February 17, 2017

Sagging lotteries are bad news for states

PORTLAND — One of Oregon's critical revenue sources, the Oregon Lottery, could be in jeopardy.

Aging players, increasing competition from tribe-operated casinos and a shrinking retail base threaten to cut into revenue the state budget counts on, lottery director Barry Pack told the House Revenue Committee Tuesday.

The lottery, with over 3,900 retailers statewide, is projected to contribute nearly $1.2 billion to state coffers this biennium. About half of that goes to education, according to Pack's presentation. The rest would pay for economic development, parks and natural resources, and gambling addiction treatment.

Lottery sales took a hit 2007, when lawmakers passed a bill to ban smoking in bars, and the recession dealt it another blow, Pack said. Though sales have begun to recover, they haven't returned to pre-recession levels.

The biggest problem facing the state's lottery, Pack said, is one facing lottery programs throughout the nation: The players are getting older, and young people aren't as interested as lottery officials would like.

“They're looking for skill-based games, they're looking to play on their mobile devices,” Pack said. “So I think one of the future revenue risks is how do we stay current with the player base, and how do we reach out across broader demographics to attract a different set of players than may be playing now?”

Between the state lottery and tribal casinos, Oregon has reached market saturation in terms of gambling, Pack said. And instead of asking current players to play more, the state is hoping to develop new games to lure in new customers.

“Any future growth is going to have to come from new product offerings,” he said. “It's not just about bringing in more retailers, or being able to tap players for our current product offerings.”

But Rep. Cliff Bentz, R-Ontario, worried that video lottery, which brings in 70 percent of the state's lottery revenue, amounts to a regressive tax.

According to data presented by Pack, 43 percent of percent of the state's new video lottery players make less than $40,000 a year, compared to 33 percent for Oregon adults overall.

“It looks as though we can anticipate if we continue this effort (video lottery), we'll consistently be taking half of lottery from people that are under $40,000 income,” he said.

Meanwhile, the competition, especially from tribal casinos, is getting stiffer. Pack said the state expects lottery sales to drop $100 million a year when the Ilani Resort near La Center opens this spring.

A proposed casino in Jackson County and a potential Grand Ronde entertainment center in Wood Village could also cut into the state's earnings, he said.

Gentrification in the Portland area also poses challenges for the lottery: As older, spacious neighborhood bars are sold and torn down to make room for mixed-use developments, the bars and pubs that replace them have less room for the games, Pack said.

While the Oregon Lottery is losing retailers in Portland's urban core, some are moving to the suburbs, he said.

All of these factors contribute to uncertainty for the state lottery. “We just don't know what's going to happen,” Pack said.

Rep. Greg Smith, R-Heppner, asked the director to look into the effects of decreasing the amount the lottery pays to players.

On average, video lottery games pay out as much as 94 percent of the time, Pack explained. Smith wondered how a decrease in this rate — maybe a decrease of 1 percentage point for a two-year period — would affect the lottery.

“During times of budget shortfall, what if you went from optimal to an ‘A' performance?” he asked.

Pack said he wasn't sure, but warned that a decrease in payouts could hurt sales.

“We exist in a competitive marketplace,” he said. “So if we're paying out more or less than our competitors, there's an impact to be felt.”