Spectrum Gaming Group: Texas should take a "holistic and long-term view" of its lottery

While it is tempting, even justifiable, to take quick action to blow up the Texas Lottery in the wake of the controversial jackpots won via a courier service, the state would be wise to take a holistic and long-term view of an institution that is an important contributor to the state’s public education.

To address structural and policy issues that are critical in any such approach, it is important to begin by asking the right questions. They should include:

• Why does the nation’s second most-populous state rank 21^st in lottery sales per capita, at $284 (per 2023 results)? That’s substantially less than high-population states like New York ($456) and Florida ($403) where players also have the option of gambling in numerous casinos throughout the states. Texas has only three Class II tribal casinos, none of which are close to the major population centers. The Texas per-cap results are on par with Illinois – where there are there are 16 casinos and nearly 50,000 video gaming terminals in more than 8,600 locations throughout the state. Similarly, Texas ranks 23^rd in lottery sales as a percentage of personal income and 25^th in lottery sales as a percentage of gross state product. Why?

• Is ilottery an option for Texas? If so, courier services that are deep in the heart of the Texas Lottery mess would not be needed. More importantly, without the near-term prospect of commercial casinos or igaming, the Texas Lottery could go all in with ilottery by offering both instant and draw games online that would effectively replicate the igaming experience. Spectrum Gaming Group estimates that igaming in Texas could generate $4.8bn to $5.4bn in gross gaming revenue at maturity, based on performance metrics from other igaming states.

• If casino gaming were to be legalized (and eventually it will be, whether in two years or 20), can the state envision its lottery being the casino regulator, as it is in seven other states? Although Spectrum believes that any state-authorized casino gaming should be regulated by a separate agency, if the lottery were a legally viable route for legalization of casinos, Texas should consider addressing structural issues to anticipate and address that possibility. States that offer both legal gaming and ilottery have long wrestled with ways to differentiate a digital slot machine from a digital instant lottery game. That conundrum would not be an issue in Texas. At least not at present.

As Texas works its way through this current crisis of confidence, it must remember that lotteries do not compete against other lotteries. That state-by-state market segmentation creates an opportunity that simply does not exist in other gaming verticals: Lotteries can benchmark each other (see above) and identify best (and worst) practices in other states. Taking advantage of this wealth of knowledge and working through organizations such as NASPL (North American Association of State and Provincial Lotteries), the Texas Lottery can surely:

• Improve its per-capita sales.

• Identify the controls that other Iottery and courier-service states have put in place to prevent any future problems or potential scandals.

• Recognize what can be gained – and what can be lost – through any digital offerings. For example, if Texas decides to pursue ilottery, how might that affect its future ability to attract the capital investment that would be required to some day develop a successful, thriving casino industry?

• Enhance the dialogue with in-state stakeholders, including retailers. What are they learning from their customers, as well as what are they observing regarding their non-customers? We presume there is nothing in the air or the water in Texas that makes Texans less interested in lottery purchases than their counterparts in other states.

Lastly, consider essential lessons that Spectrum offered in a 2023 report on the future of courier services and igaming. As part of our research, we interviewed the then-executive director of the Massachusetts Lottery, Michael Sweeney, who made the essential, timeless point that lotteries need to improve and update their laws and regulations accordingly, because existing policies and regulations “just don’t reflect the modern realities, particularly on the technology front.”

Massachusetts has long held a place as the most successful lottery state in the nation, based on per-capita sales. That might be a good place to start searching for new ideas.

Joe Weinert (left) is executive VP and Michael Pollock is senior policy adviser of Spectrum Gaming Group, an independent consultancy that specializes in the economics, regulation, and public policy of legalized gambling worldwide.

Spectrum has worked for 27 US state governments, including 14 state lotteries.