Politics & Government

North Carolina could widen lottery’s reach

Kashun Bynum of Raleigh purchases lottery tickets from clerk Monique Benjamin at C-Mart on Poole Road on Tuesday in Raleigh. C-Mart is one of the top sellers of lottery tickets in Raleigh.
Kashun Bynum of Raleigh purchases lottery tickets from clerk Monique Benjamin at C-Mart on Poole Road on Tuesday in Raleigh. C-Mart is one of the top sellers of lottery tickets in Raleigh. rwillett@newsobserver.com

Lawmakers in Raleigh are looking to place bets on the state lottery – once again – as a source of more money for education programs across North Carolina.

House and Senate budget negotiators are working on a plan, already adopted by the state Senate, that would significantly increase advertising of the lottery’s scratch-off and other offerings, including the Powerball and Mega Millions jackpot games. Another part of the plan, also backed by the Senate: Making a version of instant tickets available on the Internet or smartphones.

It is not yet clear what changes Republican lawmakers or Gov. Pat McCrory will adopt as final.

What is certain – 10 years after the General Assembly approved the state-sponsored gambling in a close vote that followed years of debate – is that lawmakers are continuing to look at the lottery as a source of more money for growing schools and education needs. Last year, lawmakers in the House adopted but later scrapped plans to drive up sales with more ads.

This year, lawmakers again asked for a menu of options that could pump up the lottery-fueled funding. The state sold nearly $2 billion in lottery tickets in the most recent fiscal year, and that will provide more than $500 million for a variety of education needs. That’s roughly 4 percent of what the state spends on a wide range of education programs each year.

Now, lottery officials have produced at the request of lawmakers an eight-page memo outlining “additional revenue opportunities.” It’s a window into what could be next:

▪ “E-Instant” games, described as Internet-based instant games that would allow registered players “to access a portfolio of interactive electronic games.” The games would be played on computers or on players’ phones.

The state Senate has already added this new game option to its adopted budget, which is now part of the continued negotiations that could wrap up as soon as this month. The Senate plan anticipates about $64 million in sales of “E-Instant” games once the program is up and running.

▪ Video lottery terminals, which the lottery says would be like those in several other states, including West Virginia. The West Virginia Lottery says its video lottery allows for the legal use of “interactive gaming machines similar to those commonly known as ‘slot’ machines in the casino industry.”

▪ Club Keno, a fast-paced numbers drawing game that would be offered statewide through terminals in “social” places, such as restaurants, bars and fraternal clubs. North Carolina officials say they would follow the model in Kentucky, which offers the game every five minutes and describes it as “fast, fun, easy to play!”

▪ More advertising. Current law caps spending for pitching the games at 1 percent of sales. Lottery officials have outlined scenarios that promise increased spending would increase sales – and the resulting profits for education.

House leaders last year agreed to more ad spending, then backed off. This year, the Senate has agreed to more ad spending as part of its budget, supporting a plan to spend about $10 million more on TV, radio and other ads. Currently, the lottery is able to spend about $20 million advertising the games statewide.

More ads would generate about $155 million more in lottery sales, according to the lottery and Senate plans, and would return $31.5 million more to education efforts.

▪ Lottery sales at liquor stores. The lottery’s memo says current state law is “silent” on whether lottery games can be sold at state-controlled, county-run ABC stores. The memo says adding language in state law to specifically allow sales at liquor stores would “clear up any possible confusion.” Lottery vending machines at liquor stores would generate money for the counties that run the stores and “could potentially be a windfall to the local establishments and the state,” the memo says.

Lottery spokesman Van Denton stressed that the memo was produced at the request of lawmakers.

He said that the lottery is in full support of more ad spending as a way to increase sales but that it has not advocated for or taken a position on the other possible options.

Still, he acknowledged that the state’s lottery faces a question of relevance as habits change. Electronic tickets might appeal more to younger players, he said.

“We think that the one challenge for lotteries in the U.S. and for the North Carolina Education Lottery will be staying relevant with people and keeping interest in playing lottery,” Denton said. “Like with most things today, it’s going digital.”

A handful of states use Internet and online gaming already, and Denton said it’s probably time for lawmakers and the public to think about how – and when – North Carolina would as well.

“Is it time for North Carolina to start moving in this direction?” he asked. “The Senate’s interest in (E-Instant tickets) is one sign that legislators might be thinking that we need to keep up with the times.”

Shifting money

Lawmakers have long been divided about the lottery – and gambling. North Carolina was the 42nd state to adopt the games – it happened 10 years ago next week amid legislative arm-twisting that resulted in a 24-24 vote in the Senate. Then-Lt. Gov. Bev Perdue broke the tie, making the state the last on the East Coast to offer a lottery.

