States aren't hitting the jackpot with lotteries

Lotteries have always been a terrible bet for players, but now they're becoming a dicier gamble for states as well. Data from the North American Association of State and Provincial Lotteries (NASLP) show that lottery sales in 2014's third quarter of $17.5 billion were little changed from the $17.6 billion a year earlier. It seems surging demand for instant tickets wasn't enough to outweigh the slump in jackpot games such as Power Ball and Mega Millions.

Lottery revenue is a big deal in many states and can become a political hot potato. For instance, the private operator that runs the New Jersey and Illinois lotteries has come under fire for failing to meet financial goals set by the states. The drop-off in New Jersey, where Republican Gov. Chris Christie is a potential presidential candidate, was especially noteworthy. Lottery revenue in the Garden State fell 9.2 percent in the fiscal quarter ending Oct. 31, nowhere near the 7.4 percent growth rate the state had predicted.

Officials in Maryland and Missouri, among others, have lamented falling lottery revenue in their states.

Lottery officials, however, insist there's no reason to be concerned about the lackluster sales

"Power Ball will get on a roll in the next few months," said Terry Rich, the president of NASLP, who is also on the board of Power Ball, a collective of 22 states that joined together in 1987 to offer big-money jackpots. "Our sales tend to spike when the jackpot is high."

Scratch-off or instant tickets are doing fine even as the economy rebounds from the worst decline since the Great Depression. In Iowa, where Rich is the state's lottery director, sales are at historic levels. People play the lottery during bad times when they may be tapped for cash as well as during good times when they have more money to spend, he said.

Some lotteries have limits on the amount of money they spend on advertising their games as a way of discouraging compulsive gambling. Lawmakers in North Carolina, though, recently tried and failed to double the amount of money the state could spend on marketing its game, said Meg Wiehe of the Institution of Taxation and Economic Policy, adding that it wouldn't "surprise her" if other states will try to do the same thing to boost revenue.

Lotteries are used to fund a variety of programs that otherwise would need to be paid solely by by taxes. Pennsylvania's, for instance, is earmarked for senior citizens, while West Virginia's is used to fund education programs and Iowa's is used to help veterans. As Wiehe notes, lottery revenue originally designed simply to supplement state program funding became more essential during tough times and sometimes was used for other than the intended purpose.

Dependence on lottery revenue varies by state. According to 2010 data from the National Council of State Legislatures, lottery ticket sales accounted for 8 percent of state revenue in Massachusetts, 7 percent in Georgia and 4 percent in Florida. Nationally, the average is 4.6 percent.

"Lottery revenue is a tax," said Scott Drenkard, an economist at the Tax Foundation, a think tank in Washington, D.C. "It's run by the state, and they are collecting revenue above their overhead."

Lotteries are also regressive, attracting poor players who can least afford to gamble their discretionary income away in the slim hopes of striking a jackpot. A study cited by Stop Predatory Lending found that South Carolina households earning under $40,000 annually made up 54 percent of the state lottery's most recent players. Another survey the group highlighted found that 21 percent of all Americans thought playing the lottery would be "most effective and practical strategy for accumulating several hundred thousand dollars."

The lure of instant riches, however, can be more powerful to people than a logical explanation detailing how unlikely it is that their fantasy will come true.

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    Jonathan Berr is an award-winning journalist and podcaster based in New Jersey whose main focus is on business and economic issues.