Wisconsin’s dispute with the Ho-Chunk Nation might be over after a four year battle, and Wisconsin taxpayers got the short end of the stick in the gambling compact settlement.

The Ho-Chunk stopped making payments to the state in 2004 after signing a compact with Governor Doyle in 2003. The tribe argued that because a 2004 state Supreme Court ruling invalidated a similar compact agreement with the Forest County Potawatomi, it owed the state nothing.

Since 2004, Ho-Chunk halted payments with the exception of a one-time $30-million payment during 2006 it claimed demonstrated good faith bargaining. Here are the details of the recent settlement that should have taxpayers quizzically shaking their heads wondering, is that all there is?

The state contended the Ho-Chunk owed $72 million. Ho-Chunk has agreed to pay $60 million. That is a $12 million jolt to Wisconsin taxpayers.

Terms of the old compact had the Ho-Chunk paying the state a six percent tax of its take. Under the new compact, the Ho-Chunk will make payments of five percent if net earnings are below $350 million and 5.5 percent if earnings exceed $350 million. The reduced percentage means a loss of millions of dollars to the state. By contrast, the Potawatomi pay 6.5 percent of winnings.

The new compact also allows the Ho-Chunk to make reductions in their annual payments to the state:

• Beginning May 1, 2010, the tribe can deduct payments made to counties totaling $1,000 for every acre of land owned by the U.S. government in trust for the tribe located within each county’s jurisdiction in July, 2003. The LFB informs me that during July 2003 the Ho-Chunk had approximately 2,300 acres of trust land that could result in a reduction in their annual state payment of $2.3 million.
• During a 10-year period from May 1, 2009 to May 1, 2019, the tribe could deduct the amounts it paid for public works projects that benefit both the tribe and the state. Deductions would be limited to no more than $1.0 million in any one year and the total deductions for the period could not exceed $5.0 million. That means there could be an average annual deduction of $500,000.
• The  tribe can also deduct any additional amounts paid by the tribe for projects that the state and the tribe agree provide a substantial public benefit in areas of economic development, infrastructure, health, safety, or welfare. These deductions would begin May 1, 2019, would be limited to a total of $4 million, with annual deductions limited to a maximum of $1 million. 

 

The casinos are arguably some of the most lucrative, profitable businesses in Wisconsin, yet their payments to the state are questionable. I asked the non-partisan Legislative Fiscal Bureau (LFB) to prepare a memo that provides information that compares the imposition of the state corporate income and franchise tax, general sales tax, and local property taxes on private businesses to tribal casino operations in Wisconsin.

The LFB writes a “tax rate of 7.9 percent is applied to Wisconsin net taxable income to determine gross tax. The annual payment negotiated with the Ho-Chunk Nation is five percent of net win (5.5 percent if net win is greater than $350 million). Since net win generally does not include deductions used in determining net income, the net-win amount is likely larger than would be the case if the Ho-Chunk Nation casino was subject to the state corporate income and franchise tax. In addition, corporate income and franchise taxes can be offset by state tax credits. However, the corporate income and franchise tax rate is 7.9 percent which is higher than the 5.0 percent or 5.5 percent rate applied to net win.”

On the matter of the sales tax, the LFB writes, Due to restrictions in federal law, the state sales tax is not imposed on purchases or leases of otherwise taxable items by the tribes for use in the casinos. In addition tribal gaming proceeds generally are not subject to the sales tax. Sales of lodging, food and beverages, and admissions to the entertainment events at the casino are taxable if the purchaser is not a member of the tribe that is operating the casino, but exempt if the purchaser is a tribal member.”

Finally, on property taxes, the LFB writes, “Casinos owned by Native Americans are exempt from the property tax.”

To re-cap, Wisconsin businesses pay a higher tax rate than the rate Ho-Chunk and other tribes pay the state from their earnings. The tribes do not pay sales taxes or property taxes.

At first blush, the amount of the payments being made to the state through negotiated compacts may sound sizeable. However, there are significant societal costs due to gambling.

Serious problem gamblers lose or quit their jobs, steal money to support their gambling habit, think about and actually plan suicide, and some even make suicide attempts. Children of problem gamblers develop behavior and adjustment problems suffering from depression, anxiety, and cynicism.

The Wisconsin Council on Problem Gambling Helpline Executive Director Rose Gruber says the average debt of callers to her hotline during 2007 was $43,000, up from $37,000 during 2006. Wisconsin has over 332,000 serious problem gamblers reported during 2007, up from 265,000 the previous year.

A Wisconsin Policy Research Institute study in 1996 reported the average serious problem gambler imposed costs close to $10,000 upon Wisconsin each year with a total annual social cost impact of over $307 million. The same study reports the average serious problem casino gambler imposed costs of over $10,000 upon Wisconsin each year with a total annual social cost impact of over $138 million.

The Ho-Chunk’s deal with the state can be renegotiated after 25 years. Meanwhile, for the next two and half decades, the Ho-Chunk can offer Las Vegas-style games at its casinos in Baraboo, Black River Falls, Nekoosa and Tomah. It operates a bingo parlor in Madison and a new casino is scheduled to open in Wittenburg in October.

