Chasing Sales During Coronavirus Pandemic, States Declare Lotteries “Essential”

Lotteries have been deemed essential services because of the funding they provide to the state. Meanwhile, they put players and workers at risk.

Illustration: Claire Merchlinsky for The Intercept

Last week, Jonathan Yono, the co-owner of Wild Willy’s Bar & Grill in Romulus, Michigan, was doing some paperwork when a representative from the Michigan Lottery phoned. The rep was calling to check if Yono, who normally sells lottery products, had received a new batch of tickets — and, if so, could activate them for play. Yono replied that he hadn’t, because his bar has been closed for weeks on state orders to prevent the spread of novel coronavirus. But he wouldn’t want to sell the tickets anyways.

Convenience store owners he knows — including his brother — have told Yono that lottery play is creating unnecessary person-to-person contact in their stores, which remain open. Michigan, like other states and countries, is “taking all these precautions, yet still advocating the sale of these games, and especially at such a hard time financially for people,” he said. “It’s just disappointing.”

In Michigan, retailers, trade representatives, at least one state lawmaker, and members of the public have complained in recent weeks that the lottery has become a public health concern; players, critics say, are congregating in stores, even if they don’t have other purchases to make. In early April, Democratic Gov. Gretchen Whitmer said that while convenience stores count as “essential,” their lottery sales should not, and suggested she would look “very seriously” at restricting them. Last week, as the coronavirus death toll rose in her state, especially among its black residents, Whitmer issued an executive order restricting what goods can be sold, including flooring, furniture, plants, and paint. Lottery sales, however, have been allowed to continue.

In her recent comments, Whitmer noted that no other state, to her knowledge, had shut down their lottery either. She was right. Across the country, from Pennsylvania to California, state officials have argued that lotteries generate essential funding for public services — education, commonly, but also programs for seniors, municipal budgets, and general expenditure — that they can’t afford to forgo, especially right now. Michigan’s lottery provided the state with more than $1 billion in school funding last year — an amount, it said, that worked out to more than $700 per pupil. Yono points out that while Whitmer, unlike leaders in other states, has said that she doesn’t think the lottery is essential, “everything [she’s] doing is pointing to the fact that it is.” (Whitmer’s office and the Michigan Lottery did not respond to requests for comment.)

The many critics of state lotteries find their continued operation perverse. They argue that even at the best of times, lotteries amount to a regressive tax on low-income people; that they aren’t always as lucrative for state coffers as they portray themselves as being; and that even if they were, the health of retailers, players, and lottery staff should trump all other considerations right now.

“I can’t believe that they haven’t suspended sales,” said Dawn Nettles, a players’ rights advocate who runs Lotto Report, a site for lottery enthusiasts, out of Texas. “Purchasing a lottery ticket — I don’t care how you wanna view it — is not an essential business. … It’s just sheer greed on the part of the government.”

Michigan’s lottery has advised members of the public not to go to the store just to gamble, and told retailers that they must stop selling lottery products unilaterally if they can’t sell them while maintaining social distancing guidelines. But Yono said retailers he knows have been reluctant to shut off their lottery games voluntarily, because they’re concerned that doing so would drive customers — who buy tickets, on which retailers make commission, as well as other goods while they’re in store — to shop elsewhere, possibly permanently. (The Michigan Lottery says an estimated 9 percent of lottery sales go back to retailers as commission, a higher figure than in many other states.)

“Purchasing a lottery ticket — I don’t care how you wanna view it — is not an essential business,” said players’ rights advocate Dawn Nettles. “It’s just sheer greed on the part of the government.”

In normal times, retailers in most states are contractually obliged to meet minimum sales quotas. The Michigan Lottery isn’t enforcing those at the moment. The Intercept asked all 45 state lotteries in the U.S. whether they, too, are permitting their retailers to stop sales without repercussions and whether they’re doing anything else to protect stakeholders from the virus. (Only Alabama, Nevada, Utah, Alaska, and Hawaii don’t have a lottery). The lotteries in Vermont, Minnesota, and Washington are not enforcing minimums right now. The New York Lottery said it doesn’t enforce such quotas anyway and that it has shuttered 16,000 video lottery machines to comply with state guidelines (though other lottery products remain available). The California Lottery, which also said it doesn’t enforce strict quotas, said that it has suspended all paid advertising for the time being, “in hopes that consumers will not leave their homes for the sole purpose of buying Lottery tickets.”

Eight states referred The Intercept to the North American Association of State and Provincial Lotteries, an umbrella body that represents lotteries in the U.S. and Canada. Bishop Woosley, NASPL’s president, said in an email that in addition to funding public services, keeping lotteries running is a financial lifeline for retailers at a difficult time. He says that public health is the “number one” priority for member lotteries right now, that NASPL is working with retailers to encourage social distancing measures, and that he is “not aware” of any state punishing retailers “as a result of low or lost sales during this pandemic.”

