Lottery Sales Slump Will Reduce Share to Education

The failure of a new Lotto game to produce a record-breaking jackpot combined with a softening economy has caused a sales slump at the California Lottery that officials predicted Friday could reduce the game’s contribution to education next year by as much as $280 million.

Officials said the lower than expected sales already have forced them to cut $59 million from their administrative budget by severely reducing advertising, declaring a hiring freeze and postponing equipment purchases.

“We are cutting as close to the bone as we can,” said Joanne McNabb, the lottery’s public affairs director. “It’s what many businesses are going through now. Any business whose sales are down below expectations is looking to cut.”

McNabb said sales, totaling $880 million since the beginning of this fiscal year, are 5% below the goal for the period. Given this trend, coupled with expectations that the economy will continue to decline, McNabb said officials are estimating that total sales by the end of the fiscal year will range from $2 billion to $2.3 billion.

That would provide only $700 million to $800 million for education next year as compared to the $980 million the lottery provided this year, McNabb said. Under state law, the lottery must allocate at least 34% of its revenues to education.

Susan Lange, public relations director for the California Department of Education, said the drop in lottery money would come at a time when schools are experiencing tremendous enrollment growth.

“It could be really damaging to districts especially now when many of them have become dependent on their lottery money because of the lack of revenue from the state,” she said.

She said the lottery was intended to provide “extras” for school districts, but many districts in recent years have used proceeds to provide “necessities” as a way of balancing their budgets.

McNabb said officials are attributing the slow lottery sales to the same nemesis that dogs many of their players--bad luck. The Lotto game was changed in midsummer to produce more of the big jackpots that drive up sales. While the change provided some very large jackpots--four were more than $30 million since July 1--it did not produce the super jackpots of $70 million or more that drive sales up significantly, she said.

“We did have a turnaround in the downward trend of Lotto sales and that was a good sign,” McNabb said. “It just went more slowly then we would like.”

In other states that have changed their Lotto games, she said the big explosion in sales did not come until there was a jackpot that broke the record for that state. In California, the biggest jackpot has been $68 million.

“Unlike many other businesses in this economy,” McNabb said, “we have a luck factor. What’s happened in other states is that the sooner they’ve hit a record jackpot after the change (in Lotto), the sooner their sales have taken off. It’s our bad luck that we haven’t had that.”

The change in the game required players to choose six numbers from a field of 53 instead of 49, making it nearly twice as hard for players to win but also adding to the potential size of the prizes.

McNabb said officials also believe economic conditions have been a sales factor, but they have no way of determining how much of a factor.

“This is the first time that our lottery has been in an economic downturn,” she said. “This is new territory for us.”

Within the agency, McNabb said advertising will take a particular hit as a result of the sales slump. She said television advertising of Decco and Topper, two games of chance introduced this year, has been stopped and the advertising of Lotto, which produces two-thirds of the lottery’s revenue, has been reduced.

She said 50 vacant positions in the department have not been filled and will be recommended for elimination.

McNabb said officials believe the volume of lottery ticket sales could rise dramatically if there is a record-breaking jackpot or if a game to be introduced next spring does exceptionally well. The game, to be called Little Lotto, would allow players to chose six numbers from a field of 39. The top prize would be $500,000 paid immediately in cash. The Lotto jackpots are paid over a 20-year period.

McNabb said revenue projections for Little Lotto have been conservative because similar games have had mixed results in other states.