Lottery trends with Riley Sullivan Lottery trends with Riley Sullivan

Runtime: 13:53 — New Englanders love the lottery, and it’s long been an important source of public funding. But it’s not the only option for people’s gambling dollars. Boston Fed researcher Riley Sullivan talks about lottery history, policy, and trends.

Overview Overview

New Englanders love the lottery, and state governments depend on it for funding. But it’s not the only option for people’s gambling dollars. Online sports betting is growing fast, and the competition could affect this significant public funding source.

What are the lottery revenue trends in New England? And what about the ethics of the lottery funding model? Research shows lower-income individuals spend a larger share of their income on the lottery. Should that impact policy? We talk to Boston Fed researcher Riley Sullivan about these issues, as well as New England’s lottery history, which goes back further than anywhere else in the country.


Transcript Transcript

JAY LINDSAY:

Hi, I'm Jay Lindsay, and this is Six Hundred Atlantic. Today, we're talking about the lottery. New England has a long history with the lottery. People here love the lottery, and the government here loves it, too. It's an important public funding source. But, of course, the lottery is not the only option for your gambling dollars. For instance, online sports betting is huge and getting bigger. So, that could affect lottery revenues. And because it's a public funding source, things that affect revenues can affect a lot of people who don't even play the lottery.

So, what are the trends with lottery revenues in New England? What do they mean? And what about the ethics of all this? Research shows lotteries are regressive in nature, because lower-income individuals tend to spend a larger share of their income on the lottery. Should that impact policy?

Riley Sullivan is a senior policy analyst here at the Boston Fed, and he's the author of a new brief on New England's lotteries. We're going to talk to him about all this today. It's great to have you, Riley.

RILEY SULLIVAN:

Thanks for having me, Jay.

JAY LINDSAY:

I guess I want to start out first with the history. New England is one of the first places in the country where state lotteries were established. Can you talk a little bit about that history?

RILEY SULLIVAN:

Sure thing. So yeah, New Hampshire was the first state in the country that had a lottery. In 1964, it was adopted primarily to offset the property tax. They were in kind of a little bit of a fiscal crunch to fund their education system. And New Hampshire does not have an income tax, so they really were just relying on the property tax to fund that and were looking for additional sources. So, they introduced the lottery, it was adopted, and then slowly the other New England states kind of saw what they were doing and adopted it as well.

JAY LINDSAY:

The idea here is it's a voluntary thing. They don't want to put more pressure on people, and the people are voluntarily contributing. Correct?

RILEY SULLIVAN:

Exactly. I think a lot of the proponents of a lottery will say that it's meant to be good fun. People can kind of daydream about what they'll do with the lottery. They can think about their winnings, and they're opting into it. There's a whole other discussion we can get into a little bit later, about problem gambling, and some of the ethical issues of that. But on its face, the proponents are just saying that it's people are opting in to be spending their money. So, it's just another way for the states to earn some revenue.

JAY LINDSAY:

So, New Hampshire starts us all off, the other states follow, I mean, is this one reason why the lottery seems to be so popular in New England? Why is it so popular here?

RILEY SULLIVAN:

Yeah, so throughout the ‘70s, the other New England states added lotteries. Massachusetts was the first state in the country to have instant-win tickets, which are what we think of as scratch-off tickets. Those originated in the region as well. So, it's just the region just has a long history. It just seems to be a cultural part of the fabric of the region.

JAY LINDSAY:

Your brief is full of stats that indicate really how much New Englanders love the lottery. And I want to talk about, I guess, a few of them here. One of them, and this is one that blows me away, it’s the spending in Massachusetts per person on the lottery, compared to nationally. Can you talk about that stat for me?

RILEY SULLIVAN:

Yeah, absolutely. So, that's really one of the headline numbers out of this paper is that the highest per capita spending in the country is in Massachusetts. So, that's the average amount of spending, compared to the population of the state. So, that's $839 in Massachusetts. Whereas the national rate's around $293.