Governor Doyle negotiated a deal that brings in less money at a smaller percentage to the state and allows huge expansion of gambling in the state.  

Two years ago, I wrote a column predicting “an outrageous explosion of gambling, the likes of which Wisconsin has never seen. Tourism brochures can start describing the Badger State as the Las Vegas of the Midwest.”  

I specifically pointed to the Potawatomi Bingo Casino in Milwaukee and how its massive expansion flies in the face of voters and the Wisconsin Constitution.

Just how big was the growth at Potawatomi? Here is the most recent ranking of the top 10 largest Indian casinos.

I call them enticements.

Powerball is announcing big changes in its jackpot lottery game. Like a trailer for the next Hollywood box office smash, a lottery press release pulls out all the persuasive stops to lure more players. Powerball promises to “increase the size of the average jackpot,” and make the game “even more exciting,” because Powerball wants to “create lots of millionaires” and wants to “create more winners with better overall odds.”

Here is an example of the spin Powerball is using to attract even more gamblers. Ernie Passailaigue, the Powerball Group Chairman and the Executive Director of the South Carolina Lottery says, “The price of a Powerball ticket remains unchanged at $1.  Even though our players know that the cost of everything else has gone up since Powerball sales commenced over 16 years ago, we didn’t want to raise Powerball’s price in our current economy.”

Isn’t that considerate of Powerball? The people who run the jackpot lottery are so thoughtful, they are going a step further by letting you make the decision to spend even more on your tickets because there will be the option to play for bigger prizes for $2 by using Power Play. “We wanted to give our players the power to choose and with many of our newer member lotteries, more than half of our players have chosen the benefits of the $2 Power Play option,” said Passailaigue.

Changes to the game effective January 2009 include increasing the starting jackpot from $15 million to $20 million, and increasing the average jackpot from an expected average of $95.5 million to $141 million. Powerball promises bigger jackpots that will increase faster. The regular second-highest prize will be $1 million, but players will have to buy the Power Play option for an extra $1 and hit all the numbers except for the Powerball.

Powerball is instituting changes because Florida will become the 33^rd state to join Powerball in January.

Currently, the odds of winning Powerball are 1 in 146.1 million. After Florida joins Powerball, the odds increase to 1 in 195.2 million. The long odds are the only sure thing about Powerball. Your chances of winning Powerball are slim to begin with and will become even more difficult.

Jackpots will be bigger and there probably will be more millionaires as a result of the Powerball changes. But there will be a great deal more losers as Florida joins Powerball come January.

Every year, the highly regarded Legislative Audit Bureau (LAB) is required by state law to conduct an audit of the Wisconsin Lottery. The financial review is complete and here are the audit’s key findings.

More than 99 percent of the lottery revenue comes from instant and online ticket sales. Total ticket sales increased 13.3 percent during the past five fiscal years, from $435.0 million in 2002-03 to $492.8 million in 2006-07. Sales of scratch-off and pull-tab games increased 13.9 percent during that period, while online game sales increased 12.5 percent. Ticket sales decreased during 2004-05 and 2006-07 due to the timing of large Powerball jackpots that have a sizeable effect on online game ticket sales.

Expenses from game development and production decreased by 14.1 percent over the past five fiscal years. The decreases were the result of the state entering into a seven-year contract with GTECH Corporation in June 2004 to maintain the instant and online gaming system and provide telecommunication services. Other expenses decreased by 16.7 percent over the past five fiscal years. Lottery staff attributes those decreases to strategies implemented to reduce costs.

Under the state Constitution, net proceeds from the Wisconsin Lottery must be used solely for property tax relief to owners of primary residences in Wisconsin and through the farmland tax relief credit to certain farmland owners in Wisconsin. Property tax relief totaled $697.9 million over the past five fiscal years, including $160.0 million in 2006-07.

State laws and legislative action impose limitations on four types of lottery expenses. The LAB reports the Wisconsin Lottery is in compliance with each of the limitations:

1) The LAB reports, “At least 50 percent of Wisconsin Lottery sales be returned to players as prize payments. As a percentage of ticket sales, prize expenses have remained generally consistent, although they increased to 59.3 percent during 2006-07. Wisconsin Lottery officials attribute the 1.3 percentage point increase between 2004-05 and 2006-07 to offering higher-priced instant games that include higher prize payout percentages. They also note that the 2006-07 prize payout percentage may be higher because the Wisconsin Lottery paid the $100,000 prize for Supercash! eight times more in 2006-07 than in 2005-06.”

2) The LAB reports that state law “limits certain administrative expenses to no more than 10.0 percent of gross operating revenues. These administrative expenses include all expenses except prize payments and retailer compensation. The Wisconsin Lottery’s administrative expenses have remained within the statutory limit and were 5.9 percent of gross operating revenues during 2006-07.”

3) The LAB reports, “The Wisconsin Constitution prohibits the expenditure of public funds or of revenues derived from lottery operations for promotional advertising. It directs any advertising to provide information about the chances of winning and prize structures. Through legislative action, the Wisconsin Lottery’s product informational advertising expenses have been limited to $4.6 million annually since 1990-91. This expenditure authority was not exceeded in 2006-07. The Legislature has increased the Wisconsin Lottery’s annual product informational advertising budget to $7.5 million beginning with 2007-08. Wisconsin Lottery staff project that increase will produce an additional $15.0 million in annual lottery ticket sales.”

