Can Arkansas Fund College Scholarships through Vending Machines?

May 20, 2010

The Arkansas lottery has been in business only eight months and already lottery officials are looking for new ways to entice consumers to buy more tickets. They want to sell tickets in vending machines, claiming that the machines are necessary for the future of the lottery and for the college scholarships the lottery helps fund, as if state-run lotteries were the only possible way to help students afford college.

From Bloomberg Businessweek:

[Arkansas Lottery] Director Ernie Passailaigue said businesses are seeking ways to cut labor costs, and automating the lottery is an important way to boost sales and help vendors save money. …

Passailaigue said the lottery can increase sales each year by 2.5 percent to 5 percent, but that’ll require the vending machines.

“You’re not going to have a lottery in five to seven years” without the machines, he said.

Arkansas Family Council spokesman Jerry Cox, a lottery opponent, said he was puzzled by Passailaigue’s claim about the machines’ importance.

“He’s exaggerating,” Cox said after the meeting. “He (Passailaigue) has already said the lottery is exceeding expectations. And he turns around and says we’re going out of business if we don’t have lottery-vending machines.”

Cox has asked the legislature’s Lottery Oversight Committee to study the machines’ effect on underage and compulsive gambling. Legislators could vote to ban the machines in the session that begins in January.

Passailaigue said at the meeting that more than 30 states use the machines and critics of the automated sales are operating with “erroneous information.”

Vending machines are simply another way to sell tickets and don’t pose any new lottery-related tax policy problems; the basic issues are the same whether the tickets come from a human or a machine: lotteries are a regressive, complex, hidden form of taxation that policymakers turn to when they want to raise revenue without taking the blame for raising taxes.

However, even though the basic tax policy problems are the same, there’s something about selling lottery tickets in a vending machine that highlights the absurdity of government-run lotteries. Vending machines are a convenient way to sell many products, and there’s no reason they can’t be used to sell recreational items like lottery tickets. But there’s also no reason for lottery tickets to be sold by the state rather than simply taxed by the state (sales and/or excise taxes). When the state sells the tickets and takes a huge cut, policymakers have a vested interest in their constituents gambling heavily, or at least heavily enough to fund certain programs. Imagine the public outcry if a state granted itself a monopoly on cigarette sales, started advertising smoking with catchy jingles, and put cigarettes in vending machines to encourage people to smoke more.

There are three questions that policymakers and lottery officials in Arkansas (and other states) might want to ask before installing these machines:

1) Many states turn to government-run gambling during recessions, but is more money spent on gambling necessarily a good thing? Isn’t there a point where lawmakers should step back and ask, Are people really better off spending more on lotteries when times are tough—or even when the economy is in good shape? How about letting people decide for themselves what to spend money on, without encouragement—or discouragement—from the state?

2) If vending machines are truly necessary to keep lotteries going, what is the next change that will be necessary in a year or two? Other states have been adding one “improvement” after another to their lotteries to keep customers coming back, and at some point you have to ask, Where does it end?

3) And finally, are there really any goods that should be sold by a state government in a vending a machine?

More on Arkansas and state-run lotteries.


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