Odds-On Favorite? Not the Mass Lottery

The Massachusetts state lottery has made news the past few weeks for two things: a $20 holiday raffle that lost money and a proposal to allow gamblers to use their debit cards to buy tickets.

The stories might seem only vaguely related but, at the root, they highlight the Mass Lottery’s ongoing challenge — sustaining revenue levels and trying to grow in a stagnant market. And that market is going to get more crowded once casinos start operating — experts are forecasting an initial five to ten percent drop in lottery revenues.

As previous studies have shown, Massachusetts has one of the most successful lotteries in the country, particularly on a per capita basis. But it has been difficult work keeping the numbers growing. At some base level, a business entity’s revenues are bound by a simple equation: revenues = (# of customers) x (price) x (quantity) x (purchase frequency).

The Lottery’s worked hard within these confines to make more money, offering sports-branded instant games to attract casual players, developing higher cost instant games to raise average spending, and continuing to cycle through a portfolio of instant games in an attempt to keep players interested. Trying to increase the purchase frequency is where the Lottery has done its most interesting work, and the proposal to allow debit card spending has the potential to increase that measure.

The lottery has also worked to increase the number of outlets for ticket purchase, not just through the traditional convenience store outlets, but with vending machines, automatic Keno ticket readers, and broader access to Keno machines. For my money, the most fascinating change was the tweak to Keno game frequency by reducing it from a game every five minutes to every four minutes, thereby increasing the number of games played every hour from 12 to 15.

But even with all these tweaks, Lottery sales only rose .7 percent per year from 2000 to 2007. And guaranteed, casinos will eat into those sales. Massachusetts has a very successful lottery, but barring some wild scheme (Keno on the MBTA?) it’s a mature product with minimal growth prospects.

Crossposted at Pioneer Institute’s blog.