4) The LAB reports state laws “establish maximum compensation rates for basic commissions and performance program payments to retailers who sell lottery tickets. Basic commission rates are 5.5 percent of the retail price for online tickets and 6.25 percent for instant tickets. Performance program payments to eligible retailers may not exceed 1.0 percent of total ticket sales. The Wisconsin Lottery’s retailer performance program payments have remained within the statutory limit for the past five fiscal years and were 0.9 percent of ticket sales during 2006-07.”

The LAB gave the opinion in their audit that the Lottery’s “financial statements present fairly, in all material respects, the financial position of the Wisconsin Lottery.”

Here is the LAB full report of the Wisconsin Lottery audit.

Once again, I commend the LAB for their outstanding and thorough analysis.

It shouldn’t come as a surprise that the Ho-Chunk Nation missed its June30, 2008 deadline to make a payment to the state of Wisconsin for gambling operations. Since 2004, according to the Milwaukee Journal/Sentinel, the tribe has made only one payment, $30 million in 2006. The Ho-Chunk Nation now owes the state close to $100 million at a time when the state’s fiscal matters are fragile at best.

Why is the Ho-Chunk Nation refusing to make its payments? The tribe alleges that under a 2004 ruling by the state Supreme Court, Governor Doyle exceeded his authority by negotiating new Indian gaming compacts that expanded gambling into perpetuity. The Ho-Chunk Nation contends the value of its 2003 compact was reduced by the court’s 2004 ruling and has refused to make payments until a new agreement can be reached.

Some history is in order.

On May 13, 2004, the state Supreme Court, in a 4-3 decision in Panzer v. Doyle, ruled that Governor Doyle exceeded his authority by agreeing to certain provisions in the 2003 amendments to the gaming compact between the state and the Forest County Potawatomi (FCP) Tribe by agreeing to expanded games, lengthening the compact to perpetuity, and waiving the state’s sovereign immunity.

After the 2004 ruling, Diane Sykes left the state Supreme Court to become a federal judge and was replaced by Governor Doyle’s appointee, Louis Butler. The change in the make-up of the court proved to be significant.

On July 14, 2006, the state Supreme Court ruled that a 1993 amendment to the state constitution approved by voters in a statewide referendum that stated Wisconsin has enough gambling and should not expand does not apply to Indian casinos. The court also affirmed the governor’s authority to renegotiate Indian gaming compacts, paving the way for a huge expansion of gaming at the Potawatomi facility in Milwaukee.

Meanwhile, the Ho-Chunk Nation continues to fight its case in court and is lagging on payments. The inaction is affecting the state budget. As I’ve written in the past, budgets have been drafted and approved assuming the Ho-Chunk Nation will make good on its payments, but that hasn’t happened. Taxpayers have made up the difference, and the Milwaukee Journal/Sentinel reports the state has spent close to $1.4 million in legal bills to settle its dispute with the Ho-Chunk Nation.

It is concerning and very unfortunate that the issue of gambling has created a scenario that adversely affects taxpayers. Budgets adopted crossing our fingers and hoping the Ho-Chunk will come through with their payments is not sound budgeting.

 

"America is on a gambling binge. The more available and accessible it becomes, the more gambling is acceptable to people.”

Tom Grey, executive director of the National Coalition Against Legalized Gambling made that concession during March 2006. Grey’s next line was the following:

"But shouldn't government be encouraging people to save their money instead of encouraging them to gamble?"

Even if you believe the answer to Grey’s question is yes, the stark reality is just the opposite. Government is expanding gaming options, even searching for creative ways to separate gamblers from their money.

Stateline.org reports, “States are more addicted to gambling revenue than ever as the lure of easy new money for schools, tax relief and public services has led to an explosion of state-sanctioned casinos, slot machines at racetracks and lottery games. Twenty-five years ago, gambling was legal in only three states. Now every state except Utah and Hawaii rely on gambling to generate revenues to help avoid raising taxes.”

Wisconsin is right there with other states, enabling gambling that rivals Las Vegas and promoting games with clever marketing in radio and TV ads. The heavy concentration of games has evolved despite the fact Wisconsin voters took a firm stand against the proliferation of gambling.

The Wisconsin Legislative Reference Bureau wrote a report during May 2000 entitled, “The Evolution of Legalized Gambling in Wisconsin.” The report details the 1993 statewide vote that asked voters if Wisconsin had enough gambling:

“Governor Thompson called a special session in June 1992 to consider amending the constitution to permanently exclude casino style gambling from inclusion in the state lottery. After considerable debate and a series of legislative hearings held around the state, the following question was presented to the voters:

Gambling expansion prohibited. Shall article IV of the constitution be revised to clarify that all forms of gambling are prohibited except bingo, raffles, pari-mutuel on-track betting and the current state-run lottery and to assure that the state will not conduct prohibited forms of gambling as part of the state-run lottery? 

