Lottery profits fall far short of projections Sluggish keno start hurts '93 earnings

April 30, 1993|By John W. Frece | John W. Frece,Staff Writer

Despite the controversial addition of keno in January Maryland's lottery games are likely to generate $30 million to $50 million less for the state budget this year than officials had hoped.

Keno revenues are off, lottery officials say, partly because bar owners and other retailers were reluctant to install the electronic numbers game until it was clear the legislature was not going to prohibit it.

But there are other problems as well:

* Keno appears to be stealing players -- and money -- from other more established daily lottery games, such as Pick 3 and Pick 4.

* El Gordo, the jackpot game pushed just before Christmas, was such a loser that a second El Gordo game was canceled, a $16 million double whammy of lost revenue to the state.

* Even luck has conspired to make it harder for the state to make money on gambling: Prize payouts have been $10 million higher than the law of averages would dictate. And Lotto numbers have been picked correctly with such regularity that the jackpot has never grown big enough to attract the occasional players who provide windfall profits to the government.

The good news is that despite all that, other sources of income to the state -- principally, from personal and corporate income taxes -- are on the rise.

They are expected to offset the lottery losses, and the state should be in the black when the budget year ends June 30.

"On balance, the revenues should exceed estimates," William S. Ratchford II, the General Assembly's chief budget adviser, told legislative leaders in a budget update earlier this month.

Deputy Budget Secretary Frederick W. Puddester said he, too, is confident other revenues will overcome any lottery shortfall. "This is not something anyone is panicking over," he said.

Lottery officials say they expect the numbers to improve, in part because of a half-million-dollar advertising campaign launched over the past two weeks to promote keno and encourage taverns, bowling alleys and other retailers to install the game. They are hoping the advertising blitz will help recoup some of the money keno might have brought in if there had been no unfavorable publicity last winter.

Still, some legislators remain worried about the state's heavy dependence on gambling proceeds.

"I believe that when any state relies heavily on gambling revenue, you live by the sword and you can die by the sword," said Del. Howard P. Rawlings, a Baltimore Democrat who chairs the House Appropriations Committee. "At some point we're going to regret this strong budgetary reliance on the gambling revenues."

Mr. Rawlings added, however, that he is not worried the dip in lottery revenues will jeopardize next year's budget. "When the economy starts improving, then you'll find more people playing keno and these various lottery games," he said.

State officials have grown to expect more than $300 million a year in revenue from the lottery games. The figure has barely changed for the past seven years despite multimillion-dollar advertising campaigns and the introduction of new games, and critics say Maryland's market for lottery players has just about reached its limit.

In the first five years after the lottery was started in 1974, revenues exploded at a rate of 47 percent. The revenue growth slowed from 1981 to 1986 but was still a remarkable 12 percent. Since 1987, however, lottery revenues have actually fallen by three-tenths of a percent.

Keno has had an especially rocky start. At the end of March,

there were 983 retailers with keno machines in their establishments -- substantially less than the 1,320 predicted. There is no way to make the six-month goal of having 1,800 keno outlets, Marty Goldman, deputy director of marketing for the State Lottery Agency, conceded this week.

Keno revenues have stalled at $4 million a week for the past 11 weeks despite the addition of more than 200 new terminals in February and March. If that continues, legislative analysts say keno revenues will fall $15 million below estimates during the game's first half year of operation.

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