JAY LINDSAY:

So, we're talking about $839 per person in a single year?

RILEY SULLIVAN:

Yeah, so that's for every person in the state, not just those who are playing. The actual per player average is probably even higher than that. But what we know, based on kind of the available data, is just this per capita number. It's still really jarringly high.

You can talk to any number of people, just as I've told people I was working on this brief, a lot will kind of weigh in that they're surprised how high it is, because they don't buy any in a year. So, it's just really concentrated among a smaller pool of people. These really high numbers are coming from these players who are playing much more regularly.

JAY LINDSAY:

Another stat I wanted to hit on was the percentage of personal income spent on the lottery in New England. This is ... explain the number to us. It's almost 1%, which maybe doesn't sound big, but it's a big number.

RILEY SULLIVAN:

Yeah. So, I think that was part of how I first was trying to understand why per capita spending was so high. So, the region does have higher income, relative to the rest of the country, so I thought maybe that could partially explain why spending is so high, relative to the national average. But even when you adjust for per capita, the personal income, it's still the region just far outstrips the rest of the country. So, in Massachusetts, it's 0.99% of personal income is spent on the lottery, versus just 0.45% nationally. So, it's still double, even when you adjust for the income.

JAY LINDSAY:

Wow. I mean, again, striking numbers. So, I want to talk now about the importance of the lottery as a funding source. You've noted already in the history of it, that's why it was established, to fund education in New Hampshire, first in this region. But the brief also notes that lottery proceeds account for less than 3% of revenues in each New England state. So, that doesn't sound like a lot. Is it really that important? Is a lottery really that important?

RILEY SULLIVAN:

Even though it's only less than 3% in all of the states, it still is billions of dollars annually. So, it's about two-and-a-half billion dollars of state budgets, in the region, come directly from lottery revenues.

JAY LINDSAY:

So, I want to talk right now about some of the trends that your paper addresses: Talk about some of the trends in lottery revenues in New England.

RILEY SULLIVAN:

Really looking at the last couple decades worth of lottery revenues, from that period, the state spending, the revenues that states are getting, has leveled off a bit, especially when you compare it to how much states are spending. So, revenues have grown, but expenditures have grown as well. And the national rate, the lottery sales have grown even higher than the regional rate. That's partially because maybe some states have added it more recently. And also some of these states have had more population growth than the New England states, so there are more available players there. But a big part of the research seems to suggest that when lotteries are first introduced into an area, they're kind of new and shiny, and a little more buzz is around them. So, the states that have had lotteries around for longer, need to innovate and come up with new games, in order to get players excited, and to be spending money.

JAY LINDSAY:

You mentioned how long we've had it here, the novelty wears off a little, we have to work a little bit harder to keep the revenues going up.

RILEY SULLIVAN:

And even within the region, there have been a bit of a divide over the last couple decades. Rhode Island, which is the second highest per capita spending in the country, it has really leveled off there – revenue – in the last several years. Whereas New Hampshire, which several years ago had been one of the lower ones in the region, in terms of per capita spending, has outpaced the national rate, and it's the only state in the region that has outpaced the national rate.

JAY LINDSAY:

So, your brief talks about the ethical implications of the lottery funding model, and it refers specifically to the fact that it's regressive. Lower income individuals tend to spend a greater share of their income on the lottery. So, can you discuss some of the concerns this might raise, when people talk about the lottery, and growing it, and future policy?

RILEY SULLIVAN:

Like you said, the lottery is regressive in nature, that is kind of a finding that previous studies have looked at. People who live in lower-income areas spend much more on lotteries, especially when you adjust for income. So, while these people are opting into playing and spending that money, you just don't want these things to be exploitative. You don’t want to be taking … a lot of policymakers don't want to be taking money away from lower-income communities and transferring them to areas that have a little more income already in place.

