"they have ignored how the jackpots get to those levels in the first place ... These players are the heart of the system."
I'm sorry to burst your bubble, but the lotteries don't care about the players. All they care about is the bottom line. If piddling sales for most drawings are offset by a couple of really huge jackpots that will make them perfectly happy. For the last run before the October matrix change lottoreport shows sales (not including powerplay) of $203,461,232 for the 8 drawings from the starting jackpot to the one for $110 million. For the current run the same 8 drawings have had sales of $197,976,072, a decrease of less than 3%.
Total sales (again, not including powerplay) for 2014 were $1,556,532,936, so a drop of 3% would mean just under $47 million. The single drawing sales of $650 million for the record MM, or almost 14 times as much as the possible annual decrease in normal sales. It's those occasional huge, and incredibly profitable, jackpots they're interested in. As long as they've still got suckers, er, players buying tickets for small jackpots to push it higher they're happy.
"States prefer to keep all of their sales profits rather than sending 63% of them to a multi-state lottery group.
The profit always goes to the state selling the tickets. The only money states send to other states is the money to pay for jackpots won in other states. If they didn't send that money to other states it would go to players in their own state. That means the only thing a state can possibly lose out on is a minor amount of state income tax they might have collected if money won in a different state had been won in their state. To some extent even that balances out. The small states that very rarely sell jackpot winners won't be getting much back from out-of-state players, but when a state like CA or NY sends money for a jackpot won in a different state they can expect to get it back the next time they sell the winner.