By JON MELTZER, LAUREN MOWRY, VICTORIA IFATUSIN and MICHAEL PURDIE / Howard Center for Investigative Journalism, Howard Center for Investigative Journalism
The growth of the lottery business across the country was largely inspired by the lobbying innovations of a single multinational gaming company, Scientific Games Holdings LP.
A 1986 memo from Scientific Games co-founder and then-chairman John R. Koza described a “preliminary version of our new model state lottery law that we widely distribute each year to state legislators and government officials in states that do not participate in the lottery.” lottery”.
“We are seriously considering supporting an initiative petition effort in Oklahoma and/or Arkansas to establish a state-operated lottery there in the November 1986 election,” Koza wrote in a letter to Gaming Business Magazine.
Historian Jonathan D. Cohen found that the political activities of Scientific Games were key to the creation of state lotteries, primarily in the early 1980s, through ballot initiatives in Arizona, Washington, DC, Colorado, Oregon, and eventually , the “bonanza” in California. The California lottery “was entirely the product of Scientific Games,” said I. Nelson Rose, a law professor, author of “Gambling and the Law” and a widely cited expert in the field of gambling law.
For other states, the process took longer. Oklahoma enacted a lottery in 2004 after Scientific Games proposed a bill in 1986 and contributed money to a pro-lottery effort in that state. In the end, Scientific Games was appointed as the main contractor.
“There has never been a grassroots movement for this,” Les Bernal, national director of Stop Predatory Gambling, said of the lottery’s expansion. “It is being pushed by a handful of cynical public officials from both political parties (along with) powerful interest groups in the game who stand to benefit.”
Today, 45 states and Washington, DC have lotteries, as do dozens of countries around the world. “While Scientific Games was not responsible for the creation of new lotteries after 1984,” Cohen wrote, “its campaigns laid the groundwork for the massive expansion of legalized gambling in the Midwest, West, and Upper South through late 1980s and early 1990s.”
Scientific Games spokeswoman Therese Minella declined to answer questions, instead directing a reporter to the company’s website. Minella wrote that a question from the Howard Center for Investigative Journalism about the company’s lobbying and influence “is an inaccurate premise,” and she did not respond to emails or phone messages seeking further details.
Scientific Games’ lottery business was bought for $6 billion in April by Brookfield Business Partners LP, a Canadian-based private equity firm. The remaining part of Scientific Games was renamed Light & Wonder Inc. and kept Las Vegas as its headquarters.
Adam McLaren, a vice president and senior analyst at Moody’s Investors Service Inc. who follows the lottery business, doesn’t necessarily see Scientific Games as the main driver of lottery expansion. Instead, it was the states, looking for new revenue, that jumped on the lottery bandwagon after other states established them.
“Scientific Games played a big role early on, but it’s hard to say they were the ones that spread the growth,” McLaren said.
According to interviews and court documents, Scientific Games’ strategy to win public acceptance of lotteries has proven so effective that state governments have since become its main cheerleaders. The Howard Center found that state lotteries drive a multimillion-dollar wealth transfer to lottery contractors from players concentrated in low-income, high-poverty communities with lower levels of education and larger black and Hispanic populations.
Some states go to great lengths to protect their lotteries. The Wyoming Lottery Corporation, for example, sued a prominent critic after he wrote to national lottery organizations with complaints about the company’s handling of compulsive gambling. Edward Atchison, former director of the Wyoming Council on Problem Gambling, accused the Wyoming Lottery of preying on people with compulsive gambling addictions.
Atchison’s attorney, Tim Kingston, said he was “astonished” that a quasi-government entity like the lottery would take legal action against a private citizen. “He is a citizen and he has a right to speak out on a public issue,” Kingston said. “They’re just trying to shut him up.”
Atchison died in May 2016, before the case could proceed, and it was eventually dismissed.
The Scientific Games Playbook
The origin stories of state lotteries follow a general pattern: A shortfall in state tax revenue and a growing need to build schools, fix potholes and pay for other government services leads officials to seek new sources of revenue. States needed private contractors to handle ticket printing, game design, database management, and other operations. Scientific Games saw a great opportunity.
