Against the Odds

Referendum E is a sucker bet, but the state's hooked on lottery games.

Murray says it isn't the Colorado Lottery but the referendum's legislative sponsors and interested parties, such as the Colorado Municipal League, that are pushing for the proposal. (Local lobbyists for lottery-ticket suppliers have also toiled mightily in support of the referendum.) She contends that lottery games, unlike slot machines or bingo parlors, "don't have the play action that reinforces the pathological gambler. It's not the immediate gratification they're looking for."

The difficulty with predicting the impact of a multi-state game on Colorado is that no one seems to know much about who plays the lottery here, how much or why, or what sort of player will be attracted to Powerball or its equivalent. The state's own forays into the question, for marketing purposes or otherwise, tend to be fuzzy and off point. But the experience of other states suggests that Colorado is about to learn a lot more about the play action of the pathological gambler -- without having made any provisions to address the problem.

Senator Doug Lamborn worries that multi-state games will victimize 5 percent of the players.
Senator Doug Lamborn worries that multi-state games will victimize 5 percent of the players.
That's the ticket.
James Bludworth
That's the ticket.

When the first scratch games appeared in Colorado nearly two decades ago, hand-wringing politicians made a number of dire predictions about possible fraud and corruption, welfare moms buying tickets instead of milk, and general moral decay. The only real scandal to emerge, though, was the lottery's outrageous success.

Initial estimates pegged first-year sales at between $60 million and $100 million. Actual sales topped $200 million weeks before the year was up. For the first two months, sales averaged $1 million a day, an unprecedented take in a state that then had a population of three million people.

The novelty of the scratch games quickly wore off, though. After five years, sales had declined more than 40 percent, prompting another run at the legislature to win approval for the introduction of Lotto in 1989. Fueled by rapid population growth and the lure of seven- or eight-figure jackpots, lottery sales soon doubled and then doubled again, reaching a peak of $374 million in 1998.

But in the last two years, Lotto's luster has begun to dim, too. Overall lottery sales appear to have plateaued at around $370 million, while expenses continue to rise, cutting into the proceeds available to parks and conservation projects.

Part of the problem has to do with the peculiar economics and marketing maneuvers of state lotteries. Colorado sells almost twice as many scratch tickets as Lotto chances, but the scratch tickets are more expensive to produce and offer a higher payout in prizes, leaving less for the state funds. And because more people are playing Lotto now than did in 1989, the jackpots are routinely claimed before they can swell to the kind of level that attracts a stampede for tickets. (The game achieved its largest jackpot, $27 million, more than eight years ago.) That's bad news on two counts: The lottery actually pays out a larger percentage of the proceeds to players on small jackpots than on large ones, and small jackpots keep ticket purchases down. In a society bombarded with get-rich-quick schemes, from mega-slots to day trading to that Regis guy, a paltry $1.5 million jackpot just doesn't seem like big money anymore -- especially when players learn that that jackpot translates into a lump-sum, after-tax check of $408,000, or a mere $25,500 the first year under the annuity option, rising to $61,106 in the 25th and final year of payment.

"Lotto is a mature product," says the lottery's Murray. "Industry-wide, every state is experiencing the same problem with their lottery sales. When we introduced Lotto, a million dollars was enough to quit your job. With today's economy, if you win a million -- or $1.5 million, which is our lowest jackpot -- you probably can't quit your job. Your retirement's taken care of, the kids' education -- you're going to have a lot less worries. But things have changed. When Powerball hits $250 million, that just makes the average player look at our jackpot and go, 'Hmm.'"

One of the high-rollers casting envious glances as the multi-state action reached record levels last year was state senator Ken Chlouber, who was hunting for state revenue to boost school repairs and construction. This past spring, the Leadville Republican championed the legislation that put Referendum E on the ballot.

Chlouber's bill would retain the current formula for distributing proceeds from the lottery, with one significant change. At present, state parks receive 10 percent of the net profit, the Conservation Trust Fund 40 percent and the Great Outdoors Colorado Trust Fund 50 percent; any profits in excess of a cap tied to the Consumer Price Index are designated for the state's general fund. Referendum E calls for profits exceeding the cap to be transferred from the general fund to public-school funding and makes that money exempt from the surpluses that must be refunded to taxpayers under the Taxpayer's Bill of Rights (TABOR) amendment.

"My district is rural, all pretty poor school districts," Chlouber says. "We had kids going to school with buckets in the hall and the roof leaking. We just don't fund capital construction for schools at the state level at all, and we can do a lot of good with this money."

Chlouber figures that if people want to hurl their pocket money at a $200 million jackpot, then Colorado ought to be getting its piece of the action. Never mind that the odds of winning are considerably less than those of getting struck by lightning, flipping a coin and having it come up heads two dozen times in a row or getting devoured by flesh-eating bacteria. The day the proposed legislation first hit the newspapers, he says, his office received 400 e-mails in support of it.

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