Lotteries - Lottery Administration

States differ in how they administer lotteries within their governments. In 1998 the Council of State Governments (CSG) found that all but four lotteries operating at that time were directly administered by a state lottery board or commission. The lotteries in Connecticut, Georgia, Kentucky, and Louisiana were operated by quasi-governmental or privatized lottery corporations. The CSG reported that lottery oversight is most frequently performed by the lottery board or commission or by an executive branch agency. Enforcement authority regarding fraud and abuse rested with the attorney general's office, state police, or the lottery commission in most states. The amount of oversight and control that each state legislature has over its lottery agency differs from state to state.

Although lotteries are a multimillion-dollar business, lottery commissions employ only a few thousand people nationwide. Lottery commissions set up, monitor, and run the games offered in their states, but the vast majority of lottery sales are at retail outlets, such as stores, gas stations, bars, and so forth. These retailers contract with state lottery commissions to sell their games. In exchange, the retailers receive sales commissions on all tickets sold and cash bonuses for selling winning tickets.

Retailers

According to the NASPL Web site, nearly 186,000 retailers were selling lottery tickets around the country in 2003. California had the most retailers (19,000), followed by Texas (16,395) and New York (15,300). Approximately three-fourths of all lottery retailers offer online services. Approximately half of all lottery retailers are convenience stores. Other outlets include various kinds of stores, nonprofit organizations (churches and fraternal organizations), service stations, restaurants and bars, bowling alleys, and newsstands.

Retailers are attracted to lottery sales because they increase traffic and earn commissions for the operators. Outlets that sell winning jackpot tickets receive cash bonuses from the lottery, are often featured in media stories, and receive other public attention. Those that become known "lucky" places to purchase lottery tickets can greatly enhance their business.

Because lottery tickets are often an impulse purchase, they are usually sold at the front of the store near the checkout area. This also allows store operators to keep an eye on ticket vending machines to prevent play by underage customers. Increasingly, convenience stores offer pay-at-the-pump gasoline sales. This is likely to decrease in-store traffic and have a negative impact on lottery ticket sales. Lottery officials in Indiana want to develop a method for selling and printing tickets at the gas pumps to overcome this problem. Lottery officials in South Dakota have expressed interest in selling lottery tickets in massmerchandise stores like Wal-Mart and Kmart.

Lottery personnel and retailers work together to ensure that merchandising and advertising are effective for both. The New Jersey lottery launched an Internet site during 2001 just for its lottery retailers. On the site, retailers can read about game promotions, ask questions of lottery officials online, and access individual sales data. During 2001 Louisiana implemented a lottery retailer optimization program, in which lottery officials supply retailers with demographic data to help them increase sales and improve marketing techniques. Although most states do not limit the number of retailers that can sell lottery tickets, they usually try to space them out to ensure that each obtains a good market share.

According to the Web site of the National Association of Convenience Stores (NACS; www.nacsonline.com), roughly half of all lottery sales during 2001 were in convenience stores. NACS says that nearly 80% of U.S. convenience stores sell lottery tickets. The typical commission paid to their retailers is 5 to 8%.

The NACS reported in its 1997 NACS Lottery Study that frequent lottery customers spend more than twice as much per visit as nonlottery customers ($7.07 as opposed to $3.47). Even infrequent lottery customers spend $4.80 per visit. The study found that lottery customers purchased at least one other nonlottery item in 95% of their store visits. Lottery customers also shop more times per week at convenience stores than do nonlottery customers. More than half of the customers surveyed (55%) felt that lottery ticket availability was important in their choice of store. Lottery tickets ranked fifth among store items in generating other impulse sales (behind household items, beer, cigarettes, and magazines/newspapers).

However, NACS also noted that the average cost of handling a lottery transaction is 39 cents higher than that of a nonlottery transaction. Lottery tickets actually have a lower margin than most other convenience store items, particularly those pushed at the front counter. Store managers report complaints from lottery officials about merchandise such as batteries and candy hiding lottery advertising from customer view.

Advertising

Just like any other business, lotteries aggressively market their products. Some of their best advertisements are provided free through media coverage of jackpot winners. The lotteries also allot a portion of their operating budget to advertising.

According to the NASPL, lottery states spend hundreds of millions of dollars on advertising. A 1998 study of lottery marketing plans found that the most commonly used themes relate to the size of the prize or the jackpot and the fun and excitement of playing the lottery. (See Table 7.3.)

Lottery advertising is sometimes controversial, particularly when ads focus on winning and neglect to mention the odds against the players. The NGISC's final report from 1999 criticizes lottery advertising, saying "much of it is misleading, even deceptive." The report complains that lottery advertisements rarely explain the poor odds of winning big prizes and that most imply the chances of

TABLE 7.3

Advertising themes identified in marketing plans of lottery agencies, 1998
	Percent of plans using theme
SOURCE: Charles T. Clotfelter, Philip J. Cook, Julie A. Edell, and Marian Moore. "Table 13: Advertising Themes Identified in Marketing Plans of Lottery Agencies, 1998," in State Lotteries at the Turn of the Century: Report to the National Gambling Impact Study Commission, U.S. Government Printing Office and University of North Texas Libraries, April 23, 1999
Size of the prize or the jackpot	56
Fun and excitement of playing the lottery	56
Winner Awareness	46
Benefits to state of lottery dollars	28
Sports themes	28
Product Awareness	24
How to Play	20
Playing responsibly	16
Odds of winning	16
Tie-in with fairs and festivals	12
Play more often	12
Emotions of Winning	12
Answer to your Dream	12
Benefits of Winning	8
Instant gratification	8
Social interaction of playing	4
Low Price	4

winning are quite good. The NGISC report is also critical of lottery advertisements that focus attention on the jackpot amount but list the odds of winning any prize, including far smaller ones.

La Fleur's 2004 World Lottery Almanac reports the advertising restrictions on various state lotteries. Twenty-one states and the District of Columbia have no restrictions on the types of advertising that can be done, while fifteen have various restrictions, including no minors in lottery ads (Kansas), no ads for VLTs (Oregon), and inclusion of the odds of winning (Vermont, Oregon, Connecticut, and Colorado).

In February 2004 economist Edwin Rubenstein with the Oklahoma Council of Public Affairs complained that lottery states spend more on lottery advertising than any other message geared toward the public, such as "Just Say No" or "Stay in School" ("A Closer Look at the Lottery," February 1, 2004). Rubenstein estimates that lottery advertising takes up 1–2% of lottery sales.