ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Sunday, December 8, 1996 TAG: 9612090106
SECTION: VIRGINIA PAGE: A-1 EDITION: NEW RIVER VALLEY
SOURCE: ROBERT LITTLE STAFF WRITER
MEMO: NOTE: Shorter version ran in Metro edition.
AFTER EIGHT YEARS of stunning success, the Virginia Lottery's profits have leveled off, as expected. Now, officials must decide whether to add controversial new games or stick with the same formula - and the same revenue.
Virginia's gamble with a state lottery has paid off bigger than anyone predicted. But eight years after its controversial birthing, the lottery's easy money isn't so easy any more. And the maturing lottery has lawmakers in a painful quandary, wondering how reliable their moneymaker will remain and how much gambling is too much for Virginia.
For the first time in its eight-year history, the Virginia Lottery's immediate future is unclear. The people who've made it such a success can't do it any more. They've run out of new games promising big profits and exhausted most of the gambling gimmicks that lure new players. If state lawmakers can't learn to live with the money it makes today, they'll have to significantly transform the lottery to keep up with the country's gambling trends.
That would mean keno-style lottery drawings every few minutes, video poker or slot machines, maybe even a television game show run by the state. To keep profits rising, the state must stray further from the church raffle-style lottery it created in 1988 and more toward the high-rolling allure of Las Vegas-style gambling.
Still wildly profitable, the lottery has pumped more than $2.1billion into the state treasury, exceeding expectations year after year.
But the lottery's traditional numbers games and scratch tickets have maxed out, lottery officials say. Their profitability has peaked. And for the first time, the state lottery could make less money than the year before.
"We knew it was going to happen, that the lottery revenues would begin to flatten and decline," said Del. Jay DeBoer, D-Petersburg.
"But it's not a simple problem. Even people who've been supportive of the lottery are uncomfortable with the direct, immediate-gratification kind of game it might take to keep revenue up."
A subcommittee DeBoer heads is studying a proposal for a new keno-style lottery game for next year. The game would be played in restaurants and taverns, with several drawings an hour, and could reap $30 million or more in profits.
But critics say keno isn't just any other game, it's "the missing link" between a traditional lottery and casino-style gambling.
First proposed as part of Gov. George Allen's budget early this year, keno is proliferating across the country as lotteries create new games to keep profits up. The drawings are similar to bingo, and can be held every few minutes all day long.
The General Assembly considered banning keno last year, but delayed the decision after lottery officials assured them the budget would balance without it.
But in a discussion with lawmakers about keno earlier this month, lottery director Penelope Kyle said: "We don't have but so many alternatives left. We know the governor and the legislature expect more from the lottery than for us to say, 'This is the best we can do. We can't make any more money.'''
From a business standpoint, keno is the closest thing to the millionaire-making Lotto game that the lottery industry has ever found - it taps a whole new market and brings in big returns.
But it, too, will ultimately peak. And some states have next turned to slot machines, game shows, video bingo or other games that offer a fast pace and quick payouts.
The obvious alternative to more gambling is for lawmakers to tighten their belts and get used to the lottery's $330 million annual profit. But the lottery's income has been so great and so reliable that some lawmakers worry Virginia is hooked - and can't do without it.
State officials used to wait to see how much money the lottery would make before spending the profits. Now they forecast proceeds and spend the money before it comes in.
When the lottery started in 1988, Gov. Gerald Baliles slated lottery money to finance a backlog of construction projects around the state. His successor, Gov. Douglas Wilder, used it to fill a hole in the budget during a recession, and it has plugged that hole ever since.
Today the lottery pays a sizable chunk of the state's everyday cost of governing. The law says lottery revenue is all spent on education, though most lawmakers say privately that it's a meaningless distinction.
Regardless, a drop in lottery profits effectively reduces money available for education, salaries, police protection and other expenses. The state's other revenue sources grow 5 percent to 10 percent a year. They never go down.
Virginia's strong economy might buy the lottery some time. The state budget is not as pinched for cash as in some years, and the recent introduction of The Big Game, a multi-state jackpot game, should keep lottery profits steady, budget officials say.
But the lottery has met the fate of any gambling operation - its games have matured and its players are losing interest. Flat profits are inevitable.
