Pa. Lottery on track for a record year, but challenges may threaten its support for senior programs

'We have to be concerned about where things are going,' Pat Browne said

  • Jan Murphy, PennLive

2018 was a transformational year for the Pennsylvania Lottery as it expanded its portfolio of games to include iLottery, Keno and virtual sports – and the lottery’s profits are showing it.

As of the end of December, lottery officials say profits amounted to $50 million ahead of last year and are running a little above estimate for the year.

Despite the glowing financial picture of the lottery’s health that executive director Drew Svitko painted for the Senate Appropriations Committee last week, Republican senators voiced concern.

They fear the lottery’s revenue projections for the next year or two are overly optimistic and may come in as much as $50 million to $70 million short.

That is concerning because the senior citizen programs that the Lottery Fund supports are coveted and viewed by the state’s older residents as entitlements.

In other words, Senate Appropriations Committee Chair Pat Browne, R-Lehigh County, said, “If you qualify, you get them. If we don’t have the money [to pay for them], the exposure is huge.”

The lottery fund pays for property tax and rent rebates and prescription assistance for senior citizens. It also covers free and reduced fare transportation and home- and community-based services. And another chunk of lottery profits that goes into the state’s lottery fund helps fund nursing facility Medicaid-funded long-term services for seniors.

The reliance on the lottery to produce the revenues needed to support those programs is understood and lottery employees are committed to that mission, Svitko told the committee. So just because ticket sales and profits are going well this year – and have generated over $1 billion in profits for senior programs for the past seven years, he said, “that doesn’t mean we are taking our foot off the gas. It means we keep pursuing every opportunity we can to generate monies for those senior programs.”

Last year’s addition of online lottery games, launched in May, has produced a big revenue boost for the lottery. He anticipates it alone will generate $300 million in ticket sales in its first full year. But the monitor-based games (Keno launched in May and Xpress Sports launched in August) are a different story. They produced just $9 million for the lottery fund in the first six months of the fiscal year.

Svitko blames that on the spread of games of skill in bars, taverns and social clubs, which produce a higher return for their owners than the commission the lottery pays to its retailers.

“Skill machines are hurting our ability to expand into those venues,” Svitko told the committee. “They absolutely represent direct competition to the lottery.”

Those machines, with an uncertain legality, also are hurting scratch-off ticket sales, he said.

Worse yet, they are becoming increasingly prevalent.

He said almost 18 percent of lottery retailers now have at least one skill game machine. A year ago, it was half that number. Svitko said a team of economists estimated that the lottery will lose $95 million a year in scratch-off ticket sales as a result of the introduction of skill games in locations that sell lottery tickets.

“When we looked at that less than a year ago, it was a quarter of that impact,” he told the committee. “So the impact is growing significantly and it absolutely represents a long-term risk for the Pennsylvania Lottery.”

While at least one senator suggested that perhaps a law change is needed to address the games of skill issue, Revenue Secretary Dan Hassell said the state police’s position on games of skill is that they are illegal. He told the committee the attorney general’s office is pursuing some cases in court that hopefully will settle the issue surrounding their legality.

Beyond that challenge, there also lies another potential costly one on the horizon for the lottery.

Last month, the U.S. Department of Justice issued an opinion that now makes the federal Wire Act applicable to any form of gambling that crosses state lines, including online gambling and online lottery, not just sports betting as had been its previous position.

“It represents a huge threat to the lottery industry as well as the Pennsylvania Lottery as well as the gaming industry,” Svitko told the committee.

As a consequence, he said it may mean the lottery would have to shut down its operation’s back-up data center in Georgia and move it in-state. Svitko said that relocation would come with a huge price tag.

Hassell said state Attorney General Josh Shapiro, along with New Jersey Attorney General Gurbir Grewal, sent a letter to the Justice Department voicing objection to the department’s latest position on online gambling and asking for clarification on how it applies to online gambling when sanctioned by laws in their states.

“So we’re hoping for a good result on that,” Hassell said.

Despite all the challenges it faces – not to mention the anticipated 23 percent growth between 2017 and 2025 in the number of the state’s senior citizens to nearly 2.8 million according to the state’s Independent Fiscal Office, Browne said one thing hasn’t changed when it comes to the lottery.

“The expectations are really high,” he said. “We have to be concerned about where things are going.”

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