Nov. 30 (Bloomberg) -- Facing growing unemployment, record home foreclosures, declining tax revenue and an annual budget deficit that reached $3 billion, Arizona revamped a key money- making enterprise: the state lottery.
It held focus groups, introduced new games, printed fancier tickets, recruited new retailers, increased jackpots, plunged into social media and upped its advertising budget by almost 50 percent. The gamble paid off: Ticket sales rose 14 percent from fiscal 2009 to 2010 -- the largest increase in the country, according to Rockville, Maryland-based lottery research firm La Fleur’s. In the 12 months that ended June 30, sales were up almost 6 percent more to a record $584 million.
“Especially during a recessionary period, players were looking for a reason to play the game,” said Jeff Hatch-Miller, 66, executive director of the Arizona Lottery in an interview at his Phoenix office. “What we saw was people were pulling back on their expenditures unless they had some value-added propositions.”
Arizona is not alone in bidding for more lottery dollars. After total lottery income nationwide fell for the first time in more than a decade in 2009, states redoubled their efforts to attract more players to support educational and environmental programs and help fill the gap from slumping tax revenue.
Even as unemployment remained high and the economy dragged, players in many states responded. Of the 43 states with lotteries, 26 saw revenue grow in traditional games in the last fiscal year, with total sales up 3 percent to $56 billion, according to La Fleur’s. Ticket sales in at least 17 of those states set records, according to data compiled by Bloomberg, and several states are on track to hit all-time highs this year.
Many states are considering expanded gambling as well. Massachusetts Governor Deval Patrick signed legislation Nov. 22 authorizing as many as three resort casinos in his state, while officials in Georgia and Florida are weighing similar proposals. Interstate gambling online is barred by federal law. Washington, D.C., and other jurisdictions are looking at launching Internet poker within their boundaries. At least 28 states have considered lottery or gaming-related bills since 2010 to close budget gaps, according to data from the Washington-based National Conference of State Legislatures.
Overall, states got an average 2.4 percent of revenue from lotteries and other forms of gambling in 2009, according to a report last year from the Albany, New York-based Nelson A. Rockefeller Institute of Government.
While efforts to expand casinos or legalize other forms of gaming get the most attention, lotteries are still the primary source of government gambling revenue for states, the report notes. Across the country, state lotteries are rebranding, adding games, recruiting new retailers and moving online to attract new players.
In Tennessee, some lawmakers are calling for the lottery to accept credit and debit cards for purchases that now require cash. A bill in New Jersey would allow tickets to be sold on the Internet or via smartphones. And several states including Ohio and Arizona are looking at following the lead of Illinois, which in March became the first lottery in the nation to turn over management, marketing and sales to a private company to seek higher returns.
“You have politicians not wanting to raise taxes right now, so lotteries are good ways to raise money,” said David G. Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas.
California is poised to have its best year of lottery sales ever after a 2010 law signed by then-Governor Arnold Schwarzenegger allowed bigger prize payouts, spurring interest in the games and supporting higher-priced tickets.
Sales increased 13 percent in the year that ended June 30 - - the second-highest growth rate in the country behind Arkansas, where the lottery was in its first full year of operation. At the California Lottery, the popularity of a new $10 “Scratchers” ticket introduced last month is expected to push sales this year above $4 billion, said Alex Traverso, a spokesman.
“This is shaping up to be a record year,” he said.
The Florida Lottery, which is rebranding to counter slow growth, is also looking at potentially record-setting sales above $4.17 billion in fiscal 2012 after the lottery went where no state lottery had gone before: Wal-Mart Stores Inc. Tickets went on sale in about 30 smaller Wal-Mart grocery markets in Florida last month -- a pilot program being watched by lottery officials nationwide.
While lottery tickets can be bought in some grocery store chains, they aren’t sold in drugstores or so-called big-box retailers -- and Bentonville, Arkansas-based Wal-Mart is the “king of the big-box stores,” said David Bishop, a deputy secretary of the Florida Lottery.
Florida officials hope the retailer will eventually allow sales in its supercenters, Bishop said. “It is the brick wall that every lottery in the country has wanted to break through,” he said.
The company will evaluate the Florida pilot program to decide if it will expand lottery sales in that state or others, said Ashley Hardie, a Wal-Mart spokeswoman.
“We will monitor the program for customer response to determine the appropriate next steps,” Hardie said.
Larger prizes have been a strategy across the country to get more people to play. Three money managers in Greenwich, Connecticut, one of the nation’s richest towns, claimed the biggest jackpot ever won in the state -- $254 million -- after investing $1 in a multistate Powerball lottery ticket.
States are also exploring selling through the Internet. The New York Lottery, which began offering ticket subscriptions online in 2005, plans to allow individual ticket sales and expand to more games on its website as soon as next year, said William Murray, a deputy director. No state now sells individual tickets online, according to the North American Association of State and Provincial Lotteries, an industry association.
The Minnesota State Lottery’s move last year to follow New York, Virginia and other states by offering online subscriptions recently came under fire from some lawmakers. David Hann, the assistant senate majority leader who previously sponsored legislation to get rid of Minnesota’s lottery, called the move and other efforts by states to encourage gambling during tough economic times “reprehensible.”
“We have a situation where a lot of people are struggling financially -- the last thing we should be doing is telling people to go out and gamble,” said Hann, a Republican from Eden Prairie, in a telephone interview.
An effort by the Oregon Lottery to market to a younger generation with a “hipper” website was put on hold by Governor John Kitzhaber in October after critics charged that the site’s games and graphics could attract underage players. “The ORcade” was planned as an 18-and-older website with free games and second-chance drawings for losing “Scratch-it” tickets, said Chuck Baumann, a lottery spokesman. No money would change hands.
Baumann said lottery revenue has been flat and the average player is age 50.
“The reason we exist is to make money for the state,” Baumann said. The lottery supports public schools, parks, salmon restoration and economic development. “We were looking for new ways to do that,” he said.
While sales in several states are still lagging, for some lotteries it is as if the recession never happened. In Nebraska, with one of the smallest lottery operations in the country, sales were up for the eighth consecutive year. Maryland posted its 14th straight year of record-breaking sales in its traditional lottery, which supports education, public health, public safety and environmental programs and is the fourth- largest source of state revenue.
Kate Sweeny, an assistant professor of psychology at the University of California, Riverside, who studies how people respond to difficult life events, said after a few years in a down economy, some people feel no control over their financial futures -- so they might turn their hope to the lottery.
“What you are buying is maybe a chance to have financial relief at a time where finances aren’t at their best for a lot of people,” Sweeny said.
--Editors: Jeffrey Taylor, Pete Young
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To contact the editor responsible for this story: Jeffrey Taylor at Jtaylor48@bloomberg.net