Republican Governor Thompson and Democratic Attorney General Doyle stumped for the amendment in joint appearances around the state and expressed a shared desire to restrict the expansion of gambling. The Wisconsin Conference of Churches and the Wisconsin Catholic Conference also favored passage, asserting that gambling activity had exceeded the bounds of moderation and was a threat to community values and health. On April 6, 1993, the amendment was ratified by a vote of 623,987 to 435,180. As things now stand, state-operated or private casino-style gaming in Wisconsin would require subsequent constitutional change.

The results of the advisory referenda, which also appeared on the ballot, indicated the voters’ preference for maintaining the status quo regarding gambling. They voted against allowing casino gambling on excursion boats (604,289 to 465,432); against video poker and other forms of off-reservation video gambling (702,864 to 358,045); for a continuation of pari-mutuel on-track wagering on racing, such as on horses, dogs, or snowmobiles (548,580 to 507,403); and for the continuation of the state lottery (773,306 to 287,585). A fifth advisory question, asking voters if they favored a constitutional amendment that would restrict gambling casinos in the state, was made moot by the ratification of the amendment, but it passed by a vote of 646,827 to 416,722.”

Despite those votes, Governor Doyle has signed gaming compacts with tribes that have resulted in an explosion of gambling never foreseen. After Louis Butler replaced Diane Sykes on the state Supreme Court, the court made a ruling that essentially okayed the expended gaming negotiated in the compacts.

My July 17, 2006 column said, “Thanks to the ruling, the state’s largest gambling operation, the Potawatomi Bingo Casino in Milwaukee will now advance with plans to triple its floor space, currently at 70,000 square feet. That will give the facility 210,000 square feet, more floor space than any casino in all of Las Vegas. The MGM Grand Hotel is the largest casino in Las Vegas at 171,500 square feet.

The Potawatomi also plan to double the number of slot machines from 1,500 to 3,000. That would rival the MGM Grand’s 3,700 slot machines, and the expanded Potawatomi facility would have more slots than any other casino in Las Vegas; Wynn (2,500), Venetian (2,500), Bellagio (2,433), Mandalay Bay (2,400), Mirage (2,294), Circus Circus (2,255), Excalibur (2,250), Caesars Palace (2,100), and the Palms, Luxor and New York New York hotels, (2,000).”

As predicted, last week the Potawatomi Bingo Casino advertised the grand opening of its expansion, now featuring 3100 slot machines.

The director of the Wisconsin Lottery now wishes games could be offered online. 

This follows a national trend of states searching for new ways to expand gambling opportunities, from “racinos”, slots at racetracks  to state-owned casino resorts. 

Is there no end to what states might do to recruit more gamblers? Probably not.

The Denver Post reports the Colorado Lottery is now selling coffee-flavored scratch-and-sniff scratch-off lottery tickets with chocolate and flower flavored scents coming soon. A spokeswoman for the Colorado Lottery, Erika Gonzalez says, "We could even have a Corona with lime."

It began this past Sunday when the NCAA announced its 65-team men’s basketball tournament and will continue until a champion is crowned Monday, April 7.

March Madness captures the imagination of the country for 22 days. Fans and non-fans watch the games, talk about the games, plan their schedules around the games, and they bet on the games.

"It is by far the biggest gambling event of the year," Victor Matheson, an expert on sports economics at the College of the Holy Cross in Worcester, Massachusetts told the Dallas Morning News.

The newspaper also reports that as many as 37 million people are expected to participate in the wagering, according to Challenger, Gray & Christmas, a job counseling firm in Chicago.

The overwhelming majority of March Madness gamblers are involved in small pools with co-workers and friends. A small percentage partakes in high roller stakes that can be very risky.

"We are aware of pools that can get up to $100,000," NCAA spokeswoman Stacey Osburn said.

The National Council on Problem Gambling (NCPG) says, “Two to three percent of the US population will have a gambling problem in any given year. That’s 6 million to 9 million Americans yet only a small fraction seeks out services, such as treatment and self-help recovery programs.”

The temptation grows as March Madness erupts, a sporting event that eclipses the popularity of the Super Bowl because it runs for three weeks as opposed to three hours. As such, it lures in more gamblers.

The Executive Director of the Wisconsin Council on Problem Gambling Rose Gruber says March tends to be a record-setting month for people calling in to the Council’s helpline seeking assistance for addictive gambling.

The NCPG has compiled a list of questions about the signs of problem gambling. It says if you or someone you know answers yes to any of the following questions, it is likely that gambling has become a serious problem:

1) Have you gambled until your last dollar is gone?

2) Have you often gambled longer than you had planned?

3) Have you lied about your gambling to friends or family?

4) Have you used your income or savings to gamble while letting bills go unpaid?

5) Have you made repeated attempts to stop gambling?

6) Have you broken the law or considered breaking the law to get money to gamble?

7) Have you borrowed money to finance your gambling?

8) Have you felt depressed or suicidal because of your gambling losses?

9) Have you been remorseful after gambling?

10) Have you gambled to try to get money to meet your financial obligations?

The NCPG says problem gambling has serious consequences:

• Trust is often the first casualty in the family of the problem gambler. Change in the behavior of the family member is often attributed to many other possible problems before gambling is identified as the problem.

