The Washington Post

Maryland lottery sales slide as casino revenue surges

A dealer picks up a card during a game at Maryland Live Casino. Lottery revenue in Maryland has fallen for a second consecutive year, a trend some say is caused by casino expansion in the state. (Sarah L. Voisin/The Washington Post)

Before Maryland’s largest casino opened less than two miles away, convenience store manager Chirag Patel was hoping to sell more lottery tickets than he was already moving.

“We were doing very good business with scratch-off games,” he said. “I was trying to get another terminal” from the Maryland lottery commission. Then the massive Maryland Live opened near his Dash In gas station, and in the two years since, he estimated, his lottery ticket sales have gone down by 25 percent. And so has his commission, which used to be about $3,000 a month.

Maryland lottery commission officials can commiserate. On Monday, they reported that traditional lottery sales have slightly decreased for a second consecutive year, to $1.72 billion.

They, too, have pointed the finger at Maryland Live for helping to end the lottery’s unprecedented 16-year run of annual sales increases. Previously, the lottery weathered the opening of other smaller casinos in more remote parts of the state, such as Berlin and Perryville, said Stephen Martino, director of the Maryland State Lottery and Gaming Control Agency. But now, with bigger casinos moving into more densely populated areas, lottery officials face the prospect that the downward slide has only just begun.

“There was always an expectation there was going to be cannibalization by casinos,” he said. “It is going to be a challenge with Horseshoe [Baltimore] opening in a couple weeks, and in a couple years, we will have MGM [National Harbor] opening.”

Horseshoe is located by M&T Bank Stadium, where the Ravens play, on some of the lottery’s most lucrative turf. Baltimore accounts for just under 11 percent of the state’s population but almost 17 percent of lottery sales, state data show. Only one other locale generates a larger proportion of lottery sales: Prince George’s County, future site of MGM National Harbor. It is home to only 15 percent of the state’s population but generates 21 percent of lottery sales.

Statewide, lottery sales decreased by 1.7 percent in fiscal 2014, compared with the previous year, agency officials said. In 2013, they decreased by 2.2  percent. While not a large percentage, it was still the third largest drop among the 43 lotteries nationwide.

Surging casino revenue has more than made up for the decline in lottery sales. Last year, for example, the state netted 27 percent more in tax revenue from gambling than the year before, boosted by the opening of Rocky Gap casino and the introduction of table games, state data show.

But the health of the lottery still matters for taxpayers. The state has come to rely on lottery sales, which are the fourth largest source of revenue after income, sales and corporate taxes. And the lottery still contributes nearly twice as much to the state’s general fund as casinos do, about $521 million in 2014.

Lottery officials managed to keep the drop in sales from eating into taxpayers’ share. Martino said the agency still met its goal for 2014 for the amount of money it was supposed to turn over to the state.

To get a better grip on the problem, lottery officials have hired experts to examine the impact casinos are having on their business. The results of that study are slated to be released at the lottery commission’s Thursday meeting.

Doug Walker, an economist at the College of Charleston in South Carolina, who is involved in the Maryland lottery study, would not discuss the findings ahead of their release. But he said other studies have shown that opening more casinos generally has a negative effect on local lottery sales.

“Those two industries tend to be substitutes for each other,” Walker said.

That dynamic has played out in Pennsylvania, which has 12 casinos and generates more gambling revenue than any other state except for Nevada.

Until the slot machine onslaught, Pennsylvania’s lottery, like Maryland’s, was on a roll, with annual sales increasing ever year, sometimes by double digits.

But starting around 2006, as casinos began to spread across the state, lottery sales leveled off and then declined. Hardest hit were the areas surrounding the new slot machine parlors. In a 2008 report, Pennsylvania state lottery officials noted that when a new casino opened, lottery ticket retailers within an hour’s drive reported more frequent and higher percentage declines in weekly sales than retailers further away.

But Richard McGowan, a gambling expert at Boston College, noted that trend was temporary. Pennsylvania’s lottery sales have gone up every year since 2010. Last year, the lottery posted a record profit.

McGowan said there are other factors that can affect lottery sales such as the state of the economy, the mix of games, the size of the Powerball jackpot that year and even the weather. (Casinos do better in the spring and summer, he said, while lottery sales tend to do better in the winter.)

The customer bases for lotteries and casinos also don’t overlap as much as people might assume, he said. “Most lottery tickets are bought on impulse when people go in to buy milk and gasoline,” McGowan said. “You have to plan to go to a casino.”

Whether Maryland follows in Pennsylvania’s footsteps may boil down to timing. Gamblers have even more choices now than they did eight years ago when Pennsylvania expanded slots. In Ohio, which started adding casinos in 2012, lottery sales are still decreasing.

As lottery officials brace for the opening of Horseshoe Baltimore, they are also trying to change their luck by offering games with recognizable brands such as the Ravens or Monopoly. And they have recently talked to Maryland Live about possibly working together on marketing, officials for the casino and lottery agency said.

Until then, players should expect to see scratch-off tickets featuring dice, poker hands, slot machine reels and roulette wheels, said Carole Everett, an agency spokeswoman said. As they design new games, she said, “we are looking at how players are reacting to the casino gaming experience.”

For Marylanders, the lottery lacks the novelty of having Vegas-style casinos on their doorstep. But, Martino said, that’s also its strength. “The lottery is ubiquitous. Even with the erosion we’ve had the last couple of years, the lottery is still well established in the marketplace, and in the minds of people,” he said. “Our challenge is going up against this competition that state policy has introduced. We have to find new games and energize our current games and responsibly encourage people to spend their entertainment dollars.”

Annys Shin has been a staff writer at the Washington Post since 2004.


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