Critics, however, say steps short of a complete shutdown are inadequate. “You’ve got people who have invested 20 years and longer on a set of numbers, and they are certain to have that number every draw,” Nettles, who herself plays a regular set of numbers, said. “They’re afraid not to go buy their numbers. And the lotteries know it, and they’re taking advantage of the people.”

Patrons wait to buy Mega Millions lottery tickets at Lichines Liquor & Deli in Sacramento, Ca., on Tuesday, Dec. 17, 2013. The jackpot has soared to $636 million for Tuesday night's drawing.  (Randall Benton/Sacramento Bee/Tribune News Service via Getty Images)

Patrons wait to buy Mega Millions lottery tickets at Lichines Liquor & Deli in Sacramento, Ca., on Tuesday, Dec. 17, 2013.

Photo: Randall Benton/Sacramento Bee/Tribune News Service via Getty Images

News reports from multiple states — including Connecticut, Pennsylvania, Vermont, Florida, California, and Oregon — suggest that concern about lottery players congregating in stores is prevalent. (In some places, the closure of casinos has likely exacerbated the problem.) Last month, Kamal Kang, a retailer in Ohio, told the Cleveland Plain Dealer that lottery players were using his parking lot as a “staging area” for the repeat placing of bets, and estimated that lottery play accounted for 40 percent of foot traffic in his store. He said that one customer, who has played the lottery at Kang’s store for 25 years, recently asked if he also sold milk.

Lottery employees have expressed concerns for their safety too. Most states have eliminated, or scaled back, contact between lottery employees and members of the public — by shutting prize claim centers, for example, and pulling traveling sales representatives, whose job it is to visit retailers, out of the field. (While claim centers are closed, winning players in many states have been told to claim larger prizes by mail or to hold onto their ticket until centers reopen.)

“This was the time to protect the lives of our workers,” said Paulina Vasquez, a sales rep, at a California Lottery board meeting. Instead, “we’re sitting here talking about how to maximize sales.”

But as long as state lotteries are considered essential, at least some of their staffers will have to report to work. Last month, the Hartford Courant reported that unions representing staff at the Connecticut Lottery accused Gregory Smith, its president and CEO, of neglecting workers’ safety, and said they’d lost faith in his leadership. Since then, at least one employee has tested positive for Covid-19; in response, the Connecticut Lottery shuttered its headquarters for cleaning, but immediately moved its operations to a backup facility. The Connecticut Lottery declined to answer specific questions. Smith said at a board meeting in mid-March that staffers who didn’t feel comfortable coming to work could stay home.

Employees of the California Lottery, meanwhile, have said that their managers were too slow to pull sales reps out of the field. At a board meeting on March 30, Paulina Vasquez, a sales rep and union steward, said she and several of her colleagues had experienced coronavirus-like symptoms, and that one was fighting for his life. “This could have been prevented, and we collectively warned lottery management about it,” she said. “This was the time to protect the lives of our workers.” Instead, “we’re sitting here talking about how to maximize sales.”

Responding to Vasquez, Alva Johnson, director of the California Lottery, defended his agency’s safety record. Johnson added that the lottery needed to stay open because of the funding it provides to the state’s schools. “This is, in fact, a critical function,” Johnson said. (A spokesperson added that the lottery was one of the first departments in California to implement telework procedures for “eligible employees,” and did so prior to any employee exhibiting symptoms. Vasquez couldn’t be reached for comment.)

A recent audit, however, accused the California Lottery of having withheld $36 million in education funding — in violation of state law, and despite rising revenues — and suggested that it may be spending too much on prizes and administration. Johnson has countered that he has a “fundamental difference of opinion” with the auditor’s interpretation of the law, and that his lottery has funded schools to the tune of $6.7 billion in the last four years.

The criticism that lottery spending is inefficient is a common one. Across the U.S., state lotteries typically spend between 20 and 30 percent of the revenue that they generate on public programs. The bulk of the rest is spent on prize money.

State lotteries have also been accused of taking from the poor to fund programs that do not proportionately benefit them in return. Ross Rubenstein, a professor of educational and community policy at Georgia State University, told The Intercept that it’s hard to trace where exactly lottery revenue goes in the states that use it for general expenditure. “But when you have these very narrowly targeted programs, like merit scholarships, which is a very common use for lottery revenues … then it’s easier to track,” he said. “The benefits accrue more heavily to middle- and upper-income families, because those are the students who are more likely to be going to college.”

