Demand for Lottery Products in Massachusetts

The lottery in Massachusetts has been a phenomenal success since its inception in 1972. It is now one of the state's largest commercial enterprises with sales in fiscal year 1993 at the $2 billion level. In 1989, Massachusetts led the United States with lottery sales of $262 per capita (U.S. Department of Commerce 1992). Despite its popularity with the public, the lottery has been criticized by Massachusetts' own Senate President as a "cynical kind of exploitation of poor, gullible people" (Howe 1993, 18). Some economic research lends support to this position. A study by Clotfelter (1979) relating income to sales of daily and weekly lottery tickets in Maryland yielded elasticities of income that were negative or less than one. These elasticities suggest that lottery sales in a community do not increase proportionately with income and may actually decline as income increases. These income elasticities also suggest that the lottery, as a vehicle to collect taxes, is regressive because the amount derived from a community as a proportion of income decreases or declines with increasing income. In a later survey, Clotfelter and Cook (1989) stated that the strong regressive feature of the lottery in Maryland is limited to blacks and there are no significant differences in play by income categories for whites. They also found an individual's lottery purchases to be negatively related to education, Hispanic ethnicity, and membership in the 70-plus age category. A recent study in this Journal drew a more positive picture of consumers of lottery "products." Using data from a national mail panel, McConkey and Warren (1987) interpreted their results as dispelling the notion that lottery players are poor, uneducated, and unemployed. They found purchasers to be younger middle aged, moderately well-educated, and to have above average incomes. This paper provides additional evidence on the relationship through time between a community's purchases of various lottery products and key income and demographic variables. Studies cited implicitly assume that the relationship between lottery sales and the various explanatory factors remains stable. However, as a legalized lottery is aggressively promoted and enhanced by product improvement, as in Massachusetts (Radding and Hume 1991), it may develop broad based consumer support or, alternatively, stimulate still greater sales from relatively few communities with similar characteristics. For example, Massachusetts was the first in the nation to introduce instant lottery cards where players scratch off a latex covering to reveal a prize, if any. The Instant Game, as shown in Table 1, is now the state's leading lottery product in terms of revenue. Maybe the game's success is due to its appeal to a narrow spectrum of communities with similar income and educational levels and similar racial, ethnic, and age profiles. More needs to be known about consumer response to legalized lotteries as state legislatures are certain to seek additional revenue from this source in the future, particularly from innovations such as the VLT (video lottery terminal) which can offer continuous "action" on popular modes of gambling such as poker, keno, and blackjack (Field 1991). It is also important to examine more closely the characteristics of consumer demand for each of the various products offered by the lottery agency. The highly publicized multi-million dollar individual payoffs to winners of Massachusetts' biweekly Megabucks Game (lotto) may obscure the fact that far greater revenue is generated by games that offer smaller payoffs but a higher probability of winning. As shown in Table 1, sales in 1990 of the daily Numbers Game was 1.8 times that of Megabucks and sales of Instant Game cards 2.7 times the Megabucks total. TABLE 1 Massachusetts State Lottery Sales by Product for 1983 and 1990 1983 Sales 1990 Sales Product Millions of $ Percent Millions of $ Percent Numbers Game 241. …