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Powerball lottery sales plunge as 'jackpot fatigue' sets in

Michael Santoli
Michael Santoli

It’s getting harder to find Americans who are willing to pay $2 for the (remote) chance to win a couple hundred million bucks.

Powerball lottery ticket sales collapsed by some 40% in the second half of 2014 from the same period a year earlier in the 44 states, plus the District of Columbia, which participate in the sweepstakes.

Lottery industry experts are blaming “jackpot fatigue,” a phenomenon in which bettors seem to require ever-larger stakes in order to continue buying tickets at the same pace.

La Fleur’s magazine, which covers the lottery industry, notes that there hasn’t been a Powerball jackpot above $257 million in nearly a year. In the 15 months prior to February 2014, there were five jackpots of at least $400 million, including one of $600 million in the spring of 2013.

Powerball jackpots build over time until a winning ticket or tickets hit. The lack of ever-larger jackpots, then, is a statistical fluke. But it’s the buildup of stakes toward record levels that generates buzz and seems to excite casual players into wagering.

Tom Garrett, an economics professor at University of Mississippi who studies the gambling business, says: “Measuring jackpot fatigue is quite difficult -- most of the evidence for it comes from a gradual decrease (or slower increase) in sales that cannot be explained by changes in economic conditions or demographics.”

This certainly seems to describe what’s been happening to Powerball sales.

In his annual review of his state’s lottery results late last year, Kentucky Lottery executive vice president Howard Kline explained, “Powerball was the primary factor which led to the decline in draw game sales in the past fiscal year. With the lack of major and sustained jackpots for the year, Powerball sales in Kentucky dropped $25.4 million.” The Powerball weakness was only partially offset by higher revenue form Kentucky’s Mega Millions games.

Garret adds: “Lottery officials try to overcome this fatigue by restructuring their lotto games in order to produce higher jackpots. But, as I'm sure you are aware, this is a continuous process as fatigue sets in some time after each restructuring.”

A maturing business

As I discuss with Yahoo Finance Editor-in-Chief Aaron Task in the attached video, states have grown to rely on lottery revenue to bolster their budgets. They now face a mature market that’s abundant with gambling options nationwide, from Native American and converted-racetrack casinos to real-money fantasy sports betting.

The La Fleur’s report on the sales trends sounds a rather shrill alarm on state finances, noting that combined Powerball and Mega Millions sales “have never experienced a major-year-over year decrease.” Yet Mega Millions sales also slid in the first half of fiscal 2015, suggesting this could be an unusually tough year for state gaming budgets.

La Fleur’s argues that this trend will make it “very challenging for most lotteries to manage their budgets” considering that these games “are amongst the most profitable games in any portfolios and large jackpots attract light/lapsed players and drive traffic into stores to play all lottery games.”

The bigger-picture takeaway is that all legal gambling represents a mature, low-growth business in the U.S. following two decades of aggressive expansion of lotteries and regional casinos. The closures of big casinos in Atlantic City and even the tepid gaming volumes in Las Vegas show that wagering in this country is essentially a zero-sum game.

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Garrett, of the University of Mississippi, notes that for Americans now entering traditional core gambling age above 35, there’s not the same novelty effect that prior generations experienced.

“Many of the folks that were 40-ish and 50-ish 20 years ago are now retiring and are thus on fixed incomes, which limits the amount of discretionary income they have to use toward gambling,” he says. “And the folks that were 20-somethings 20 years ago are now older and have more income, but they have been around gambling for a longer time period, so it isn't as exciting for them.”

And so lottery commissioners have to conjure more frequent or convoluted games that they advertise aggressively to target the working people who more frequently make those low-probability bets on a windfall prize.

This “innovation” in lottery products can cross over into the absurd. New Hampshire this month introduced instant-win tickets that smell like bacon when a player scratches them to reveal the numbers.

State lottery officials clearly don’t want consumers to wake up and smell the coffee by realizing how steeply the odds are stacked against those with a big lottery habit.

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