Lawmakers and the state’s sheriffs separately also had waged a long battle against the video poker industry, eventually stamping it out as the lottery began. Then, Internet-based sweepstakes parlors emerged, and legislators and other authorities again moved to eliminate the games, often citing their ill effects on society. That legal fight is, in some ways, still underway.

We just felt like it was an opportunity for us to realize some additional revenue with very little change, honestly.

Sen. Harry Brown, Republican from Jacksonville

Sen. Harry Brown, a leading budget writer for his chamber, said the lottery should be a continued option for generating money for education. Most states spend much more on advertising than North Carolina, he said.

“We just felt like it was an opportunity for us to realize some additional revenue with very little change, honestly,” he said.

Brown expressed less support for the proposed E-Instant tickets included in his chamber’s plan. He indicated that the budget negotiations could take that option off the table.

“It generates very little revenue because it’s so new,” Brown said. “Honestly, in the first year, I don’t think it will generate any revenue. For us, even on the Senate side, if it’s out, that’s probably OK.”

The Senate plan also would shift where the money goes. Lottery funding has gone, since the beginning, to pay for classroom teachers in an effort to keep classroom sizes down. The Senate would halt that and instead use lottery money for “noninstructional support” employees – bus drivers, janitors and others.

Brown said the idea is to ensure that teachers are not funded by a source of money that could vary from year to year.

Rep. Paul “Skip” Stam, a prominent House Republican from Apex and a leading lottery opponent, said more ads and E-Instant tickets, as well as other options that would expand the lottery, only “make a bad situation worse.”

It’s a deceitful way to raise taxes.

Rep. Paul Stam, Republican from Apex

“They’re turning the lottery into a video poker machine,” he said.

Stam views the advertising increase as a tax increase because it will result in more lottery sales to generate more revenue for the government.

“This is a $30 million tax increase,” he said. “The Senate doesn’t recognize it as that. It’s a deceitful way to raise taxes.”

Stam said previous House versions that would allow for increasing advertising also included provisions that would require the lottery to give a more complete picture of the odds.

“The Senate laughed at it,” Stam said.

McCrory, a Republican who took office in 2013, once said in a major speech that he thought the lottery advertised too much already. He called it “annoying.”

Play for fun

Warren Liles, owner of C Mini Mart #3 off Poole Road in Southeast Raleigh, has sold about $2 million in lottery tickets in the past year from the small convenience store, where a steady flow of customers play and dream. In his store, the lottery has a designated spot and cash register – and rarely a lull.

He said he and many players haven’t paid much attention to the emerging conversation or trend toward Internet lottery games.

His customers like to come into the store to buy the tickets, he said. They like to meet in person and chat about the games.

Liles is confident that his many regulars, like David Jenkins, a retired bus driver who lives a mile down the road, will never switch to online.

Jenkins buys lottery tickets every day but Sunday.

“And every day it says, ‘Sorry, not a winner,’” Jenkins said.

He often plays a Pick-3 game, using his son’s birthday, 5-29. Last week, he bought $23 in tickets and received $16 back in prizes.

“That’s about the most I win,” he said. “But if I won the biggest, I’d give it to my kids.”

Under state law, the lottery has a problem helpline – and some ads emphasize the need for caution.

Online or not, officials stress that customers play the games for fun with money they can afford to lose.

Denton, the lottery spokesman, said lottery money should be “entertainment money.”

“We don’t want people playing with the rent, food, or gas money,” he said. “The day that you play the lottery, and it doesn’t feel like fun – that’s the first sign you’re playing too much and it’s time to take a break.”

Taylor Knopf: 919-829-8955, @tayknopf

Where the money goes

When it was adopted, lawmakers outlined how they wanted the lottery money divided, something that has shifted over the years. Here’s how it was spent in the most recent budget year.

62.3% to prizes

26.2% to education programs (see related chart)

7% to retailer commissions and incentives

4.4% to administrative and advertising expenses

Note: Does not equal 100% due to rounding

Out to bid

State lotteries rely heavily on private companies to operate the games – both in the drawing games, like Pick 3 and Cash 5, and also in developing and printing the instant scratch off tickets.

The start of the lottery in North Carolina a decade ago was stained by questions about possible conflicts of interest surrounding those contracts. A lottery commissioner was convicted of crimes related to failure to disclose ties to one possible contractor – a conviction that was later set aside by a U.S. Supreme Court ruling that overturned the law that applied in the case.

Both types of the state’s games have been run by a vendor, International Game Technology (IGT), formerly known as GTECH Corp.

Those contracts are worth about $30 million a year, among the biggest in state government, and expire in March 2017.

They are out for bid again right now.

There are three or four major lottery companies that are expected to offer bids in the coming weeks. Lottery officials say they expect to award the new contracts – which would be in effect for at least eight years – in April next year.

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