Gaming is now just the ticket
By MIKE HENDRICKS
The Kansas City Star
It was a regular Las Vegas out in west Wyandotte County that night in May. Inside the steel-sided warehouse there was poker, craps and topless dancers.
But the strippers scattered and the gamblers grabbed wads of cash when 75 FBI agents raided the illegal casino.
The year was 1987, when every form of gambling was illegal in Kansas. No one could have foreseen then that, nearly a quarter-century later, a state-owned casino would be under construction practically within eyesight of that illegal gambling den.
Nor would it have occurred to anyone at the time that not only would the state itself sponsor roulette wheels, but also that gambling revenue would become important to the state budget by 2011.
But 1987 was the turning point. The same spring as the big raid on State Avenue, the Kansas Lottery was born, one year after birth of Missouri’s lottery.
Today, games of chance that once would have drawn the attention of the vice squad are now depended upon to help bolster the balance sheets of both Kansas and Missouri.
It’s especially true in this lousy economy. Although general tax revenues are down, lottery proceeds are stable and casino revenues are up. And the pressure is on to bring in even more cash from gambling to keep crucial state programs afloat.
To meet the need, the lotteries are stepping up their game. They’re retooling their marketing and introducing new products, such as a tax-free $3 million scratch-off ticket that sells for $20 in Missouri.
“Right now, as all lotteries are doing, we’re trying to increase our player base,” said Gary Gonder, chief operating officer of the Missouri Lottery. “Our scratcher sales right now are pretty incredible.”
Likewise, the new director of the Kansas Lottery, Dennis Wilson, vows to boost lottery proceeds while preparing for the arrival of tens of millions of dollars in revenue from Kansas’ three new state-owned casinos.
Hard times are often good times for the gaming industry, as more Americans try to catch a lucky break.
“The lottery,” Gonder said, “is about the dream.”
An analysis by USA Today found that 28 of 41 state lotteries saw higher sales in the fiscal year that ended June 30. Seventeen state lotteries set records.
The Missouri Lottery was one of them, recording $1 billion in sales after several years of coming close. Gonder expects a billion-plus year in fiscal 2012, as well, with two-thirds of that coming from scratch-off games with names like “Quick Cash,” “Lifetime Riches” and “4 Million Dollar Cash Bonanza.”
“We have better-looking tickets, and all the price points are covered,” he said.
Big jackpots are key to boosting sales of online, multi-state lottery products like PowerBall and Lotto. But the secret to selling scratchers within a state’s borders is a combination of marketing and frequently rotating new themes in and out of a lottery’s product line.
Missouri, for instance, introduces dozens of new tickets each year, varying in price from $1 to $20, depending on the size of the prizes awarded. They’re sold at store counters and in vending machines that hold 24 different tickets.
“It’s like fresh bread,” Gonder said in explaining the strategy. After a while, games get stale, demand wears off and a new scratcher is introduced.
Advertising is also important. The Missouri Lottery broke that billion dollar sales barrier after its ad budget went from $1.3 million in fiscal 2010 to $8 million in the year just ended.
State lawmakers cut that back to $6.3 million for the coming year. So lottery official are counting on their ad agency, Kansas City-based Barkley, to grab people’s attention with funny commercials.
The Kansas Lottery has one-fourth the sales of Missouri’s, but its advertising budget is proportionately higher. This year it’s $2.5 million, down from $2.8 million.
“In terms of increasing sales from a marketing perspective, 2012 is the lottery’s 25th anniversary, so we have some special new games that we will launch along with promotional activities throughout the year,” said lottery spokeswoman Cara Sloan-Ramos.
Both lotteries need a marketing boost to combat increased competition, especially in Missouri. Voters in neighboring Arkansas have approved a new lottery, and next door in Illinois there’s a big gambling push.
Another challenge is the flat economy. Lower-income people, especially, are more prone to buy lottery tickets in tough times. But the challenges of the high cost of gas, rising grocery bills and fear of worse times ahead means they buy fewer than they might otherwise, depressing ticket sales.
That’s certainly been the case in Kansas, where gross sales have been flat the past several years, ranging from $236 million in fiscal 2007-2008 to $232.4 million in the year just ended. And while Missouri broke the billion-dollar barrier last year, sales were only $5 million above where they were before the recession.
Of course, the whole point of state-sponsored gambling is to boost tax revenues.
In each of the last four years, the Missouri Lottery has transferred roughly $260 million to the state, with most of that designated for education. That’s a fraction of the overall state budget of $7.2 billion last year. But the number has been constant at the same time other tax revenues have fallen.
It’s a similar story in Kansas, where most lottery revenues are designated for economic development and prisons. The lottery put $70 million into the state treasury last year, the same as in 2008.
An even more important source of revenue in Missouri is from the casinos, and the state’s share has risen in each of the last four years: $396 million in 2011, up from $345 million four years ago.
Kansas estimates that its two new casinos, set to open in Kansas City, Kan., and near Wichita in early 2012, will send $73 million to the state treasury in their first calendar year. Add to that the $8.8 million expected from Dodge City’s Boot Hill Casino, plus the authority to open one more casino in the state and things are looking up revenue-wise in the Sunflower State.
And to think that long-ago gambling raid in Wyandotte County netted 17 indictments and the political downfall of the sheriff whose deputies stood guard at the door.
It was a scandal at the time. But looking back now, the organizers seem more like men ahead of their times.
GAMBLING PROCEEDS
(From lotteries and casinos for fiscal years ending June 30)
Missouri
2008 — $612 million
2009 — $625 million
2010 — $644 million
2011 — $655 million
Kansas
2008 — $70 million
2009 — $73.5 million*
2010 — $98.5 million*
2011 — $104 million*
* Includes one-time licensing fee from operators of three casinos of $5.5 million in 2009 and $25 million in 2010 and 2011
