Inflation is hurting scratch ticket sales
By Colin A. Young, State House News Service
STATE HOUSE, BOSTON, October 25, 2022 (State House News Service) -- Officials at the Massachusetts Lottery are preparing to make the case that the Legislature and next administration should provide it with more money for advertising as it faces the dual threat of an increasingly competitive gambling world and inflation that gnaws away at players' disposable income.
Though the Lottery has posted some of its best years on record recently, headwinds have been mounting in recent months as economic uncertainty and an expanding menu of gambling options have sent lottery sales into a slide in Massachusetts and across the country.
Lottery sales in September were down $40.3 million or 8.9 percent compared to September 2021 and every single product was in the red for the month. Through one quarter of fiscal year 2023, Lottery sales are down $60.6 million or 3.8 percent compared to the same time period last year, Interim Executive Director Mark William Bracken told the Lottery Commission on Tuesday morning. (Thanks to fewer prize claims so far this year, the Lottery is only behind last year's profit pace by $13.2 million).
He said one of the driving forces behind the Lottery sales slump was a main topic of conversation at a recent industry conference and was summed up on the cover of a leading trade publication.
"The August cover of the La Fleur's Magazine was was literally titled 'Inflation: Will it blow up the industry?' and that's the word on everyone's mouth. There is a trend across the country, every single state is down in sales. But, you know, you can be down in sales, but then what are you doing about it?" he said Tuesday. "And a lot of states have a lot of leeway in how they can handle the market because of the way their funding sources are done. I think we all know in Massachusetts we are different, we are purely appropriated. We are given a set budget for the year and we have to live inside that budget. We did see a slight increase last year, but by no means is that an increase that we can then be reactionary to certain market trends."
Those market trends are impacting scratch ticket sales, which make up about 67 percent of the Lottery's business and are down $70.4 million or 6.7 percent so far this budget year. Lotteries around Massachusetts are seeing the same, Bracken said: scratch ticket sales are down 6 percent in New Hampshire, down 6.7 percent in New York, down 9.2 percent in Connecticut, down 10.9 percent in Vermont and down 12.4 percent in Rhode Island.
Bracken said 2022 saw the largest year-over-year drop in real disposable income on record with the prices of gasoline, home heating fuels, electricity, food and basically everything else on the rise and squeezing workers; leaving people with less money at their disposal for things like the Lottery. He ticked through the increase in prices of common convenience store goods from August 2021 to August 2022: eggs up 82.3 percent, coffee up 31.9 percent, bread up 19.7 percent, milk up 17.8 percent, cookies up 15 percent, ice cream up 14.6 percent and bananas up 9.2 percent.
"Our largest agent chain is 7-Eleven. Their sales are down, both in store for their retail and also for Lottery products. When people use a convenience store, they're buying a lot of the items we just saw on the last slide. They're running in there to get simple staples that they've run out of that they're not going to go to a big box supermarket [for]. They're looking to buy juice, they're looking to buy milk, they're looking to get bread or sweets or a pint of ice cream, and all those items are up," Bracken said. "People are simply not going into these stores to buy these discretionary items and because they're not going in the stores to buy the discretionary items, they're also not then purchasing a Lottery product."
And the people who do want to buy Lottery products now have fewer places to do so. Bracken said that more than 400 Lottery retail agents (stores, restaurants and bars that sell Lottery products) suspended operations during the COVID-19 pandemic with most of them becoming permanent closures. Year-over-year, he said, the Lottery's agent base has declined 4.5 percent, from 7,354 to 7,024.
The Lottery also cannot sell its products online. While legislation to allow both in-person and mobile sports betting got to the governor's desk before formal sessions ended Aug. 1, Goldberg's long-requested authorization for the Lottery to sell some of its products online remains on ice as House and Senate Democrats remain paralyzed over how or whether to move forward with their long-stalled economic development bill.
With that policy request still pending, Bracken said Tuesday that he's prepared to ask that the Lottery get a larger advertising budget next year so that it can try to reach new players and remain a relevant player as fantasy sports, casino gambling, sports betting and other forms of entertainment jockey for a limited pool of discretionary dollars.
For seven years, the Legislature has level-funded the Lottery's advertising line item in the annual state budget at $4.5 million, though the Lottery can supplement that with some monitor game funds. The $4.75 million that the Lottery spent on advertising in fiscal year 2022 represented 0.08 percent of the agency's total sales ($5.863 billion) in the same year. Peer lotteries, Bracken said, spend a far greater percentage of their sales on advertising. In terms of percentage, the closest to Massachusetts is Florida, which puts 0.41 percent of its total sales back into advertising.
Ohio and Virginia both put 0.6 percent of their total sales amount towards advertising, Bracken said. Virginia had a fiscal 2022 ad budget of $23.03 million and did $3.83 billion in sales while Ohio's ad budget of $25.68 million led to $4.3 billion in sales.
"When we have our conversations coming up with [the Executive Office of Administration and Finance] and the Legislature on their budgets for FY24 ... I'm not looking for a $25 million advertising budget," he said. "We are going to be asking for a modest increase, you know, to give us the ability to be able to be reactionary."
State spending to promote the Lottery has been called both essential to maintaining the stream of revenue used for local aid and exploitation of vulnerable residents who might be drawn into gambling by the ads.
"We have a challenge, but we don't have the ultimate control on how we respond to the challenge," Treasurer Deborah Goldberg said. "It's very straightforward."
Goldberg, who at one point early in her tenure as treasurer asked lawmakers to allocate $10 million a year for the Lottery to advertise its products in an increasingly competitive gaming market, pointed out that the Lottery had an ad budget of $8 million in 2013 and that the Legislature stripped the line item when they "needed it because there was a structural deficit."
"I just kind of thought some of it would begin to come back when we had increased revenues," the treasurer said. "I think we're doing too good a job."
Bracken likened the Lottery to a Ron Popeil-style "set it and forget it" rotisserie chicken cooker.
"I think a lot of times people look at the Lottery and they take it for granted," he said. "And it's one of those situations where it's, 'well, they do their job and even when, you know, we're in recession and a financial crisis ... we're breaking sales records still.' But it's not to the increases that we should be able to be making, that we have been seeing over year over year where we're growing by hundreds of millions a year. I mean, last year I think our increase was by a few million dollars, and our overall net profit was down a couple million."
Goldberg doubled down Tuesday on a comment she made at the Lottery Commission's September meeting, when she said, "There are a couple options here: that we had a great 50-year run and that this is all the expectations that there are on the part of those who make these decisions, or we can continue to have ... an operation whose mission is getting resources back to all the local communities. And that decision lies with the Legislature and leadership."
While the Lottery's slide is of pressing concern to Goldberg, Bracken and other supporters, there are others who would be happy to see the Lottery's fortunes turn.
"Some of the most serious problems America faces today are partially rooted in the truth that lotteries, which are a government program, have turned tens of millions of small earners, who could be small savers, into a nation of habitual gamblers," Les Bernal, a former Massachusetts Senate aide who now leads the national non-profit Stop Predatory Gambling, said last week during a webinar his organization hosted on the "failure" of state lotteries. He added, "What separates state lotteries and other forms of commercialized gambling from every other business, including other vices like alcohol and tobacco, is it's a form of consumer financial fraud. It's a big con similar to price gouging and false advertising. And it results in life changing financial losses for many, many citizens in our country ... success only comes at someone else's expense."