'Jackpot fatigue' keeps NJ Lottery in a slump

The New Jersey Lottery is suffering from "jackpot fatigue," but it's the whole state budget feeling run down.

That's the phrase coined to describe the trend in which it takes increasingly bigger jackpots to lure in casual players who only buy lottery tickets when a prize is huge. People once impressed by a $100 million payout shrug until it reaches $300 million. Then fewer people play, so it takes longer to get to staggering prizes.

The state says sales of the Mega Millions and Powerball multistate games were down 30 percent through the end of March. At that pace, the sales of those games, which have accounted for around 15 percent of all New Jersey Lottery sales in recent years, would drop by $130 million this fiscal year.

"It appears to be a national phenomenon," said David Rosen, the Legislature's budget officer. "Maybe it's gambling fatigue."

The same concept undercut New Jersey's Pick 6 game over the past 15 years. In the three years before the Mega Millions game started in 1999, the Pick 6 had the state's biggest jackpots and averaged more than $300 million a year in sales. These days, it averages around $75 million a year in sales.

This is the second straight down year for the New Jersey Lottery, and it coincides with the partial privatization of the agency.

Northstar New Jersey took control of the lottery's sales and marketing in October 2013, three months into the state's 2014 fiscal year, under a contract that runs through 2029. Lottery sales that first year grew less than expected, missing their forecast by $73.5 million.

Revenue from the lottery for the state budget last year, $965 million, missed its target by $55 million — and would have missed by more, except the lottery took $8 million out of its surplus, pushing its balance below $1 million for the first time since at least 1980.

Things aren't going so well this year, either. Sales are up, but growth is slowing. Northstar's contract sets a target for state revenue of $1.047 billion. The original state budget adopted last June counted on $1.037 billion. In February, that was lowered by $82 million. Last week, it was trimmed by an additional $25 million. It's now at $930 million.

Without the Northstar contract, New Jersey would be in worse position, state Treasurer Andrew Sidamon-Eristoff said.

There are around 800 additional locations selling lottery tickets since October 2013, including Wawa and Rite Aid stores, an increase of almost 12 percent that has yielded $165 million in additional sales. Northstar spent $30 million on technology upgrades, including better vending machines and systems that change the way claims are paid and retailers manage instant games, he said.

Half of state lotteries recorded drops in revenue in 2014, while half recorded gains.

"I believe frankly that we are better positioned to withstand the negative impact of that trend than other states that don't have the similar kind of management contract in place," Sidamon-Eristoff said in testimony to the Legislature.

Northstar's contract requires it to reach agreed-upon financial targets. It owed the state $14 million for falling short of its promises in its first nine months, which Northstar covered by using part of a $20 million credit established when it paid the state $120 million upon getting its contract. It appears this year's shortfall could trigger a payment to the state from Northstar of around $18 million, which would exceed the roughly $6 million credit it has left.

"The contract contains important performance standards and financial guarantees," Sidamon-Eristoff said. "We will not hesitate to exercise the state's contractual rights as appropriate to protect the long-term interests of our taxpayers and residents."

Northstar would have been dinged slightly more except the state lowered the target, citing the economic impact of Superstorm Sandy, which struck a year before the contract began. That explanation shifted a bit in written testimony to the Legislature from the Treasury Department, which pinned last year's drop in sales on the overall economy, harsh winter and jackpot fatigue.

Despite that oft-mentioned fatigue, Gov. Chris Christie's administration's latest financial plan is still forecasting growth of 7.5 percent, from $930 million now to $1 billion for the 2016 budget. That has some Democratic lawmakers shaking their heads.

"I wish I were always so fatigued," Assemblyman Gary Schaer, D-Passaic, said.

Sidamon-Eristoff said there are reasons for optimism. Sales of in-state games, such as scratch-off tickets, are up 10 percent. The CASH4LIFE game launched by New Jersey and New York expanded this spring to Pennsylvania and Virginia. A new instant draw game is due to start in August.

Finally, he said, it's likely the huge jackpots will return, either by chance or through a rules change generating even bigger prizes.

"There has been a relative paucity of large jackpots now for some time," Sidamon-Eristoff said. "First of all, statistically that just can't continue."

Some Democrats are skeptical.

"If most of the other states who are also part of these multistate lottery mega-games are projecting decreases — again, it just strikes me as odd, even with instant scratch-offs and all that stuff, that we're moving in a different direction," said Assemblyman Troy Singleton, D-Burlington.


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