Monster Jackpots

By M. Diane McCormick

For every person standing in those long lines, there’s a dream. Hit the big one and ditch the job. Send the kids to college. Retire to Aruba.

Monster Powerball jackpots are here to stay. Since 2012, two jackpots have topped the half-billion-dollar mark, and officials say the system could generate six to eight such $500-million-plus pools in a year.

So what’s wrong with that? In 2013, for the second year in a row, Pennsylvania’s Lottery raised more than $1 billion toward services for the elderly. Powerball, the multi-state, multi-zillions lottery, generated 10 percent of sales, up from 5 percent in 2011.

Analysts say there’s no disputing the fact that lotteries nationwide raise money for the elderly, kids and others in need. But some wonder if jackpot fever and states’ increasing reliance on lottery revenue reflect skewed priorities.

The same people who resist paying higher taxes for roads and schools happily put their money down for a slip of paper that’s as likely to be hit by lightning, run over by a 1986 Chevy Cavalier and shredded by a cheetah as it is to generate actual wealth (the odds of winning Powerball’s grand prize are one in 175 million).

States may be no less immune to those get-rich-quick pipe dreams, skipping the hard choices of prioritizing the greatest needs and imposing taxes or making cuts to fund them, and opting instead to rake in the lottery bucks.

Monster jackpots don’t skew the economy by sucking giant mounds of money toward a few lucky individuals, say the experts. Plus, multi-state lotteries create millionaires, they say. Pennsylvania has sold 91 million-dollar Powerball and Mega

Millions tickets since 2002, according to Pennsylvania Department of Revenue spokesperson Gary Miller.

The Iowa-based Multi-State Lottery Association, or MUSL, operates Powerball and other multi-state games.

“These millionaires and multi-millionaires, including the really big winners, are new big consumers in the economy,” says MUSL Executive Director Charles Strutt. “They will be adding to the purchases of cars and homes. They will be starting businesses and sending their children to colleges, slowly helping to build future generations of successful consumers.”

Monster jackpots can even increase sales for other state lottery games, as buyers figure they might as well take a shot on something with better odds of winning. The spending “doesn’t really represent money taken out of the economy,” says Sean Flaherty, economics professor at Franklin & Marshall College, Lancaster.

“To the extent that people are buying lottery tickets as opposed to milk and bread, there is kind of a temporary withdrawal of purchases of real goods and services that create jobs, but on the other hand, it creates jobs for people that work for the lottery companies,” Flaherty says.

Of course, says Will Delavan, economics professor at Lebanon Valley College, “Who could be against giving money to seniors? That’s a nice thing right?” But the allocations lack policymaking thought and debate. The system is “not going anywhere, but it’s a bizarre way to fund things.”

Pennsylvania spends 2 percent of its lottery revenue on administrative costs, including nearly $39 million for advertising, according to revenue department figures. That slice pales in comparison to other states’ typical administrative costs of about 9 percent, says Delavan.

Still, the lottery’s ability to advertise gives it an advantage over, say, PennDOT or the Pennsylvania Department of Education, which would be castigated for spending tax dollars to advertise how other tax dollars build bridges and fund classrooms, says Beverly Ann Cigler, Penn State Harrisburg professor of public administration and public policy.  “Most people do not think about what you get for your tax dollar,” she says. “They just assume it’s overinflated. They’re paying for a bloated bureaucracy and don’t really have a feel for all of the services we get, let alone what the costs are.”

In this atmosphere, “the lotteries are more popular than ever,” Cigler says. “A few years ago, I wouldn’t have thought some states would have a lottery.” Today, 43 states belong to Powerball.

Pennsylvania’s Lottery players generally reflect the population “in terms of age, gender and socio-economic makeup,” says Miller. But economists worry that states’ reliance on lotteries creates a regressive tax – basically, collecting dollars from low-income people who need each dollar the most.

“The monies the state gets as a result of the lottery are turned around and used to finance old-age assistance,” says Flaherty, the F&M economist. “But the bottom line is, most people think that if you were to levy a flat-out tax to do that, very few people would think it’d be OK to do so in a regressive fashion, where poorer elements of society were paying a larger share of their income to generate those benefits for society.”

This essential revenue source requires considerable adjustments to sustain interest. MUSL officials told the Associated Press in August 2013 that “jackpot fatigue” is now keeping many players out of Powerball until jackpots reach as high as $300 million. Attracting 21- to 35-year-old buyers through “different entertainment, different interaction” is a MUSL priority, Strutt says, although he wouldn’t detail the concepts being tested.

“Jackpot games are actually very fragile,” Strutt says. “I wish we could stand back and watch it go, but you have to really watch them carefully. They are so sales driven. If sales go down, that means the jackpot’s lower, which means sales are lower, and jackpot’s lower. It’s just a spiraling cycle of doom, which you want to avoid.”

Pennsylvania also works on growth, says Miller – “responsibly expanding our player base for both instant and draw games,”  growing the retailers’ network and self-service play, and establishing Facebook and Twitter presences for today’s social-media-engaged players.

Delavan doesn’t worry that lottery funds could suddenly tank. Something called “the casino economy” drives people to risk their money in the hopes of winning big, he says.

“The trends are up and up,” Delavan says. “It’s funny in stressful economic times. When people are out of ideas, they end up gambling.”