"As you burn out or saturate your market, you've got to ratchet the games up another step, make them even more enticing," said Del. Randy Forbes, R-Chesapeake, who sponsored legislation last year to ban keno in Virginia.
"That's the problem with relying on gambling for your revenue. It's very, very unreliable over the long haul."
The fizzle has actually taken longer than predicted. The lottery office has been good at timing new products and watching trends, so the explosive growth lasted eight years instead of five or six.
Virginia conducts daily telephone surveys and regular focus groups to follow the mood of its customers and their propensity to gamble. When one game lags, they offer another to fill the gap.
The Big Game, for instance, targeted Lotto players who bought tickets for large jackpots only. When they found a gap between the daily numbers players and the once-a-week Lotto players, Cash 5 filled the niche.
By adding new games at the pace of about one a year, state officials have more than doubled profits and built the lottery into a $330 million-a-year enterprise.
And they've reached into three-quarters of the pockets in Virginia to get it, stocking thousands of stores with dozens of games, tapping every age group, income level and locality in the state.
What started in 1988 with a $1 scratch-off game and a $5,000 top prize is now a broad array of daily numbers drawings, multimillion-dollar jackpots and two dozen instant tickets.
Virginians will wager almost $1billion on lottery games this year, and they'll win about half of it back. The state treasury will claim $330 millions.
After eight years, the lottery has become the fourth-largest source of government income in Virginia, collecting nearly as much money as the corporate income tax.
Its rapid growth has surprised even some of its most enthusiastic supporters.
"I didn't envision all that when it started," said Billy O'Brien, the former Virginia Beach legislator who spent much of the 1980s building support for the lottery. "It's been a great benefit to Virginia. I hope they don't squeeze it so much that they kill the goose that laid the golden egg."
The lottery has another option to keep profits rising: relaxing the restrictions on lottery advertising. State law prohibits enticing people to gamble, at least overtly, but aggressive advertising increases lottery profits wherever it's tried.
West Virginia's lottery used to advertise that it won't quit "until everyone is a millionaire."
Illinois once put a billboard in a Chicago ghetto calling the lottery "your ticket out of here."
In Massachusetts, where the average person spends a whopping $150 a year on the state lottery, officials just send tickets free through the mail. And the people come back for more.
Such hard-sell campaigns fuel criticism that the lottery is selling false hope to the most vulnerable citizens. Virginia doesn't shake down its gambling public so hard, concentrating instead on its successful "Lady Luck" campaign.
Most doubt the government will ever lift the advertising barrier in Virginia. But there's little denying it would pay off.
"It's times like now, with the lottery peaking, that we need that advertising restriction the most," said Del. William Moore, D-Portsmouth, whose amendment created the restriction in 1987. "I don't think you'll ever see us change that. It's one thing that makes our lottery more palatable to everyone."
Only recently has the legislature concerned itself with the lottery at all. The state Lottery Board, appointed by the governor, has complete authority over new games. If the General Assembly doesn't like a new game, its only recourse is to pass a law prohibiting it.
The subcommittee studying keno has asked for an opinion whether the Lottery Board needs legislative approval for slot machines or video poker. If those ideas ever materialize, someone will likely try to stop them.
But if lawmakers restrict the lottery, they'll be issuing it a directive to make less money, while a group of them is hoping it will make more.
This summer, a legislative subcommittee looked at financing a baseball stadium in Northern Virginia with lottery money. It asked the lottery office to study whether it's possible without cutting into existing lottery returns. The report is due sometime this month, but lawmakers expect the answer is no.
But there's still keno, or slot machines, or any of the other video and casino-style games.
"It may be the only way," said Jim Nulph, the lottery's former director of sales and marketing. "If you're trying to pull in somewhere in the neighborhood of $42million a year more, where else do you go?"
Said lottery comptroller Bruce Kristof: "There's not a faucet here that you can just turn on and off. There comes a time when you can't increase revenue just by good management."
LENGTH: Long : 172 lines ILLUSTRATION: GRAPHIC: Chartsi by staff. 1.i The lottery numbers. 2. Virginiaby CNBLottery timeline (ran only in Metro edition). KEYWORDS: MGR