• Respect for the problem gambler is generally lost once this problem has been identified. “Why can’t you just stop so the problem will go away?”“You can fix this!” When the gambler can’t, respect for them is lost.

• Relationships are built on trust and respect. Without these, family relationships will be weakened or destroyed. 

• Family Dynamic is dependent on each family member meeting the needs of the others. Problem gambling can destroy the ability of the gambler to do this. 

• Employment can be affected in various ways. The gambler will often neglect responsibilities at work and/or develop an attendance problem asthey begin to have less control over their need to gamble. In the worst situation, the gambler will steal from their employer in order to continue their gambling. Any of this can lead to loss of employment and prosecution.

 • Financial security for the family is often lost as the gambler seeks more and more resources with which to gamble. All of the family’s financial resources may be liquidated without their knowledge. Savings, home equity, retirement accounts, children’s savings, etc may all be lost or damaged.  

• Reputations are difficult to protect as the gambling problem affects more and more aspects of the gambler’s life and become known by individuals outside of the family.

 • Domestic violence may result in a family affected by a member with an addiction problem. The family of a problem gambler can be impacted just as easily as that of someone with an alcohol or drug addiction. The problem gambler may be the victim or perpetrator.

 • Co-occurring disorders such as depression, substance abuse, and other compulsive behaviors often occur as a result of or along with the gambling problem. • Children of problem gamblers have a higher probability of developing a gambling problem than those with parents who do not gamble. This follows the pattern as experienced by children of those affected by substance and domestic violence.

If you have questions, need help, or know someone who does, you can call the Wisconsin Council on Problem Gambling Helpline at 1-800-GAMBLE-5 or the National Council on Problem Gambling at 1-800-522-4700. 

We are about to enter a period of heavy gambling with college football bowl games, pro football playoffs, the Super Bowl, and eventually, March Madness, the NCAA College basketball Tournament.

During 1997, the 24-hour Helpline at the Wisconsin Council on Problem Gambling received 3,865 calls from problem or compulsive gamblers and their families. During 2006, the Helpline received 9,206 calls. During 2007, the Helpline is on target to receive over 10,000 calls.

The Executive Director of the Helpline, Rose Gruber says, “It is so exciting to see the increase in calls. It means that people are beginning to understand that compulsive gambling is an addiction and that help is available.”

In their latest newsletter, the Wisconsin Council on Problem Gambling outlines the scourge of remote gambling.

REMOTE GAMBLING

Gambling at your Fingertips - Everywhere.
Remote gambling is any form of gambling in which a person does not need to be physically present. It can be conducted from the safety of a gambler’s own home, car, airplane, street corner, café, school room, board room or any place a remote device is operable.

What makes Remote Gambling a growing concern?

• It is immediate – accessed from anywhere, anytime• It is a solitary endeavor
• It is even more hidden than other forms of gambling
• Others know that it is a problem only after their lives have been painfullyeffected

Remote gambling includes:
• Internet sites which include any form of betting imaginable• Mobile devices for text messaging and internet/web access
• Cell phone, telephone
• Interactive TV

Facts on Remote Gambling
• Internet has over 2,500 gambling sites and the number is growing daily
• Online poker has over 400 websites and is growing daily
• Presently there are over 5 million transactions conducted per day, or anaverage of about 300 bets per second
• There is no US regulation on how the sites control payouts and percentages.The sites could manipulate the gambler to think they are skilled and can outplay the others on the site. Once winning and playing with greater amounts of money the site could decrease the gamblers odds and take the winnings back with interest.

Attractive to persons who:
• Want immediate access
• Are socially shy and lack confidence• Prefer privacy
• Are uncomfortable with physical nearness to others
• Disabled and do not want to be seen as different
•Want to decrease social barriers based on sex, race, age, disability
• Want to be someone they are not

Remote Gambling makes the gambler feel:
• Uninhibited – people do and say things in cyberspace that they wouldn’t ordinarily say in the real world.
• Interactive with others without face to face contact
• As if they can escape and get away from the real world
• Intelligent, skilled and all powerful until they start losing

Thoughts of the Remote Gambler
• You don’t know me – anonymity
• You can’t see me – invisibility
• See you later – don’t relate in real time, wait for messages
• It’s just a game – real money does not change hands – it’s all credits
• We’re equals – authority really does not exist 

What Remote Gambling Provides
• Gratification: No waiting, instant
• Anticipation: Removed, instant action, adrenaline rush
• Companion: Always there when needed
• Fantasy: Takes you to it, change persona, gender bender
• Expression: In a private world, more satisfying than real life
• Ego: Boosts fragile/bruised ego
• Constraints: Lacking boundaries. Limit only by extent cash/credit
• Chasing: Several times a day. PC is a beckoning finger. (Bellringer, 2006)
• A Chance: to lose financial resources, friends, jobs, family, freedom, etc. 

What to do if you think you or someone you know has a problem withRemote Gambling . . . . . . . .
Call the Wisconsin Council on Problem Gambling Hotline at 1-800-426-2535. 
 

And now, a new gambling innovation has surfaced that is said to cause the same kind of problems associated with casino betting.

