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Saturday, October 25, 2014         

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Betting lottery?

A raft of gambling bills in Hawaii's Legislature inspires a glance at how state lotteries are faring in other areas

By Dave Koga

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Even in hard times, legalized gambling figures to be a tough sell in Hawaii.

While not as incendiary as civil unions, it is also deeply divisive, and for many, an issue steeped in morality.

Hawaii and Utah are the only states without some form of commercial gaming, but that could change as Gov. Neil Abercrombie has indicated a willingness to listen to all revenue-raising proposals.

Some gambling legislation moving through the state Capitol puts the onus on voters. Rep. Tom Brower wants to add this question to the 2012 general election ballot: "Shall gambling be permitted within the state in accordance with the law?" Meanwhile, Rep. Joe Souki is seeking a ballot measure that would allow video slot and poker machines in designated areas of Waikiki, "provided that the gambling is not visible from the street."

More to the point, House Speaker Calvin Say and Sen. Clayton Hee are offering companion bills that call for granting a 10-year license for one stand-alone casino in Waikiki that would pay the state a 6.75 percent tax on its gross receipts.

But the most intriguing proposal might be Sen. Malama Solomon's request for the Department of Business, Economic Development and Tourism to study the feasibility of Hawaii joining the Multi-State Lottery Association.

Solomon says she wants to see if a lottery "would work for Hawaii as a revenue generator" and would wait to see what the study determines before pursuing the matter. If a move is made to create a lottery in Hawaii, it likely won't be until next year.

Given the options for legalized gambling, a lottery might have the best chance of becoming reality in Hawaii. State-run lotteries, many dedicated to funding special projects such as education, have spread across the country in the last two decades.

The MUSL is a nonprofit, government-benefit organization owned and operated under an agreement between 31 states, the District of Columbia and the U.S. Virgin Islands. The MUSL coordinates several multi-jurisdictional lotteries, most famously Powerball and Mega Millions, which offer millions of dollars in prizes weekly.

The idea is that by combining resources the states can offer huge jackpots, which in turn drive sales of game cards. A participating state keeps all the profits from the cards it sells but shares in the cost of operations based on a percentage of total sales.

A 2005 study by the Brookings Institution estimated that, on average, a dollar wagered on a state lottery returned about 50 cents to players in the form of prizes and 30 cents of profit to the state, with the rest covering administrative costs.

According to the National Conference of State Legislatures, lotteries had net ticket sales of $53 billion in 2006, of which $17 billion, or a little less than a third, ended up with the states.

While he was running for governor, Abercrombie expressed support for a lottery, with proceeds going to education.

"Initially, the governor was interested because there were some states in which the payouts have been really big," said Donalyn Dela Cruz, Abercrombie's press secretary. "But now he's not sure how much Hawaii would benefit from it, so basically he's open to all options. He'll wait and see what the Legislature comes up with."

Forty-two states now operate lotteries, or offer lottery-type games, to generate revenue without having to raise taxes. There have been varying degrees of success.

The NCSL reports that "as the effects from the recent recession continue to linger ... reliance on state lotteries as a stable revenue source is no longer a sure bet.

"Lottery revenue dropped in FY 2009 in 25 states, the District of Columbia and Puerto Rico. That's more than 61 percent of all lottery states and territories. Revenues were flat in 10 states and increased in seven."

Even while ticket sales continue to grow, net proceeds that states realize has remained relatively flat. The NCSL says net proceeds went from 1.19 percent of total state revenue in 1997 to 0.95 percent in 2006.

Still, a lottery can be a powerful temptation to cash-strapped states -- and to their cash-strapped residents as well. It is easy to be blinded by the promises.

With polls showing growing public approval, states have come to view the dedicated lottery as a benign and acceptable form of gambling -- a volunteer tax, if you will, that supports worthy causes while providing residents entertainment and the chance of great wealth.

To a point, that is true.

Every state that operates a lottery offers a variety of games. Among the most popular are instant games -- typically, scratch-off tickets that deliver immediate feedback on whether a buyer has won and on-the-spot payoffs for smaller prizes.

But the big attractions are the nationwide lotteries that dangle the hope of wealth beyond your wildest dreams.

Basically, to play Powerball, you buy a game card for $1. You then select five numbers from a set of 59 white balls and one number from a set of 39 red balls, or you can let a computer randomly select numbers for you. For an additional $1, you can activate a "Power Play" option, which multiplies winnings.

Powerball has a minimum weekly grand prize of $20 million. If no there is no winner, $5 million is added. As of Friday, the jackpot was $35 million.

The largest Powerball jackpot in history is $365 million. It was won on Feb. 18, 2006, with a single ticket owned by eight workers at a Nebraska meatpacking plant.

