Capital Goods - January 2008

So far, no ticket to paradise
By Scott Mooneyham

Own a restaurant? How about a bowling alley or gift shop? Tom Shaheen may be giving you a shout. Shaheen is the executive director of the North Carolina Education lottery, and as part of a push to boost sluggish ticket sales, he’s trying to expand retail sales to some nontraditional outlets.

That means looking beyond convenience and grocery stores, which make up the overwhelming majority of lottery-ticket retailers. The goal is to add 500 outlets by next summer, bringing the total to about 6,200. But there are some understandable reasons why — after the initial crush of businesses signing up for ticket sales in early 2006 — retailers haven’t been beating down the doors to get in on the lottery business. And even if this latest push to add retailers succeeds, it’s far from certain that sales will suddenly perk up.

North Carolina only has one lottery retailer for about every 1,500 residents, well below the average for U.S. and Canadian lotteries of one for about every 1,300. In South Carolina, lottery retailers are even more numerous — one per 1,200 residents. Perhaps the numbers would be larger without the restrictions that Tar Heel legislators mandated. Unlike other states, North Carolina doesn’t pay retailers a bonus based on a percentage of the payout on the winning tickets they peddle. They get a straight 7% commission on sales. Officials can’t do a lot to promote the lottery at retailers or in the media. Advertising is limited to 1% of sales.

But would eliminating those restrictions really change anything? Gary Harris of the North Carolina Petroleum and Convenience Marketers Association doesn’t think so. His membership includes owners of convenience stores. “Most people forget that we are in the convenience business. I just don’t know that there is a lot more to do that is going to make people sign up,” Harris says. Store owners don’t want to hire additional employees to sort through tickets and pay out winnings. And who hasn’t stood in line, arms crossed and toes tapping, while a clerk goes though the interminable process of cashing a winning lottery ticket? So, some store owners are just saying no. Others, after saying yes, later decide that lottery-ticket sales aren’t for them.

Lottery officials say some retailer churn is normal. And by most accounts, Shaheen and his staff have done a good job helping retailers set up for sales, informing them about what to expect and getting information on marketing the games to them. Now that a lot of the initial work of putting a lottery in place has been finished, their focus is shifting to finding new outlets.

Shaheen is no rookie when it comes to the lottery business. He ran a successful one in New Mexico and spent 18 years in various positions with four different state lotteries before coming to North Carolina. Still, the time has come for the lottery to begin living up to the promises of its supporters, if it ever can. Last year, lawmakers anticipated sales exceeding $1 billion, with $425 million in profits to be pumped into education programs. Instead, sales totaled $889 million, leaving $313 million for public education. For the first quarter of the new fiscal year, sales again came up short of projections, this time by $18 million. Shaheen says higher payouts on scratch-and-win tickets — which began only toward the end of the quarter — seem to be increasing sales.

When defending the less-than-stellar sales, Shaheen and the state’s top lottery cheerleader, Gov. Mike Easley, often repeat that new lotteries take time to reach their sales potential. They’re right, to a point. And that point is coming soon. The North Carolina lottery is now in its second full year. Sales in the Virginia lottery, which began in 1988, pretty much flattened after its third full year, ranging from $846 million to $934 million over the next eight. South Carolina’s experience was similar. Sales reached $950 million in the second full year. In the two years since, they’ve risen only to $1.1 billion.

If not this year, then by next, you would think that lottery sales in North Carolina would approach their full potential — short of the kind of aggressive marketing that state leaders vowed to avoid when they approved the games. So, if you want to help out the cause, come on, coin-operated laundries and dry cleaners. Step forward, hardware stores and pharmacies. What about you, shoe boutiques and fabric shops? But if it doesn’t interest you, don’t worry. Most of us will understand.

Scott Mooneyham is the editor of The Insider, www.ncinsider.com.

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