The New York Times has the story:  


Behind the Jackpot

The $50 Ticket: A Lottery Boon Raises Concern

By NELSON D. SCHWARTZ


With the popularity of traditional lotteries waning across the country, many states are turning to instant games priced at $20, $30 and as high as $50 to lure new players and raise revenue.

Scratch-off tickets, for example, now account for more than 75 percent of lottery sales in Texas, which this year became the first state to introduce a $50 scratch-off game.

But critics in Texas and elsewhere say games promising this kind of instant gratification are more likely to contribute to the kind of problem gambling that is usually associated with fast-paced casino betting, and they are now trying to limit them.

They say the games take particular advantage of the most vulnerable members of society, including the poor and members of minority groups.

“Scratch-off tickets are to the lottery what crack is to cocaine,” said State Senator Eliot Shapleigh, a Democrat who represents El Paso.

In Massachusetts, a third of the calls to the state’s 24-hour gambling addiction hot line come from lottery players, the majority of whom play instant games, according to Margot Cahoon, a spokeswoman for the state’s Council on Compulsive Gambling.

Industry leaders agree that the future of the lottery business now depends on instant games with bigger prizes. The $50 Texas game, for example, offers thousands of instant prizes ranging from $50 to $50,000, with a few exceptional prizes as high as $5 million. But they say the games are not aimed at compulsive gamblers and are not intended to be addictive.

“It used to be lotteries would offer $1, $2 and $5 tickets but the growth is in $10 and $20,” said Ernest L. Passailaigue, director of the South Carolina lottery and president of the North American Association of State and Provincial Lotteries.

The higher value games certainly appeal to people like Larry Hardy, who nearly every day walks from his central Houston rooming house to a nearby Chevron station to work odd jobs and buy scratch-off lottery tickets.

He has won $200 several times with a game called “Break the Bank,” but Mr. Hardy, who relies on $600 a month in federal disability payments to support himself, still spends $30 to $40 a week on the elusive dream of hitting it big.

“I feel at times I shouldn’t play again,” Mr. Hardy said, “but the reason I play is I really need $20, $30, $40 or maybe $50.”

States are now considering even more potentially addictive offerings. A Florida government report this year on how to enhance lottery revenue suggested that the introduction of video lottery terminals there could raise more than $1 billion a year. But the report acknowledged these games “are considered to be more addictive than traditional lottery games and could contribute to a problem of pathological gambling.”

Just who plays the lottery — and how much — has always been a contentious issue. As lotteries have expanded their offerings, most states have emphasized statistics showing overall participation in any type of game, which typically matches the demographics of the population.

Academic experts on the lottery, however, say this kind of analysis is misleading because it does not make a distinction between those who play once or twice a year players and daily or weekly bettors.

“Surveys usually stop with the question: ‘Have you played in the last month?’” said Philip J. Cook, a professor of public policy at Duke University. “They don’t plumb the questions about depth of play, which the lotteries have chosen to obfuscate because they see themselves as vulnerable on this issue politically.”

The introduction of the $50 ticket in Texas — and evidence that blacks and Hispanics individually spend much more than whites on the lottery — has spurred criticism from legislators in heavily minority neighborhoods, like the one in Houston where Mr. Hardy lives.

“I didn’t think I’d be this concerned but it’s harming people,” said Garnet Coleman, a Democrat who represents a majority black district in Houston in the state legislature. “When I go to get a pack of cigarettes or a soda I’m in line behind people playing the lottery. They’re not buying one ticket or five tickets. They’re buying $50 or $75 worth and this is in my district, which is limited-income.”

Unlike most states, Texas is required by law to provide detailed demographic information on lottery participation — data that backs up Mr. Coleman’s argument. In 2006, according to a University of North Texas survey commissioned by state lottery officials, the typical black player spent $70 a month on the lottery, compared with $47 for Hispanics and $20 for whites.

The demographic differences were especially sharp when it came to scratch-offs. Players with a high school degree or less typically buy $20 a month worth of scratch-off tickets, compared with $10 for college graduates. Similarly, players with an annual income of less than $12,000 spent 33 percent more a month than those with incomes above $100,000.

Mr. Passailaigue, the president of the state lotteries association, does not dispute that certain games appeal more to minorities and low-income people but he said these groups were not being singled out and the trend should not worry state lottery officials.

“It’s more cultural in nature,” he said. “Some people think it’s O.K. to go and play golf and bet on each hole.”

While golfers might have more disposable income than many scratch-off bettors, Mr. Passailaigue argued the reality was, “Culturally, people have experienced different ways not only to amuse themselves but to gamble. It’s been that way for a long time in this country.”

Whatever the reasons, state lottery officials and the companies they hire to run the games appear to be concentrating on the heaviest players.

The Scientific Games Corporation, which dominates the scratch-off market and counts states like Texas and Massachusetts as clients, advises lottery managers to increase jackpots to lure players, according to a report supplied by the company to the Texas Lottery Commission and obtained by The New York Times under an Open Records Act request.