There are many tales of sudden, breathtaking wealth in the lottery world, but they all come with the same catch: In Powerball, the odds of winning a jackpot are 1 in 195,249,054.

According to the National Weather Service, the odds of being struck by lightning in a given year are 1 in 750,000.

Is it any wonder that lotteries are often referred to as "the stupid tax"?

There are, to be sure, more complex issues.

In a lottery, the state in essence becomes the monopoly owner of the game, or the "house." This is intended to protect the consumer from fraud.

However, the state would also be seeking to maximize profits. To do that, it would have to set prices that guarantee returns and encourage participation in gambling -- perhaps through a marketing campaign or the development of new games -- which raises questions about the role of government and how such actions qualify as protecting consumers.

Many economists also see lotteries as regressive forms of revenue collection because studies have shown that low-income households tend to spend more of their wealth on lotteries than other households.

The Brookings Institution report went further, saying a study done in Florida in 2004 suggested high socioeconomic households received a net benefit from lotteries in which revenue was earmarked for education and college scholarships while low socioeconomic households incurred a net loss.

"This finding reflects the fact that lower SES households tend to spend more on lottery tickets but are less likely to receive scholarships," the report said.

In an e-mail to the Star-Advertiser, Earl Grinols, Distinguished Professor of Economics at Baylor University and a former senior economist with the Council of Economic Advisers, wrote:

"Generally speaking, the experience with lotteries is disappointing -- they tend to be associated with more promises than they deliver on. ... Though they are not as damaging a form of gambling as slot machines or casinos, they are damaging.

"They tend to collect disproportionately from and disproportionately target the lower income."

Grinols, who has done extensive research on gambling, is expected to be in Honolulu in the coming week to speak with legislators on behalf of the Hawaii Coalition Against Legalized Gambling.

He says studies show that states without education lotteries tend to maintain and increase education spending while legislatures tend to decrease spending for education upon creation of a lottery designed for that purpose.

Alex Santiago, executive director of PHOCUSED, a consortium of human services organizations, says that despite the best of intentions, the social costs of gambling offset any economic benefits -- even for groups such as his, which potentially could gain from a lottery.

"As severe as the crisis was last year, we were not in support of any gaming bills," Santiago said. "I think what we've seen historically is that the problems that arose have been much more than states understood when they chose to go down this path."

Santiago, a former legislator, says he wouldn't be surprised if some form of gambling became law.

"But I would urge (lawmakers) to be very cautious ... and I would hope there is enough institutional memory in the Capitol to make sure we don't (legalize gambling) as a knee-jerk reaction to the financial situation we find ourselves in," he said. "We shouldn't be looking for short-term fixes with gambling. For one thing, it's looking like the economy is coming back. But more important, once you allow (gambling) there's no going back.

"We have to realize that this is not the golden ticket."

How Powerball works

A game card costs $1.
The player selects five numbers from a set of 59 white balls and one number from a set of 39 red balls. Players may also choose to let a computer randomly select numbers for them.
Twice a week -- on Wednesdays and Saturdays, at 11:59 p.m. EST -- five white numbers are drawn from a drum with 59 balls and one red number is drawn from a drum with 39 red balls.
Players win if they match:
» The red number -- $3
» One white number and the red number -- $4
» Two white numbers and the red number -- $7
» Three white numbers -- $7
» Three white numbers and the red number -- $100
» Four white numbers -- $100
» Four white numbers and the red number -- $10,000
» The five white numbers -- $200,000
» The five white numbers and the red number -- Grand prize ($20 million minimum; current estimate $35 million)
Players may also opt for a "Power Play," in which adding $1 to their card increases certain payouts if they win.

Powerball odds

The overall odds of winning a prize are 1 in 35.11.* A look at the odds of winning based on a $1 play, rounded to two decimal places:

» $3 -- 1 in 61.74
» $4 -- 1 in 123.48
» $7 (two white balls, one red) -- 1 in 787.17
» $7 (three white balls) -- 1 in 359.06
» $100 (three white balls, one red) -- 1 in 13,644.24
» $100 (four white balls) -- 1 in 19,030.12
» $10,000 -- 1 in 723,144.64
» $200,000 -- 1 in 5,138,133.00
» Grand prize -- 1 in 195,249,054.00
* Why aren't the odds of winning $3 at 1 in 39? The odds of matching 1 red ball out of 39 are 1 in 39, but the posted odds are for winning a prize for matching one red ball alone. Matching the red ball and one or more white balls would win some other prize, but not this prize. The odds of matching one red ball alone are less than 1 in 39 because there is some risk that you will also match one or more white ball numbers. ------ Source: Powerball






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