Odds-On Favorite? Not the Lottery

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The Massachusetts state lottery has made news the past few weeks for two things — a $20 holiday raffle that lost money and a proposal to allow gamblers to use their debit cards to buy tickets.

The stories might seem only vaguely related but, at root, they highlight the Mass Lottery’s ongoing challenge — sustaining revenue levels and trying to grow in a stagnant market. And that market is going to get more crowded once casinos start operating, with expert opinions forecasting a 5 – 10% drop in lottery revenues initially.

As previous studies have shown, Massachusetts has one of the most successful lotteries in the country, particularly on a per capita basis. But it has been difficult work keeping the numbers growing.

At some base level, a business entity’s revenues are bound by a simple equation — revenues = (# of customers) x (price) x (quantity) x (purchase frequency).

The Lottery’s worked hard within these confines to make more money — offering sports-branded instant games to attract casual players, developing higher cost instant games to raise average spend, and continuing to cycle through a portfolio of instant games to keep players interested.

Trying to increase the purchase frequency is the area where the Lottery has done particularly interesting work. The proposal to allow debit card spending has the potential to increase that measure. The lottery has also worked to increase the number of outlets for ticket purchase, not just through the traditional convenience store outlets but with vending machines, automatic Keno ticket readers, and broader access to Keno machines.

For my money, the most fascinating change was the tweak to Keno game frequency by reducing it from a game every 5 minutes to every 4 minutes, thereby increasing the number of games played every hour from 12 to 15.

Even with all these tweaks, Lottery sales only rose .7% per year from 2000 to 2007. And casinos will eat into its sales. Massachusetts has a very successful lottery, but barring some wild scheme (keno on the MBTA?) it’s a mature product with minimal growth prospects.

Crossposted at Boston Daily.