“But like any ‘tool,’ an increased payout is only useful when used in the right way,” the report cautions. Describing what it calls ‘‘chatter,’’ or midsize prizes, Scientific Games concludes, “Better to increase the number of chatter prizes in a game aimed at heavy players so that they see more of the prizes they are playing for and will communicate their excitement to others, creating a buzz for the game.”

This approach seems to be working. In Massachusetts, which Mr. Passailaigue considers a forerunner in developing higher-priced tickets with bigger payouts, 70 percent of the state lottery’s $4.6 billion in revenue comes from instant games.

In Texas, the $50 scratch-off was introduced after higher-value denominations of $20, $25 and $30 proved popular. The success of these and other instant games helped the state increase total lottery sales in four of the last five years.

Meanwhile, the popularity of its more traditional lotto offerings has sagged and the percentage of Texans playing any game has fallen from 70 percent a decade ago to about half today. Lottery officials in Texas credit the rapid success of the $50 game, introduced in May, with helping it avoid a sharp drop in sales during the 2007 fiscal year. For the $50 game, the odds range from 1 in 6.67 for a $50 prize to 1 in 1.2 million for the top $5 million jackpot.

As for the criticism from legislators and others that such games appeal most to compulsive gamblers or low-income players, a spokesman for the Texas Lottery Commission, Bobby Heith, said, “We value and respect those concerns very much but our job is to run the lottery, to generate as much revenue as possible, as responsibly as possible.”

In Texas, urban liberal Democratic politicians like Mr. Coleman and Mr. Shapleigh of El Paso now find themselves aligned with the Christian Life Commission, the public policy division of the Baptist General Convention of Texas, as well as traditional conservatives like Robert F. Deuell, a Republican state senator from the suburbs east of Dallas. Four years ago, the Baptist group hired a former state lottery official to crunch the numbers and prepare reports intended for urban Democratic officeholders that detailed the high rate of play in their districts.

“We use the facts that are the most persuasive,” said Suzii Paynter, executive director of the advocacy group. “If it’s just a religious argument, people can pat you on the head.”

Mr. Deuell has opposed the lottery since he took office in 2003, but research from the anti-gambling group played an important role in Mr. Coleman’s change of heart, whose district has the highest rate of lottery spending in the Houston area. His constituents spend about 3 percent of their income on games, according to the anti-gambling group’s research.

“Ten years ago, I wasn’t opposed to the lottery,” Mr. Coleman said. “This has really made me take a second look at whether the state should be in the gaming business.”

The Baptist group has been fighting the lottery ever since it was introduced in Texas in 1991 by Ann Richards, then the Democratic governor, and Ms. Paynter concedes the lottery will not be abolished overnight. “It’s a long fight, and a hungry industry,” she said.

Mr. Coleman does not support shutting down the Texas Lottery. But he shares Ms. Paynter’s goal of eliminating the $50 scratch-off and similarly priced instant games. “If people want to play,” Mr. Coleman said, “they’re better off buying a dollar ticket and calling it a day.”

Ron Nixon in Washington and Thayer Evans in Houston contributed reporting.  

Last month, I wrote that there are many problems associated with state-run lotteries.

An exhaustive study by the non-partisan Tax Foundation in Washington D.C. had this to say about Wisconsin’s lottery that is supposed to provide property tax relief:

The Wisconsin Lottery states that since 1988, $2 billion, or 32 percent of revenue, has been “returned to eligible Wisconsin taxpayers in the form of property tax credits.” In addition, when retail commissions, prizes and property tax relief are added together, at least 95 percent of total lottery revenue has “gone back to the people of Wisconsin.”

The agency boasts further, “That money stays in Wisconsin’s economy for the good of everyone.” However, private businesses could keep that revenue in the state’s economy just as easily; a state-run gambling monopoly is not necessary to keep money in the state, and if legislators want to lower property taxes, rates can simply be lowered.

Conversely, if more money for education is needed, property tax rates can be raised. It only complicates the tax code to raise money through one tax in order to lower another tax. The only thing the Wisconsin lottery really accomplishes is a redistribution of tax revenue from lottery players to property owners. Some taxpayers may think middle-and high-income homeowners are more deserving of a tax break than mostly low-income gamblers are, but the tax code should not be used to impose such moral judgments.

You can read my entire blog on state –run lotteries here.

Would the state of Wisconsin be better off appropriating its state lottery proceeds toward public education? Probably not.

The New York Times reports the following:

The newspaper has completed an “examination of lottery documents, as well as interviews with lottery administrators and analysts, finds that lotteries accounted for less than 1 percent to 5 percent of the total revenue for K-12 education last year in the states that use this money for schools.

In reality, most of the money raised by lotteries is used simply to sustain the games themselves, including marketing, prizes and vendor commissions. And as lotteries compete for a small number of core players and try to persuade occasional customers to play more, nearly every state has increased, or is considering increasing, the size of its prizes — further shrinking the percentage of each dollar going to education and other programs.”

You can read the entire New York Times article here.

My March 5, 2007 blog entry, March Madness documented the increase in the number of calls made this time of year to the Wisconsin Council on Problem Gambling Helpline. The Executive Director of the Council on Problem Gambling Rose Gruber says March tends to be a record-setting month for people calling in to seek help for addictive gambling. During 2005, the hotline recorded 10,049 calls, with 10% or 1,095 coming in March. Numbers for March 2006 are unavailable, but leading up to March Madness, February 2006 the Hotline recorded over 1100 calls.

