As annual sales approach $1.2 billion, players probably will see even more games
Despite the recession, one Tennessee financial institution is having a banner year.
The Tennessee Education Lottery is raking in record profits — selling nearly $1.2 billion in scratch-off tickets, nightly drawings, and multi-state mega-jackpot games in its latest fiscal year.
While 17 other states' lotteries also hit all-time highs, the 7-year-old Tennessee lottery is growing faster than most, outpacing national lottery growth rates by 63 percent.
Gambling industry observers suggest that, as a result of either dreams or desperation, the soft economy may be pushing consumers to buy more tickets, while Tennessee lottery CEO Rebecca Hargrove says she believes sales would be even higher in better economic times.
Whatever the reason, one thing now appears a sure bet: With the lottery's success paying off, Tennesseans are soon likely to see an even bigger lottery presence, with more games offered in more places for even larger prizes.
Some state lawmakers, concerned about shortfalls in the state budget, are calling for the lottery to increase sales by at least 8 percent to fund educational scholarships.
To accomplish that, lottery officials said big changes could be on the horizon: persuading for the first time big-box stores such as Walmart and Target to add lottery sales, allowing gamblers to pay for their tickets with debit and credit cards (instead of the cash required now), adding new options to play additional games online and potentially introducing new slot-style video gambling machines to corner convenience stores — a huge profit driver in states that already have them.
"The entire industry is looking for ways to crack what we would call the big-box store," Hargrove said. "That's where we believe the big growth will come. But we are doing a whole range of things that combined have allowed us to move beyond industry growth, and we'll continue to do that."
It's an expansion trend that other states facing similar budget shortfalls are hopping on board as well, according to David G. Schwartz, director of the center for gaming research at the University of Nevada, Las Vegas.
"In the economic climate today, nobody wants to raise taxes and people don't really want to cut revenues, so if running a deficit, it's easy to turn your thoughts to increasing lottery revenues," Schwartz said.
More aggressive state lottery practices — fueled in some locales by budget shortfalls or uncertain tax revenues — comes even as the casino industry nationally watches its spending more carefully.
Casino executives attending a Las Vegas trade show last week said they're spending less time thinking about new card tables or slot machines and trying to lure customers with spiffy retail, enhanced restaurants or other attractions to compete for limited leisure spending.
CEO Virginia McDowell of Isle of Capri Casinos, for example, said she expects economic uncertainty to linger a few more years, "and it really makes it hard for people to feel good about spending their leisure dollars when you have 250-point swings in the stock market on a given day."
Gaming equipment makers are starting to cut their prices in response — offering more discounts, longer trial periods or even free slot machines if a casino buys a certain amount of new equipment, gaming analysts said.
State faces shortfall
The Tennessee Education Lottery Corp. launched in 2004 with four instant games. Since then, it has introduced more than 300 instant games — between 38 and 42 at any given time — and currently operates five drawing-style games. In the process it has earned $7.8 billion in gross sales revenues, paid out nearly $4.7 billion in prizes (82 prizes of a million or more) and transferred more than $2 billion into Tennessee education funds for college scholarships and after-school programs.
Despite steadily increasing earnings — including a 3.1 percent revenue jump from fiscal years 2010 to 2011 — the state is facing a $22 million shortfall in scholarship money that the lottery is meant to fund.
The reason has more to do with legislative action than lottery earnings: Since 2008, lawmakers have expanded the categories of students eligible for the $4,000 scholarships, stretching the funds to pay for many more types of scholarships than the lottery was originally intended.
State senators including Jim Kyle, D-Memphis, have suggested in recent weeks that the lottery boost its ticket sales to close the budget gap in lieu of making cuts to scholarships.
"A mere 8 percent increase in ticket sales would not only cover the estimated $22 million funding gap, it would also erase our dependence on interest to make up the difference in the budget," Kyle said. Rather than cutting scholarships, "I believe instead we should ask, 'What new efficiencies or revenue options can we explore to ensure that as many Tennesseans as possible have a higher education degree?' "
A Lottery Stabilization Task Force formed by Lt. Gov. Ron Ramsey in August is expected to reconvene before the end of the month to weigh options.
In the meantime the Tennessee Education Lottery Corp., a quasi-government body, continues to expand games and prizes.
Calls add personal touch
Hargrove has seen her own job description expand in recent months to include manning the phone lines.
"Hello, this is Rebecca. I'm president of the Tennessee lottery. Do you remember entering a ticket online?" That was the start of a phone call to a young man to whom Hargrove reached out on a boat with his buddies as they caught the breeze on a Savannah, Tenn.-area lake. A lot of "hooting and hollering" followed when she told the man he'd won $100,000.
The calls are part of the new online Play It Again! game, which allows players to enter serial numbers of non-winning scratch-off tickets for a chance at another drawing for prizes that range from Tennessee Titans tickets to tens of thousands of dollars.
Hargrove makes calls to each winner personally. She has made 194 of them since the program launched last year.
The lottery has been able to boost revenues mainly through introducing new games and ways to play, Hargrove said. The Play It Again! program helped drive instant ticket sales up by $37 million to $648 million in 2011 over 2010. So, too, did expanding the number of instant games offered from 38 to 40.
The lottery is adding a new nationwide Powerball game in January.
It has maintained the same advertising expenditures over the past two years, spending roughly $9.4 million on a mix of television, radio and billboard ads, a portion of the budget that University of Nevada, Las Vegas gambling studies suggest is slightly less in proportion to sales than most other lotteries. This year it expects to spend $11 million.
Lotteries around the country are making increased forays into having an online presence, says Schwartz, the gaming professor. The Tennessee lottery added a Facebook page last month.
"That's the next wave: You're going to see tickets sold online and games online," he said.
While paying for online play is currently illegal, Hargrove said the lottery would have to move with the times to attract a younger generation of gamblers, who will probably pay for most purchases with smartphones in the near future.
The younger generation is more likely to question the need to run to a convenience store for a lottery transaction rather than simply logging on to their computers or mobile devices.
No matter the method of purchase, though, some critics question whether it's proper state policy to advertise and coax spending on gaming from consumers hard pressed by the sluggish economy.
At a Brentwood Daily's gas station and convenience store last week, regular Doug Taylor came in for his twice weekly visit to buy Powerball tickets.
"I play for the hope," said the software engineer who said he always spends $5 to play the same numbers each time. "Nothing more, just the hope."
Behind the counter, clerk Ron Spencer said that he's noticed an uptick in customers since he started working in January.
Days that Powerball or Mega Millions drawings had high jackpots used to bring in extra customers, but now there's a reliable stream of customers that keep lines five or six people deep all evening long, he said.
Most of his regulars are like Taylor, but he sees more customers like the woman who comes in each Friday in a thin T-shirt and spends $200 on scratch-off tickets, standing at the counter to play and learn her results.
"I think, 'Should I be like a bartender and say you're cut off?' " he asked.
Thanks to Helen for the tip.