January 27, 2010

Lottery sales dip as ad budget dries up

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By Erich Wagner
Erich@MarylandReporter.com

Maryland State Lottery revenues have continued to grow despite major cutbacks to the agency’s advertising budget, but officials warned lawmakers Tuesday that the good times won’t last.

Gina Smith, the interim lottery director, said at a Senate budget hearing that she has seen a decline in lottery sales in recent weeks, a phenomenon she says is tied to this year’s $8 million drop in marketing cash.

“We’ve now reached the point where we’re running out of money and our spending is going to be much less throughout the rest of the fiscal year,” Smith said. “I do believe we are just starting to see the impact that our advertising reduction is having on sales.”

The state expects the lottery to bring in $523 million in net revenue through fiscal 2010, which ends in July. That makes it the fourth-largest state revenue source, and one of the only streams that is expected to grow in what has been a brutal budget year. Mid-year cuts brought the lottery’s advertising budget to $11 million, an $8 million reduction that is expected to remain in place this year.

Smith said the agency is planning on heavily advertising the addition of Powerball, a multi-state jackpot-style lottery game, which begins on January 31. However, she said the lottery will drastically reduce its advertising within the next few months.

The agency is looking at different ways continue advertising while spending less money, through experimentation with social networks like Facebook and Twitter, Smith said. It will also start using more animated television commercials, which are cheaper than using live actors.

Senator James “Ed” DeGrange, D-Anne Arundel, chairman of the Senate budget subcommittee that oversees the lottery, said the advertising budget is an issue that needs to be more thoroughly discussed. DeGrange is a former member of the state lottery commission,

“I understand the need for the advertising budget,” he said in an interview. “You have to spend money to make money, so to speak, and that does concern me.”

The lottery also discussed the rollout of slot machine gambling at the hearing. The agency is receiving a $11.6 million increase in its 2011 budget to buy slot machines and a system to monitor them. It is expected to raise $62.3 million in revenue from slots next year.

Agency representatives said they have been looking into casino-style table games, in response to questions from Sen. Bobby Zirkin, D-Baltimore County.

Zirkin said he saw that Delaware and Pennsylvania were considering legalizing table games, and feared being caught behind other states on the issue. The state’s slots location commission recommended last week that lawmakers consider table games, but did not expect it to happen this year.

“If we’re always behind every other state, and we’re trying to recoup dollars, we’re not going to do it if we’re always behind other states,” Zirkin said. “I don’t think that’s getting addressed in this legislative session, although it should.”