Study: Maine's Lottery Budget Tripled Since 2003
By Dave Sherwood
©Maine Center for Public Interest Reporting
Editor's note: This story is 2nd in a three-part series entitled "Lottery: Selling Hope to the Hopeless." Click here to read part one.
When Maine announced in 2014 that it was searching for an ad agency to promote the state’s $230 million-a-year lottery, executives at Fuseideas, a Massachusetts-based firm, were ecstatic.
“It’s not often that an RFP (Request for Proposals) comes across my desk that makes me stop, get up, and then high five the next person who walks by my office,” wrote company CEO Dennis Franczak in a letter to state lottery officials in August 2014. “It’s even less often that a prospective client is so perfect, so in need of what we do … that one high five isn’t enough, and I rally the entire agency — high fives all around!”
Franczak was confident he could boost the lottery’s image and sales with smarter advertising. His agency had the track record to prove it. In 2013, Franczak said Fuseideas had helped increase lottery sales in Connecticut by $41 million; in Massachusetts, by $102 million.
Maine lottery officials awarded Fuseideas the contract in February 2015, a key part of a larger effort to re-tool its marketing, with a focus on “driving maximum sales and profits.” Since 2003, the state-run lottery has more than tripled its advertising budget, invested in sophisticated market research to better target customers and installed flat-screen TVs in stores to advertise jackpots and encourage impulse buys, according to interviews and documents obtained by an open records request.
Such tactics, while good for the state’s treasury, may not be so good for poor and working class Mainers, a Maine Center for Public Interest Reporting investigation has found.
A first-ever analysis of detailed lottery sales data, conducted by Cornell University at the request of the Maine Center for Public Interest Reporting, suggests that Maine’s poor and unemployed spend disproportionately on the lottery, despite long odds of winning disguised by the sophisticated techniques of modern marketing.
Officials with the state Bureau of Alcoholic Beverages and Lottery Operations, which administers the lottery, say concerns about advertising are overblown. “We haven’t made any concerted effort to do any more advertising in the past five years,” said the lottery’s deputy director Tim Poulin.
But state Rep. Louis Luchini, D-Ellsworth, chair of the legislative committee that oversees the lottery, said he and other lawmakers have long had questions about the lottery’s use of marketing.
“It’s especially tricky when the state runs a business like this,” he said. “You don’t want to push liquor or lottery but, you know, it is something that raises money for the state. It’s not black and white.”
Tricks of the trade
Maine’s lottery was created by public referendum in 1973. It got off to a rocky start. Mainers, famously frugal and socially conservative, didn’t flock to the lottery as did residents in other states, sales data show.
“We’re flinty Yankees,” said Maine historian Paul Mills. “Gambling really wasn’t part of our heritage.”
That didn’t sit well with the game’s early promoters, who deemed the rate of play in some towns “unacceptable,” and set out to take “corrective action,” according to a 1976 audit.
Four decades of new games, promotions and joint enterprises with other states followed. In time, Mainers were swayed.
The lottery and gambling, once widely considered a vice, became one of the state’s biggest revenue drivers. Lottery sales are now double those of liquor in Maine and even exceed the total haul from the state’s corporate tax.
To keep the lottery revenue growing, the lottery’s — and the state’s — dependence on advertising also grew.
A detailed examination of strategy documents, lottery commission meeting minutes and financial statements, obtained through a Freedom of Access Act request, offer a rare inside look into the techniques used to entice Maine people to buy more lottery tickets.
- Mailing 100,000 households — 20 percent of Maine’s total population — coupons for free Powerball and instant tickets to introduce games to “infrequent players.
- Offering bonuses to retailers who increase year-over-year ticket sales.
- Installing brighter jackpot signs in store windows and advertisements on pump handles at gas stations to attract impulse buys.
- Conducting a yearlong, internet-based “player segmentation study” to aid in customer profiling and targeting.
- Installing 1,300 customized television screens in stores to advertise lottery promotions and showcase winners, part of a new wave of high-tech, targeted marketing intended to put the “lottery at top-of-mind and spark impulse buys.”
- Initiating an Internet “subscription play service” to make it more convenient to play draw games on a regular basis. “No more having to navigate traffic or stand in line,” according to lottery advertising.