JAY LINDSAY:

And we're dealing with something here that is, it's gambling, right? So, that's something to think about too, as well, isn't it?

RILEY SULLIVAN:

Yes, absolutely. Gambling can be addictive, and a lot of ... all of the states do try to prevent problem gambling. They want to keep the games to be games, and light and fun, and kind of give people an outlet to kind of daydream about potentially living, retiring early, all those kinds of things. But it can turn into an addiction.

JAY LINDSAY:

Earlier, we talked about some of the trends with lotteries and some facing challenges with slower growth, and there's competition, obviously it's gotten bigger over the years, including with online sports betting, things like that. So, what does the landscape look like right now for lotteries as a public funding source, given this competition?

RILEY SULLIVAN:

Yeah. So, you're right, that there have been recent rulings that have allowed states to start these online sports gambling. So, it can potentially, if people are spending less on lotteries and more on sports betting, it could potentially be taking away these revenue streams. Say people are putting more money into sports betting, and then that money goes into the general fund, versus a municipal aid fund, or the education funds. It could be siphoning away some of those funds. Even if the state as a whole is getting more money because of it, those designated sources that have for decades relied on lottery funding potentially could be getting less.

JAY LINDSAY:

Is it worth noting here that the amount of money you get from online sports betting is quite a bit less, isn't it?

RILEY SULLIVAN:

Yeah. So, each state does get to designate their own tax rate, but on average, it is a little bit lower than what the lottery withholding rate is.

JAY LINDSAY:

I want to finish up here kind of looking at the future, in a sense, what policymakers want to do with the lottery. And I’m hoping you can talk a little bit about, given the ebbs and flows of lottery sales, give me some pros and cons of New England states kind of lessening their dependence, their reliance, on lottery sales.

RILEY SULLIVAN:

One of the pros would be that lotteries are a bit less reliable of funding sources than other types of funding sources. So, the main one that it originally was invented to supplement, say property taxes in New Hampshire, property taxes are very stable. No matter what is happening in terms of economic upswings or downswings, the amount of revenue municipalities and states are taking in isn't changing that much. Whereas lotteries, they can be a little bit more reliant on economic conditions, or things that are happening, external forces.

Say, look at Rhode Island, the state that is the most reliant in terms of the lottery as a funding source. During the COVID-19 pandemic, they had a bit of a dip in their spending on lotteries. And that's a time that a lot of state governments were having budget crunches, and they could have probably used an influx of cash, and they saw a dip in their lottery playing.

JAY LINDSAY:

So, a pro, I guess, of moving away, is less variability in whatever funding source you come up with. But a con might be coming up with that funding source. Right?

RILEY SULLIVAN:

Exactly. Right now, because it has been for decades, potentially policymakers kind of just have certain funding streams on autopilot say, we don't need to worry about finding money for municipal aid, or for certain types of education programs, because we know that hundreds of millions of dollars are going to be coming in each year from the lottery. And if that did have a dip, they need to find somewhere to ... either they're going to need to cut services, or they need to find another way to fund this.

JAY LINDSAY:

Yeah, that’d be certainly … it'd be difficult. That's not a small amount of money.

RILEY SULLIVAN:

Yep, exactly.

JAY LINDSAY:

Well, thanks for those insights, Riley. That's going to wrap us up. I really appreciate you being here with us.

RILEY SULLIVAN:

Yeah, thank you so much, Jay. I really appreciate it.

JAY LINDSAY:

Riley's paper is called “New England Lotteries, Trends in State Revenues and Player Spending.” You can find it right now on bostonfed.org. We also invite you to check out bostonfed.org/sixhundredatlantic.aspx, where you can listen to interviews, as well as our podcast seasons. You can also subscribe to our email list to stay up to date on new episodes.

And please, don't forget to rate, review, share, and subscribe to Six Hundred Atlantic on your favorite podcast app. I'm Jay Lindsay, signing off on another episode of Six Hundred Atlantic. Thanks for listening.

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