Since the start of March, with social distancing and stay-at-home orders in place in many states, several state lotteries have reported dips in sales, some of them as high as 30 to 35 percent. Woosley, the president of NASPL, says that if sales continue to fall, “the potential for loss of services or benefits to our beneficiaries increases dramatically.” Prizes could go down too: Already, the multistate bodies that run the national Powerball and Mega Millions games announced plans to scale back their minimum jackpots, in anticipation of lower demand.

Even lower sales, however, add up to a lot of money. According to the Detroit News, the Michigan Lottery sold over $50 million worth of tickets in the last week of March, even though sales were down 35 percent on a similar week last year. And while some states have started to itemize their losses, it’s too soon to know, in a comprehensive sense, exactly which players have stopped playing. This matters: There’s some evidence to suggest that among lower-income players, in particular, lottery sales stay steady — and may even go upduring times of economic hardship (though this crisis is very different to crises past). Experts say this is because such people find the idea of a one-shot escape from their troubles to be more enticing than ever.

“For governments to be sending checks to the public while not shutting down the lotteries promotes gambling — not consumer spending.”

Les Bernal, national director of the nonprofit Stop Predatory Gambling, referred to state lotteries as “a form of consumer financial fraud” and said that in some ways, the current situation reminds him of the 2008 financial crisis. “You had people just getting crushed financially — losing their job, getting foreclosed on, and so on — and state governments were more aggressive than ever marketing exploitative forms of gambling to people to play on that financial desperation.”

“People actually play the lottery more when they’re in these desperate financial situations. … And state officials know all this. They’re just willingly closing their eyes to it,” Bernal added.

Bernal and others told The Intercept that they wouldn’t be surprised to see a spike in lottery sales when government stimulus payouts arrive in coming days.

“For governments to be sending checks to the public while not shutting down the lotteries promotes gambling — not consumer spending,” John W. Kindt, a professor of law and economics at the University of Illinois who is a vocal critic of gambling, wrote in an email.

Far from being a crippling financial blow, Kindt argues that shutting down lotteries is “one of the smartest and cheapest actions governments can take to stimulate the economy” — in part, because lotteries carry a high socioeconomic cost. “Studies show that stressed and desperate consumers will dump more dollars into lotteries and illegal online gambling — which just intensifies recessionary trends,” he says. By “displacing consumer spending, including spending on food, healthcare and necessaries of life, lotteries are a cancer on any economy.”

Illustration: Claire Merchlinsky for The Intercept

In mid-March, a North American lottery did shut down physical sales citing health concerns: not in the U.S., but in Quebec, Canada. Players in the province can continue to gamble online — an option that is not widely available in the U.S. Currently, only around one fifth of lotteries allow online play.

To date, the Trump administration has been hostile to the idea of online lotteries; last year, the Justice Department said it believes that they may be impermissible under the Interstate Wire Act, which prohibits gambling across state lines. But in the context of the coronavirus, they seem to be growing in popularity: The Pennsylvania Lottery, for example, has said that in the final full week of March, online play was up 29 percent on the equivalent week in February. Both New Hampshire and Michigan saw spikes in first-time online players.

Proponents argue that online play lacks the physical risks of going to the store and could prop up lottery sales at times like this, and boost them in general. “Just imagine,” the Lowell Sun wrote, in a recent editorial criticizing officials in Massachusetts for failing to institute an online lottery, “how those March revenue figures would look if the Lottery offered a suite of online games for a stir-crazy public to play?” This week, Massachusetts Treasurer Deborah Goldberg urged state lawmakers to consider an online lottery, arguing that the pandemic “has dramatically exposed the limitations and vulnerabilities of the lottery’s all-cash, in-person business model.”

The same prospect, however, terrifies those who advocate for victims of problem gambling. Woosley points out that the U.S. states that do already have online lotteries place limits on the amounts that players can stake; “An argument could be made that online play actually provides a better forum for responsible gambling than lottery sales in retail,” he says. But critics say these limits, generally, are far too high. New Hampshire’s online lottery, for instance, allows players to deposit up to $3,000 per month.

The Michigan Lottery has been encouraging consumers to play digitally, where possible, rather than frequenting stores. In addition to problem gambling concerns, Yono, the Wild Willy’s owner, fears that any uptick in online play in the state could have deleterious long-term consequences for vendors, like himself, who sell physical lottery products. “The state of Michigan, in a sense, is competing against some of these retailers when they’re allowing for these online sales,” he said.

“The government is passing trillion-dollar stimulus packages to put money into people’s pockets, and into their homes, so that they can survive, so they can still be able to afford to buy their actual essential needs,” Yono said. Allowing them to spend on the lottery, he adds, “is an oxymoron, almost. You’re giving us money so we can spend it right back into the lottery, to pay for other things, so you can kind of just cycle it. It doesn’t make much sense to me.”

Jeff Kelly Lowenstein contributed reporting.

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