Lotto Land is located along Interstate 65 in Southern Kentucky, well positioned to win the business of Tennesseans who long lacked their own state lottery.
But Lotto Land, in Franklin, and other Kentucky Lottery retailers along the border have seen a slowdown in sales since Tennessee's lottery started Jan. 20 with four scratch-off games.
Lottery sales in seven border counties fell by 12 percent in the Tennessee lottery's first five weeks, according to the Kentucky Lottery Corp. The dropoff is expected to get worse this summer once Tennessee starts selling popular Powerball tickets.
"It's affected us, of course, but I don't know if it's affected us as bad right now as what it's going to," said Jeff Milam, manager of Lotto Land, the state's second-busiest lottery vendor.
"Right now all they've got is just Pick 3 and scratch-offs," Milam said of Tennessee's early offerings. "When they get the Powerball, I think it might affect us pretty bad."
The stakes are high for Kentucky, as well as for retailers like Lotto Land.
Tennessee residents buy about 11 percent of all Kentucky Lottery tickets sold, spending about $71million a year. That yields about $20million to the state treasury, which goes mostly to education programs.
Kentucky Lottery Corp. officials say it's too early to gauge whether all that money will be lost. Erosion of sales will take time, since Tennessee is introducing games gradually.
But early indications are that the Tennessee startup has put a big dent in border-area sales.
In Simpson County alone, where the state's top three lottery retailers are clustered in Franklin, sales have fallen nearly a third, or about $200,000 a week, Lottery President Arch Gleason said. About 90 percent of Simpson County's roughly $27million in lottery sales comes from border traffic, so it's particularly vulnerable to Tennessee's startup.
But significant, though smaller, sales dropoffs occurred in six other border counties, Gleason said.
The effect could be intensified once Tennessee starts selling Powerball tickets.
"Powerball is the game that has real pull," Gleason said. Its multimillion-dollar jackpots lure people to drive to Kentucky from Nashville or Knoxville to buy tickets.
"When Tennessee begins selling Powerball, those players won't need to come to Kentucky any more," Gleason said.
The competition from Tennessee comes as the Kentucky Lottery is having a record year.
Sales for the first eight months of its fiscal year, through February, were nearly $494million, almost 10 percent more than the same period the previous year. The lottery has delivered $116million to state coffers in that period.
In February, the first full month of the Tennessee Education Lottery, Kentucky sales were $57million, $5.8million more than the previous February.
That masked the dropoff caused by Tennessee's lottery in seven Kentucky border counties Simpson, Fulton, Calloway, Christian, Todd, Logan and Bell.
For the five-week period ended Feb. 28, sales of scratch-off tickets in those counties rose by only half a percent over the same period last year compared to an 8 percent increase in the rest of the state.
The pattern was the same for other types of games. Online game sales dropped 20 percent in the border counties, compared to a 13 percent drop in the rest of the state. And pull-tab ticket sales fell 13 percent in the seven counties, compared to a 2.5 percent drop elsewhere.
For now, sales elsewhere in the state have been strong enough to more than offset declines in the border counties.
Powerball sales alone were $107million from July through March, about $33million more than had been expected. Scratch-off sales are about $30million ahead of a year earlier.
In budgeting for future years, Kentucky Lottery officials have assumed the losses to Tennessee will mount as that state's lottery matures.
They forecast profits would fall to $170million in the current fiscal year, which ends June 30, from $180million last year. Profits could fall to $160million in 2004-2005 and a bit lower the next year, Gleason said.
Those estimates assume Kentucky will lose $16million in sales to Tennessee this year, and by 2006 could lose all its Tennessee business.
Gleason hopes that won't be the case. But despite ongoing strong sales, "it's too soon for us to conclude that we're going to be able to overcome the anticipated losses from Tennessee," he said. "The next six months will tell much more."
To stem losses, the Kentucky Lottery plans to keep adding and improving games. The lottery's board last week approved the launch of a new $1 online game, Tic Tac Dough, with a top prize of $25,000. It's expected to begin in late August.
Still, Gleason said, there's nothing the lottery could do to replace the $71million in sales to Tennesseans short of introducing a keno game or something like it.
The lottery board voted last fall to implement a keno game at the urging of former Gov. Paul Patton, who was concerned about the revenue loss from Tennessee's lottery. But it backed off after Gov.-elect Ernie Fletcher and legislative leaders expressed disapproval.