Governments have become dependent on lottery revenues and are creating bigger games with bigger prizes to attract players. (Craig Buck/The Spokesman-Review)

By Ira Chinoy
Washington Post Staff Writer
Monday, April 4, 1998; Page A11

Across the region and across the country, states with well-established lotteries find themselves at a fork in the road, a political dilemma for government officials who rely on the games' profits to bolster their budgets.

Down one road – business as usual – lies the prospect of flat or declining sales, and with it the specter of raising taxes or cutting government services to make up for lottery shortfalls.

Down the other road lies a chance for bigger sales. But, historically, such a boost comes from developing more alluring games and aggressive marketing, which carry the potential for controversy.

"Government becomes addicted to this revenue, and that's why it's tremendously dangerous," said Tom Grey, who heads a national coalition fighting the expansion of legalized gambling. "People who ought to regulate are now in a promotion mode."

Lottery officials widely recognize that their product needs constant promotion and change to prop up sales. "If you stand still in this business, you're yesterday's news," Cornelia Laverty, the New York Lottery's director of marketing and sales, cautioned at an industry conference last year.

In the evolution of a state lottery, the early years tend to be filled with euphoria about the rapidly growing new source of government revenue. But as the lottery matures, profits often come to be seen less as a windfall than a necessity. And the acquired appetite for those profits is not always matched by continuous growth in sales.

The lotteries in Maryland, Virginia and the District of Columbia have advanced in a series of starts, stops and regressions. The most dramatic surges have come early on, as the lotteries were taking hold, or through subsequent development of new products, including more frequent drawings, bigger jackpots and faster games. Even then, the booms don't last.

In addition to the competition that lotteries face – especially from other lotteries and legalized gambling operations – the games also seem to have a life cycle of their own.

"The lottery is a consumer item and it's not a very good consumer item," said I. Nelson Rose, a professor at Whittier Law School in California and an authority on gambling. "People try it for a while, and they usually don't win and they give it up."

Last year, nearly half the state lotteries watched their sales drop – Maryland, Virginia and the District among them, according to the lotteries' trade association.

An intense form of wagering copied from casinos – video lottery terminals that provide instant action mimicking card games or slot machines – has become a top seller for the five state lotteries that offer it, and prompted some of the nation's highest lottery growth rates in recent years.

But critics contend that video gambling is the most addictive form of lottery play, and tales of lives wrecked by their allure have generated controversy across the country. That heat has slowed the expansion of casino-like lottery games, including Keno, which is offered in Maryland with drawings every five minutes.

"You need some new product," Virginia Lottery Director Penelope Kyle said. "I don't know what it is, and, as you know, we've been told by the General Assembly 'zip our lips' on the words 'Keno' and 'video lottery,' so we have."

One of the Virginia lottery's newest proposals has already generated complaints. It would be a "paperless" instant game played at a computer kiosk with a touch-sensitive screen, a device some critics assert is too close to video lottery terminals. Virginia also is trying to build links with popular icons, as in last year's scratch tickets based on the Monopoly board game; the state is considering selling scratch tickets for as little as a quarter and developing a televised, computer-simulated horse race.

All three local lotteries have been searching for ways to overcome "jackpot fatigue" – the fate of games that attract less and less attention as the public grows accustomed to tales of sudden riches. Anthony Cooper, director of the D.C. Lottery, said he hopes that recent changes in the Powerball game will generate more eye-catching jackpots in excess of $100 million – albeit at odds that now reach 80 million to 1.

Bringing lottery play into the home – by telephone, television or the Internet – could increase the lottery industry's contact with some of its most resistant markets, including young adults and upscale consumers.

But Rose, of Whittier Law School, notes, "There is nothing more controversial in legal gambling than at-home wagering." The issues, he added, are not so much legal as political, including fears about "the great danger to children and compulsive gamblers."

Willem Polak heads an Alexandria company, LottoFone, which promotes a system for telephone play. "The only way to reach the new market is to go after the middle and upper income groups, and they're not going to stand in line at a convenience store," Polak said. The District's lottery is reviewing Polak's concept.

Virginia and the District's lotteries also are examining televised lottery game shows, which several states have already launched.

Gambling from home via the Internet is already a reality. A lottery in the tiny European nation of Lichtenstein offers online wagering to players around the world.

The Coeur d'Alene Tribe in Idaho has offered an online lottery since last year despite legal challenges. So-called virtual casinos and Internet-based sports betting operations are proliferating in the Caribbean.

While most state lotteries have a presence on the Internet where they tout their games, none has ventured into the murky legal and cultural waters of selling chances online.

Local lottery officials are not counting on modification of existing games to bring about the sort of marked growth that they have seen in the past.

But without blockbuster products such as video gambling, lotteries are "going to have to accept the fact that growth is finite," said Sean Athey, a former Virginia Lottery employee.

"And the legislators," Athey added, "will have to come up with other ways to raise the money."