in California’s Lotto 6/49 game--the money is added to the next week’s jackpot.

The popularity of lotteries has created some new problems for the states. As the novelty wears off and more states introduce lotteries, eliminating buyers from non-lottery states, ticket sales tend to level off.

To combat this, lottery officials in a number of states are moving in new directions. Some Eastern states, seeing lottery revenue rise more slowly, are seeking ways of tying the games to the outcome of sporting events, in much the same way that office football pools work, according to state lottery officials.

In an effort to meet the large jackpots in states like California and New York, several Midwestern states and smaller Eastern states plan to band together this year or next to form regional lotteries, with jackpots expected to reach into the tens of millions of dollars. New Hampshire, Vermont and Maine already have a joint lottery.

As the number of lotteries mount, some of the biggest winners are the nine companies that produce scratch-off tickets and computer-run Lotto games. In exchange for producing the games for the states, the companies commonly take 5% of the gross sales.

sh Growth Industry

Each time a new state passes a lottery, the companies’ stock price increases. Industry growth is unusually healthy, noted Harold Vogel, gaming industry analyst for Merrill Lynch.

“The market has hardly been tapped,” said Ted Bowman, in charge of several lottery accounts for Control Data’s lottery division.

“We have 22 states now (with operating lotteries). Within the next five years, we will double that,” predicted Dan Bowers, president of Scientific Games, which wrote California’s 1984 lottery initiative, spent $2.1 million to persuade voters to pass it and then won a $20-million contract to produce the scratch-off ticket games.

“They have developed a strategy, and they find that it works,” said Leonard, the analyst for Laventhol & Horwath.

The formula for passage of a lottery goes something like this: Pick a state, preferably one that borders another state that already has a lottery. People from non-lottery states cross state lines to play, spending money outside their home state and bringing none back, to the dismay of government and business leaders. In domino-effect fashion, voters hear of big winners from bordering states and lend their support to home-grown efforts.

Next, find an issue with appeal for lottery revenue. In Arizona, where highways are important, $40 million in yearly lottery revenue is earmarked for roads. Colorado’s share of lottery funds--$33 million last year--goes to parks. States typically divide lottery sales by taking a third of the gross for such projects as schools, roads or elderly care, giving half to lottery winners and reserving the remainder for administrative costs, including payments to companies that produce the games and retailers that sell tickets.

In several targeted states, the economies are stagnant. Kansas, which has yet to recover from the recession of the early 1980s, faces a $60-million state budget deficit this fiscal year. The government expects to net $33 million a year on the lottery and will spend it luring new industry to the state and developing Kansas’ existing agriculture, oil and gas and aviation industries.

“No one ever heard anything about the lottery (during the campaign). They just heard about economic development,” said Pat Hurley, who organized the pro-lottery campaign in Kansas and now is the Topeka lobbyist for GTECH Inc., one of the largest lottery companies.

Opposition of Ministry

Opposition comes mainly from the ministry, but church groups have found it difficult to outspend pro-lottery forces or mount effective campaigns. Another leading opponent, the pari-mutuel industry, has stopped spending as much money to defeat lotteries after contributing $2.6 million in a failed campaign in California.

Now, racing interests focus on lobbying state legislatures. In Florida, for example, racing lobbyists are seeking “protections” in the as-yet undrafted lottery law--including a clause that tickets cannot be sold near any track, said Chris Meffert, a state representative who chairs the committee drafting the lottery bill there.

Pro-lottery campaign funding generally is no problem. In Florida, GTECH spent about $125,000 on the $600,000 campaign. Scientific Games spent another $50,000, said Frank Mirabella, who ran the pro-lottery campaign and has since become a Tallahassee lobbyist for Control Data, another lottery company. All three companies, plus several others, will be vying for Florida’s lottery contract.

The lottery campaign budget was modest for Florida, Mirabella said, noting that the idea was so popular that it drew more votes than any candidate running in the state last November. The effort to bring casino gambling to Florida failed on the same ballot, despite a $4-million pro-casino campaign.

Companies that at first glance do not seem to directly benefit from lotteries also help win their passage. Southland Corp., parent company of 7-Eleven stores, allowed petitions to qualify the Florida initiative for the ballot to be circulated at its stores. The firm then donated $70,000 to the campaign.

When it comes to the lottery, Southland wins too. As a ticket retailer, Southland collects a nickel for every ticket sold in its stores. Lottery ticket sales also increase traffic in the stores and have been credited with boosting overall sales by as much as 7%, said Mike Click, in charge of governmental affairs for the Dallas-based company.

Florida was the principal target state of the lottery companies last year. This year, it will be Texas, which could have a lottery to rival California’s in size.

Southland has given $60,000 to Texans for the lottery, which has a $700,000 to $800,000 budget for its campaign. Advocates say a lottery would help reduce Texas’ predicted $4-billion state budget shortfall. Click said he hopes that passage of a lottery will dissuade politicians from imposing a state income tax.

‘Now Is the Time’

“Now is the time to go for it because of the economy. Texas isn’t used to all this talk of deficits and raising taxes,” said Susan Hendrix-Godinez, an organizer of the Texas campaign.

Helping the budding campaign, Duane Burke, director of the Public Gaming Institute and publisher of several gaming trade publications, earlier this year organized a convention for lottery operators in Austin, three blocks from the state Capitol.

The convention was designed to introduce the lottery operators to officials from the new lottery states. It also was a trade show where companies displayed their wares.

“I chose Texas because it is the last of the really big states without a lottery. The reason we have it in Austin is to make it accessible to government,” Burke said. “If you can get Texas, you’ve got the big Bible Belt state.”

The growth of lotteries comes even as some people involved in the industry call them a gimmick, a quick fix for state’s peaked coffers--and an odd twist to the traditional work ethic.

“In the past, the state has said that if you work hard, you’ll do well. Now, it’s, ‘Buy a ticket and you’ll be a millionaire.’ That’s a strange message for a state to send,” said Paul Dworin, editor and associate publisher of Gaming & Wagering Business, a trade publication.

“In an ideal world,” said outgoing Kansas Gov. Carlin, “there are better ways to raise revenue--a more direct, fairer approach. (But) it is a voluntary form of taxation, which the people right now enjoy, and that’s fine.”