I pointed out the significant social costs of gambling to the state of Wisconsin. The average debt of callers to her hotline is $43,000, up from 37,000 last year. Wisconsin has 332,000 serious problem gamblers, up from 265,000 last year, a significant increase.

The USA TODAY reports, “the Road to the Final Four, the nation's fourth biggest gambling event, is paved with personal and financial ruin.”

“If the NCAA wants information on the human toll from gambling, it should ask Sandi Snook. The 41-year old mother from Charles City, Iowa, says she lost two 17-year-old sons, directly or indirectly, to the sports betting addiction of Meng-Ju "Mark" Wu, a 19-year-old freshman at the University of Wisconsin.

Dane County (Wis.) prosecutors said Wu, furious over a $15,000 sports betting debt, shot Snook's son Dustin Wilson to death in his sleep June 26, 2003, in Verona, Wis., with Wu's bookie Jason McGuigan, 28, and Dan Swanson, 25. McGuigan was the real target, says Bernie Coughlin, Verona's police chief. Wilson and Swanson, McGuigan's roommates, were in the wrong place at the wrong time. Hours before his trial was to begin, Wu hung himself in jail Jan. 17, 2005.

Wilson's death devastated his brother and best friend, David, and Nov. 19, 2005, David Snook locked the door of his bedroom and hung himself in his closet. “

You can read the entire USA TODAY article here.

The Fond Du Lac Reporter newspaper has a report on the lost productivity that results from March Madness. You can read the article here.

Wisconsin is firmly in the grips of March Madness. The Badger State was fortunate to have two of its men’s college basketball teams selected to compete in the NCAA College Basketball Tournament.

Securing a bid to the annual tournament, one of the most heavily watched sporting events of the year, is an honor and a source of great pride for the schools, their alumni, and fans. Playing against other top college teams from around the country brings additional revenue to the schools and a wealth of attention and prestige.

For most college basketball observers, the tournament is an outlet filled with harmless fun and emotion. Too many fans, however, will be drawn into the dark and gloomy side of March Madness and succumb to problem gambling.

The NCAA tournament is highly visible. It is everywhere, from television to radio to CBS Sports offering free online viewing of tournament games. A Chicago-based consulting firm estimates the tournament will cost employers $1.2 billion in productivity over the course of the 19-day event. Hundreds of basketball observers in Wisconsin could lose earnings, savings, their families, and homes because March Madness will lead them to gamble.

Telephones at the Wisconsin Council on Problem Gambling (1-800-GAMBLE-5) are unfortunately busy year-round. However, they especially heat up around college basketball tournament time. The Executive Director of the Council on Problem Gambling Rose Gruber says March tends to be a record-setting month for people calling in to seek help for addictive gambling. During 2005, the hotline recorded 10,049 calls, with 10% or 1,095 coming in March. Numbers for March 2006 are unavailable, but leading up to March Madness, February 2006 the Hotline recorded over 1100 calls.

Total calls received in 2006 were 9200, down from 10, 049 the prior year. That’s the good news. Gruber says the bad news is the severity of the calls is getting worse with more and more callers considering suicide or suffering devastating bankruptcies.

Gruber also says the disturbing trend of more young people becoming addicted to gambling continues. The entire atmosphere surrounding March Madness with its elimination tournament for college teams naturally becomes more popular with young crowds. The remainder of the year, young gamblers are lured by poker and betting on the Internet. Gruber says six to 20 percent of teens in Wisconsin are at risk of becoming addicted to gambling.

This is cause for great concern. Unlike the casual gambler with bets that do not interfere with daily life functions, the problem gambler cannot seem to stop. The more the problem gambler bets, the more betting becomes a quest, not just to win, but to recover lost money. Bigger and bigger risks are taken and the debts grow larger and larger.

There are tremendous costs to the families of troubled gamblers. There are financial loses. Serious problem gamblers lose or quit their jobs, steal money to support their gambling habit, think about and actually plan suicide, and some even make suicide attempts. Children of problem gamblers develop behavior and adjustment problems suffering from depression, anxiety, and cynicism.

The social costs of gambling to the state of Wisconsin are significant. The Wisconsin Council on Problem Gambling Helpline Executive Director Rose Gruber says the average debt of callers to her hotline is $43,000, up from 37,000 last year. Wisconsin has 332,000 serious problem gamblers, up from 265,000 last year, a significant increase.

A Wisconsin Policy Research Institute study in 1996 reported the average serious problem gambler imposed costs close to $10,000 upon Wisconsin each year with a total annual social cost impact of over $307 million. The same study reports the average serious problem casino gambler imposed costs of over $10,000 upon Wisconsin each year with a total annual social cost impact of over $138 million.

Wisconsin certainly has enough gambling and does not need any expansion. The social costs far outweigh the gaming revenue payments the state receives. The immense visibility of March Madness should be a wake-up reminder that gambling remains a serious problem in Wisconsin, and one that is growing by luring in younger players.