Lobbyists at the behest of Scientific Games formed groups with names like Arizonans for Tax Reduction or Californians for Better Education, which were “just total fronts for the company and its publicity efforts,” Cohen said in an interview. Executives at Scientific Games used these signatures to disguise their interests as genuine grassroots activism, Cohen and Bernal said.
Pro-lottery forces made sure to specify how lottery proceeds would be used for schools or other popular services rather than commingling funds with the state general fund “black hole” by knocking on doors for signatures. petitions, Cohen described in his book, “For a Dollar and a Dream: State Lotteries in Modern America.
Scientific Games wrote some of the bills that would eventually be ratified. Cohen compared the lottery language in ballot initiatives in California and Oregon to the generic version Koza shared. The state versions were so similar that Cohen called significant parts of them “word for word”.
Scientific Games’ efforts to bring a lottery to Oklahoma began in 1986, when the company contributed $25,000 to pro-lottery organizations as legislation to enact a lottery was debated in the Oklahoma House of Representatives, according to an article in The Oklahoman. of that year. . Ultimately, the lottery bill incubated for nearly 20 years before 64% of voters approved it via referendum in 2005.
The initiatives, once passed, were essentially tailored so that only Scientific Games could serve as the instant ticket provider, according to Rose and Cohen. The Language in California initiative required detailed financial disclosures from all executives, Rose said, knowing that “his competitors at the time were not going to disclose all this sensitive financial information about their executives.”
Scientific Games largely left the political arena of lottery legislation after all five pet project ballot initiatives passed, Cohen said, but remained on the scene with a reduced footprint.
Scientific Games, by its own admission, had a forceful expansion strategy in the 1980s. Then-chairman and CEO William G. Malloy described in a 1993 interview the change in the company’s business strategy from the decade previous. “Our goal is constructive aggressiveness, but not aggressiveness in terms of what we saw in the early days of Scientific Games,” Malloy told Gaming and Wagering Business magazine. “We recognize that lottery executives are pretty well informed these days and wouldn’t agree.”
An internal company study from 1983 offered insight into Scientific Games’ expansion ambitions in that era. The company conducted extensive market research to argue that lotteries would not affect betting on horse racing, known as parimutuel betting.
“All available evidence indicates that the lottery player and the parimutuel punter are different, that the introduction of a lottery does not have a negative impact on parimutuel revenue” and, on the contrary, can “help the pari-mutuel betting industry,” the study said.
Scientific Games’ expansion and success drew criticism, including from officials in the states where they operated. California Superintendent of Public Instruction Bill Honig said that “education was used to pass the lottery, but education has not benefited from it.” Arizona State Senator Ray Rottas, R-Phoenix, lamented that he had “doubts that they would receive the contract because this is the first time in the state of Arizona that an initiative has been bought and paid for.”
State governments have become the biggest supporters of the lottery in recent years. A vivid example of this defense involved a 2019 lawsuit by the New Hampshire Lottery Commission and other state lotteries seeking to preserve online lottery ticket sales, which was threatened by a 2019 Justice Department legal ruling. In January 2019, the Department of Justice reinterpreted the Wire Transfer Act of 1961 to apply to iLottery tickets, which would ban iLotteries nationwide. Bernal said there was an immediate “uproar” from the states.
“Lotteries that don’t make games available on the Internet in the next 10 years will lose an entire generation of players,” Charles “Charlie” McIntyre, director of the New Hampshire Lottery and former president of the North American Association of State and Provincial Lotteries . Lotteries, he told Public Gaming magazine.
In Michigan, for example, iLottery sales increased nearly 1,300% between 2015 and 2021, while traditional lottery sales continued to rise. Michigan Attorney General Dana Nessel argued in a court filing that the Justice Department’s ruling would put vital statewide public services at risk of being reduced or wiped out.
A federal appeals court sided with the states, preserving this new online lottery company. New Hampshire Governor Chris Sununu celebrated a victory that would “protect public education in our state.”
Jillian Diamond, Jamie Pinzon, Spencer Friedman, Rob Wells, and Constance Mitchell Ford of the University of Maryland contributed to this report.
The Howard Center at the University of Maryland is funded by a grant from the Scripps Howard Foundation in honor of newspaper pioneer Roy W. Howard.
Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.