Does Lottery Revenue Rise or Fall during Economic Hardship?

December 31, 2008

During times of economic hardship, is it better to put money toward necessities and savings or to risk some in the hopes of winning more, e.g. playing the lottery?

Lottery agencies have recently been hoping customers would choose the latter, and it seemed at first that they would get their wish. In a 1994 study, Prof. John L. Mikesell of Indiana University found that between 1983 and 1991, whenever unemployment rates went up, lottery sales increased slightly, suggesting that some people see the lottery as a solution to financial hardship and spend money on it when they can least afford it.

In September of this year, the New York Times (subscribe here) published an article titled “Sweet Dreams in Hard Times Add to Lottery Sales,” which seemed to confirm this view:

Many state lotteries across the country are experiencing record sales, driven in part by intense marketing but also by people . . . who are trying to turn a lottery ticket into a ticket out of hard times.

“When people view themselves as doing worse financially, then that motivates them to purchase lottery tickets,” said Emily Haisley, a postdoctoral associate at the Yale School of Management who in July published a research paper on lotteries in The Journal of Behavioral Decision Making. “People look to the lottery to get back to where they were financially.”

Of the 42 states with lotteries, at least 29 reported increased sales in their most recent fiscal year. And of those 29, at least 22, including New York, New Jersey and Connecticut, set sales records. Further, sales in some states are on a pace to finish higher still in the current year.

To be sure, other factors as well are pushing lottery sales. Lottery directors have spent the last few years heavily marketing their products through greater presence in stores, new games and partnerships with sports teams and television shows.

. . .

The higher sales of the current economic downturn have generally drawn higher net revenue along with them, in continuation of a longer trend. A study issued in June by the Rockefeller Institute of Government, a research arm of the State University of New York, found that lottery revenue had grown steadily over the last 10 years, with the highest growth rates during the nation’s last recession, in 2001-2.

Somewhat incongruously, there is a thought that the hard times contributing to the lottery sales boom may well bring about its demise: if the economic slump continues, or even deepens, the thinking goes, many players may at last have had enough.

It seems that players have indeed finally had enough. The following is from the Wall Street Journal, December 26:

The sour economy is striking the one source of government financing that had been widely regarded as recession-proof: lotteries.

. . .

Across the U.S., many state lotteries are reporting hefty declines, with ticket sales down nearly 10% in California and more than 4% in Texas over the past few months . . . .

Lottery officials have long praised their games as low-cost entertainment that grow even more appealing to players when the economy turns down. But lottery sales nationwide fell about $215 million, or nearly 2%, from July through September compared with the same stretch in 2007, according to La Fleur’s magazine, which tracks the lottery business.

The decline in lottery sales “is an unusual phenomenon,” said John W. Kindt, a gambling critic and business professor at the University of Illinois. A big proportion of lottery tickets are bought by people with gambling problems who are likely to play more in bad economic times, he said, even as intermittent players cut back.

. . .

Some lotteries are counting on Christmas stocking-stuffer tickets to boost sales. Others are dreaming up new games to spur interest among buyers. And lottery officials across the U.S. are hoping for a big new jackpot for Powerball, which is tweaking its rules and adding a major new participant, Florida.

Terri LaFleur, publisher of LaFleur’s magazine, said she expects “a lot of legislative scrutiny for the expansion of lottery games, such as video lottery terminals, in 2009, as states face severe budget crunches.”

Some states have already expanded their lotteries this year Florida has joined the multistate game Powerball, Arkansas voters approved a state lottery in November, and Maryland voters approved video lottery terminals. We’ll be waiting to see what impact these changes have given lottery players’ newfound restraint.

The issue of lottery spending during tough economic times has been pondered in other countries as well. From the Public Gaming Research Institute:

The Spanish are stuffing “El Gordo” or “The Fat One”, the annual Christmas lottery billed as the world’s richest, despite a global economic slowdown that has saddled Spain with Europe’s highest unemployment rate. The strong demand bucks the trend in other major European nations where cash-strapped consumers have dropped lottery tickets from holiday shopping lists, causing a noticeable slump in sales.

An estimated four in five Spaniards bought tickets for the lottery in 2007, spending on average 64 euros (88 dollars) each for a total of 2.87 billion euros. The state lottery commission predicts they will spend roughly the same amount this year despite hard times.

The article goes on to say, however, that El Gordo has long been part of Spanish tradition and culture, which may explain its continued popularity this year.

Click here for more on state-run lotteries.


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