Losing Faith in Gambling's Allure

(page 2 of 2)

The idea for "Losing Faith in Lottery Hopes" came from BusinessWeek reader Evan Christensen, a part-time student at Glendale Community College in California.

Story Tools

• post a comment
• e-mail this story
• print this story
• order a reprint
• suggest a story
• digg this
• save to del.icio.us

Blow to Education

A portion of state lotteries' revenues—about 30%, on average—is funneled to public services, such as education. Though this money makes up only about 1% of the typical state's budget, those extra funds will be missed as cash-strapped states shed employees in such areas as education and senior citizen services. "State revenue officials are worrying most about losing income and sales tax revenue," says Ronald Fisher, an economics professor at Michigan State University. "But in this environment, every penny counts."

In California, about 34% of revenues from lottery sales is sent to the state treasury, financing about 1.5% of California's education budget. That amount has been more than $1 billion annually since 2000, reaching a high of $1.3 billion in 2006. The past fiscal year, however, failed to top the $1 billion mark. "It's not a lot of money [for education], but it's relied on," says California's Traverso.

Consumers' reluctance to take a chance is not just playing out at corner convenience stores: Gambling companies from Las Vegas to Atlantic City to Macau also are confronting hard times. A glittering growth story not long ago, the casino industry is under even more pressure than lotteries. Because customers usually travel to casinos—and spend extra money on lodging and meals—a gambling trip costs more than buying a lottery ticket and is among the luxuries cut from many budgets.

Gaming stocks have taken massive hits this year. Since Jan. 2, Las Vegas Sands (LVS) shares have plunged 93%, MGM Mirage (MGM) is down 83%, Wynn Resorts (WYNN) has lost 59%, and Boyd Gaming (BYD) is off 85%. Lady Luck, it would seem at the moment, is not with the house—or the lotteries.

Herbst is a reporter for BusinessWeek in New York.