More than 178,000 retail outlets in 41 states and the District of Columbia sell state lottery tickets. Last year, these retailers earned more than $3 billion in commissions on ticket sales of almost $49 billion.
Military exchanges want a piece of that action.
Congress is weighing a proposal from the Department of Defense to allow lottery ticket sales in stateside exchanges, except where such sales would pinch the businesses of blind vendors already selling lottery tickets on bases.
Army and Air Force Exchange Service officials, in drafting the proposal, argued that lottery sales would help to offset a sharp drop in revenues for morale, welfare and recreational activities from a drawdown of U.S. forces in Europe and Korea through 2009.
The troop pullback is expected to cut in half about $100 million in recreation funding from the operation of slot machines at U.S. bases overseas.
John Molino, deputy undersecretary of defense for military community and family policy, confirmed that the loss of slot machine revenue was the reason exchange officials gave Congress to urge approval of lottery ticket sales. But a bigger motivator, he said, was the obvious business opportunities stateside lottery sales present.
Lawmakers have been silent on the proposal since it arrived on Capitol Hill in May. At least a few members of Congress are expected to oppose it on moral grounds, arguing that lottery sales would encourage military shoppers to gamble, according to a congressional staff member who has studied the proposal.
Lottery retailers get a 5 percent to 8 percent commission on tickets sold, depending on state rules and incentives. Pennsylvania lottery officials pitch it to retailers by saying 80 percent of lottery patrons buy at least one other item with every visit. In Pennsylvania, lottery players on average buy seven tickets at a time.
State lottery ticket sales last year averaged $183.70 for every man, woman and child living in lottery states, according to the North American Association of State and Provincial Lotteries.
Army and Air Force Exchange Service officials haven’t analyzed their potential revenue gain, Molino said. But he added, “Whatever share that is, they would like to get a piece of it.” Navy and Marine Corps exchanges also would sell lottery tickets if the proposal wins approval.
Molino said he has no sense yet if other lottery retailers will oppose ticket sales in exchanges. Currently, the law allows only blind vendors to sell lottery tickets on bases. Molino said he doesn’t know how many blind vendors do so, but the proposed legislation would bar exchanges from encroaching on their sales.
The Army is the service most worried about a drop in slot-machine revenues from the global repositioning of forces over the next several years.
Peter Isaacs, chief operating officer for the Army Community and Family Support Center, estimates that the Army inventory of slot machines will drop by 800. Total morale, welfare and recreational revenue for the Army alone is expected to fall to $40 million from $90 million.
“There is no way to stimulate or to replicate those machines elsewhere,” Isaacs said. “Obviously, you can’t use gambling devices in the United States. That is just less revenue to the totality of Army operations,” he said, referring to nonappropriated funds.
By law, certain base activities such as golf courses, recreation clubs, bowling alleys and marinas must be self-sustaining, which means no taxpayer support or reliance on appropriated dollars. Overseas slot machines support such activities, primarily with construction funds.
The services contend that operating slot machines overseas is a safe way to entertain troops, and with more favorable odds, than off-base gambling. A Defense Department report to Congress several years ago concluded that slot machines don’t significantly affect member indebtedness or aggravate pathological gambling disorders.
Isaacs said the transfer of troops stateside will relieve some of the need for morale, welfare and recreational facilities in Europe and Korea, but also will strain stateside facilities at a time when revenue support is falling.
“It’s not like these people are going away,” Isaacs said. “We’re going to see some significant increases in the populations of certain continental United States installations. … The slot machine program has been one of the major components that allows us to fund those things.”
Exchange profits also fund recreation programs. Indeed, the Army last year received $150 million from AAFES. But Isaacs predicted the overall gain to those programs from exchange lottery ticket sales would be relatively modest.
“If you look at what the average citizen spends per capita per year on lottery, it’s a fair amount. But then AAFES gets a percentage of that, and then it’s divided between us and the Air Force and AAFES. So the trickle-down effect applies,” Isaacs said.
“I’m not scoffing at any amount of money,” he added. “But it certainly won’t offset the significant decrease of cash that will accrue because of what’s going on in the Army.”
A congressional staff member challenged that assessment. Lottery ticket sales could be a boon, both to exchanges and to recreation funds, he said.
“People have demonstrated an uncanny ability to invest in these things,” he said. “It’s hard to know what the level of sales” will be.
A bigger question for Congress is how lottery sales would serve some greater good for the military community. “The whole moral issue,” he predicted, “is going to be the first line of debate.”
To comment, write Military Update, P.O. Box 231111, Centreville, VA 20120-1111, e-mail milupdate@aol.com or go to www.militaryupdate.com.
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