ShareThisOn Oct. 3, 1985, you could have stood in a long line outside a liquor store a few blocks from the Capitol for a chance to buy a small piece of cardboard and win a big sum of money.
Today, you can do the same thing -- only with no line.
That, in 50 words, is the story of the California Lottery -- a 23-year-old anachronism that is among the worst performing of the country's 42 state lotteries.
While many other states' lotteries set sales records in the fiscal year that ended June 30, California lottery officials announced that revenues for the Golden State's games would be $275 million lower than the previous year.
The slump comes at an inauspicious time for California. Desperate for new revenue sources that aren't direct tax increases, Gov. Arnold Schwarzenegger has called for leveraging future lottery revenues into current cash to help plug the state's gaping budget hole.
After first suggesting the lottery could be leased to a private operator, the governor proposed selling bonds that would be secured by revenues from the games, which would be upgraded and improved to produce roughly twice as much revenue as they currently do.
"It's an asset that is underperforming," Schwarzenegger observed in mid-May when announcing his bond sales proposal. " ... Our lottery does not perform at 100 percent ... . We're making $3 billion on our lottery. We could make $6 (billion) or $7 billion on our lottery. Other states make that amount of money."
That California's lottery is, relatively speaking, a weak sister among U.S. lotteries, is undeniable. Compared to the other nine most populous states, in fact, California's lottery is dead last in per capita sales, per capita advertising, retailer representation and prize payout.
But to make the kind of money Schwarzenegger is talking about, lottery officials and industry experts say, would require an overhaul of an operation that voters put into place back when portable phones weighed 2 pounds.
"The trouble is the California Lottery has never been run as if it's a retail business, and as a result, it has not done well at all," said Michael Jones, former director of the Illinois lottery and current director of Independent Lottery Research, a Chicago-based lottery industry consulting company. "It has never lived up to its potential."
That potential seemed limitless when the lottery debuted, 11 months after voters approved Prop. 37 by 58 to 42 percent. Under the initiative, at least half the money wagered would be returned in prizes; at least 34 percent would go to schools, and no more than 16 percent for running the games.
More than 80 million scratch-off tickets -- a U.S. record -- were sold in the first week. Gross revenues for the first year topped $1.7 billion.
But a combination of factors have combined to slow the lottery's meteoric start to a glacial trudge.
For one thing, the lottery has been hampered by what might charitably be called inconsistent leadership, with 19 executive directors in 23 years.
Voters compounded the lottery's problems in 1998 and 2000, when they gave their blessing to initiatives that granted California Indian tribes exclusivity in operating slot machines within the state's borders.
Since then, the tribes have jealously guarded their monopoly. After some tribal interests expressed concern recently that the Schwarzenegger administration was thinking of asking voters to approve slot-like video lottery terminals, or VLTs, administration officials firmly denied that was the governor's intention.
The administration also says that because of tribal opposition, it won't seek voter approval of the reinstatement of a highly popular online Keno game that some other state lotteries operate.
Despite the prospect of a future without VLTs or Keno, the lottery's current director, Joan Borucki, says the lottery can achieve Schwarzenegger's lofty revenue goals, if voters agree to change the rules so that the lottery can:
-- Cut the revenue percentage guaranteed to schools and increase the prize pool. The strategy, proven successful in other states, is that more prize money spurs greater sales. That means schools would get more money, even if their guaranteed percentage was less.
-- Offer fixed prizes. Currently California has the only state lottery that must base all its prizes on the pool of money bet, rather than a system that allows the game to offer guaranteed amounts regardless of the number of players.
-- Make technological changes that are currently prohibited, including allowing lottery ticket machines to make change, carry advertising and feature how-to videos.
"Right now we're running at about $1.1 billion a year in profit," Borucki said. "If I had those three things, by year 10 we'd probably be at $2.5 billion."
(E-mail Steve Wiegand at swiegand(at)sacbee.com.)
(Distributed by Scripps Howard News Service, www.scrippsnews.com.)