Crisis and quick recovery
Many of these marketing tactics coincided with the aftermath of the 2009 global economic crisis and housing crash.
Poulin, deputy director of the lottery, said the downturn slowed what had been consistently increasing sales through 2009.
Yet just five years later, sales rebounded to nearly $228 million, surpassing all previous records, according to lottery financial statements.
Advertising played a role.
The lottery has more than tripled its in-state advertising expenditures since 2003. It now budgets $3.5 million a year for promoting its Maine ($1.5 million of the total) and Tri-State lotto games, big jackpot draw games it operates with New Hampshire and Vermont.
“Once you swallow the idea that you’re going to have a lottery, you have to advertise,” said David Just, a Cornell behavioral economist who analyzed Maine’s lottery data for the Maine Center for Public Interest Reporting. “But you’re targeting people who could make better use of the money they spend on lottery tickets.”
During the economic crisis, some may have stopped playing, but others, increasingly desperate and confronted with unemployment, likely increased spending, he said.
For every one percent increase in unemployment in a given zip code, Just’s research found, sales of lottery scratch and instant tickets in Maine jump by 10 percent.
“The financial crisis caused economic turmoil and that drove lottery sales,” said Just.
The lottery’s Poulin acknowledged sales have rebounded, but denied the state had increased advertising in the wake of the economic crisis.
“It took us a while to get the players that left, back,” said Poulin.
Scientific Games, the multi-national company that operates many technical aspects of Maine’s lottery, including customer research, celebrated the sales comeback in a recent lottery commission meeting.
“Other states are looking to Maine to see how we are having so much success with draw games and the promotions that are being done,” a Scientific Games representative told lottery officials on April 15, 2015.
Yet most of the tactics used by Scientific Games to sway customers remain inaccessible to the public.
The Las Vegas-based company, which holds a contract to operate the state lottery worth approximately $8 million annually, has redacted all of its 285-page marketing proposal for Maine to shield it from public scrutiny, calling it “confidential information."
A big new idea
Fuseideas, the Massachusetts-based company that officials said will work together with Scientific Games to promote the Maine lottery, has yet to complete a strategic advertising plan, officials said.
But the company’s 148-page proposal, obtained by a Maine Freedom of Access Act request, gives a glimpse of what may be to come.
The new marketing strategy revolves around a “big idea,” the proposal reads. The idea is to change the image of gambling by associating it with widely-accepted forms of entertainment.
“Lottery play is one part of a healthy and responsible entertainment mix, right alongside going to the movies, watching the Patriots play and bowling on Sundays with the neighbors,” according to the proposal.
The agency has proposed to fly aerial banners over beaches and tourist areas and beef up advertising at restaurants, ski areas, bars and on social media. It also plans to hide $50,000 “golden tickets” in select Maine towns as part of a lottery “scavenger hunt.”
Such tactics, they hope, will entice the 18- to 25-year-old “millenials” — the youngest legal generation of lottery players — who rarely play the lottery now, but are vital to future sales, officials said.
“It’s part of the struggle all lotteries are facing. Our demographic is getting older, but our state legislatures are still demanding we return the same level of profits year over year, so you have to find new strategies to engage our players,” said lottery deputy director Poulin.
The solution, according to Fuseideas, is emphasizing to players that the winners are “‘just like me,’ people who have always believed they never win anything.”
Behavioral economist Just, of Cornell, says such tactics are common — but come with strings attached.
“The face of the people who win is always very visible in advertising,” he said. “But that psychology, that image, is deceiving because we never see the faces of the losers, and especially not the chronic losers.”
Increasingly aggressive marketing has not gone unnoticed by the convenience and grocery store owners who sell the tickets.
“They’ve been really pushy about advertising lately,” said Derrick Ray, store manager at Columbia 4-Corners Shop ‘N Save. “We won’t let them do it here. If we did, they’d have signs everywhere.”
But Ray acknowledged having moved the customer service desk, where lottery tickets are sold, directly in front of the checkout lines, where shoppers were more likely to see it. “Sure, we put it in front of the registers so we get more impulse buys. Wait — is that bad?”
In part three, legislators weigh the costs and benefits of Maine’s state-run lottery.