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Games people shouldn't play; state lotteries take from the poor and give to the rich.

State lotteries take from the poor and give to the rich

In 1977, sagging sales and waning public interest in the Michigan State Lottery prompted the introduction of a new game called the Daily. Modeled after the illegal street numbers games that had flourished in the state's larger cities for decades, the Daily promised millions in instant revenue from a consumer base familiar with the rules and eager to bet.

That the players of the new game would likely be black, poor, and living in inner-city Detroit did not trouble state officials; in fact, it encouraged them. Most of the initial 300 computer terminals required to dispense the Daily tickets were installed in liquor stores in deteriorating neighborhoods. Twelve years later, the Daily is still most popular among urban bettors, accounting for 80 percent of all lottery sales in Detroit, where poverty, dropout, and welfare rates are the highest in Michigan. Daily sales are now near $500 million annually, about half of total lottery sales in Michigan. Citing the practice of grant recipients exchanging public assistance checks for lottery tickets, one Detroit minister, the Rev. James Holley said in 1988: "The state gives them money and then figures out a way to get it back. It's the craziest thing I've ever seen." Holley since has been awarded a $2 million public relations contract from the lottery bureau.

Gus Harrison, the lottery director when the Daily was introduced, said the policy implications of the new venture were clear but ignored. "You can get into a lot of rationalizations about this whole busi - That whole business is now a $15 billion-a-year operation in 37 states that have discovered that lotteries provide treasury coffers a growing stream of income with which to balance the books. It is also a business that has enjoyed a remarkable lack of scrutiny over who plays the games, how they are marketed, and how the proceeds are spent. Charles T. Clotfelter and Philip J. Cook attempt to supply that scrutiny in this book.

The two Duke economists document long-held suspicions that the poor and uneducated are state lotteries' best customers and describe how states have become architects of sophisticated, though dishonest, ad campaigns that target these groups.

These are the two aspects of state lotteries that should generate the most concern among policy makers. They deserved more attention from Clotfelter and Cook. The book lacks sufficient description of the culture of inner-city lottery play and the marketing strategies states employ. The authors, for example, found that 10 percent of lottery players account for 50 percent of sales, but they don't explore in great enough detail the demographics of that 10 percent. They explain the phenomenon of dream books and other guides players use in choosing numbers, but don't investigate which income or racial group is more likely to use those methods.

Those weaknesses, which include the lack of a forceful conclusion on the propriety of the state acting as sideshow huckster, lessen the potential of Selling Hope to change many minds about lotteries.

A number of studies on lottery play, though imperfect, have found that ticket sales are greatest in low income urban areas. Per capita sales in inner city Detroit, for example, are three times higher than sales in the suburbs. The difference is even greater when sales are measured as a percentage of household income-as much as 6 percent in some Detroit neighborhoods compared with less than I percent in the high-wage suburbs. Lottery sales have also been found to decline in areas where the level of education is higher. Per capita lottery sales in some Detroit neighborhoods approach $300. In Ann Arbor, it's about $50.

Ads without odds

Those numbers alone suggest that through its lotteries, state government is exploiting those of its citizens who can least afford to play. Not only that, but the games are a rotten deal for players. Clotfelter and Cook ran computer simulations gauging the probabilities of beating the house. In one pattern, daily $2 bets were placed on a numbers game by 1,000 hypothetical players over a five-year period. Only 2 percent made money. More than 50 percent lost half the amount wagered.

Surveys conducted by state lotteries show that few players have a clear idea of how dismal the odds are of winning. It is a finding few lottery officials feel needs correcting, however. In Michigan, legislative attempts to force the lottery to state the odds of winning in its advertising were bitterly fought by lottery officials who claimed it would diminish the effectiveness of their ads. When a law finally was passed, the odds were flashed in print so small as to be unreadable. The information was also inaccurate; the odds shown represented the overall chance of winning some money in a game, not the 7 million-to-one odds against taking the million dollar grand prize.

The authors write that if state lotteries were held to the same truth-in-advertising standards as private sweepstakes, they'd be shut down by the Federal

Trade Commission.

Advertising is one of the most troublesome aspects of state lotteries. Lottery agencies spend millions annually pitching the public their products. Characters in the ads are often blue-collar workers in settings such as bowling alleys and factories. Perhaps sensitive to charges they are targeting their advertising, agencies feature relatively few blacks in the ads. Such targeting is accomplished in other ways, most efficiently through radio advertising. Over a two week period, Clotfelter and Cook surveyed lottery ads on New York radio stations and discovered that the ads mostly were made on black music and country stations. Few ads were placed on news or classical music stations with their middle and upper-income listeners.

Reverse Robin Hood

Lottery advocates often cite potential contributions to state programs. But even though public schools are the earmarked beneficiaries of lottery revenue in many states, the money has not been a windfall for students, because as lottery proceeds have increased, lawmakers and budget writers have shifted other tax dollars away from school aid into different programs.

While the benefits to education are suspect, more amazing is how lottery revenue from poor urban school districts is shifted to more prosperous schools. It's Robin Hood in reverse. For example, lottery purchases by Detroit residents contributed $104 million to Michigan's school aid fund in fiscal year 1988, while Detroit public schools received only $80 million back in lottery-generated school aid revenue. About $24 million from Detroit lottery sales was given to other, richer school districts. That's why proposals in Michigan for proportional distribution of lottery-generated school revenue have been resisted by small-city and rural lawmakers.

Despite these policy concerns, lotteries are here to stay. Some lawmakers who find state-run gambling distasteful also know curtailing or abolishing it would require unpopular increases in other taxes or cuts in favored programs.

Because Clotfelter and Cook also recognize the permanence of lotteries, they suggest variations that would make the game either more fair to the ticket buyers or less appealing to individuals who gamble beyond their means. One, a consumer lottery, would offer a payout rate much higher than the current 50 percent rates of most states. It would mean less money for states, but a better buy for bettors. But it would probably also induce more people to gamble, since the game would be more lucrative to winners. More appropriate would be lotteries with minimal ad budgets and games that discourage heavy betting. Most state lotteries, in their infancies, were operated along those lines before the thirst for revenue led to the creation of games like Michigan Daily.

When states spend millions each year in advertising trying to fleece welfare recipients and the working poor, they are saying these people's best hope for a better life is not a better public education for their children, job training, or a crime-fee neighborhood; but 1,000-to-1 odds at the comer liquor store. States are in business to protect their citizens from consumer fraud, not to encourage it.
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Author:Luke, Peter
Publication:Washington Monthly
Date:Feb 1, 1990
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