Scratch tickets propelling Minnesota State Lottery to record sales

Inside the Clark gas station on Rice Street in St. Paul, just above the bags of potato chips, signs taped to the wall celebrate each time a customer won at least $500 playing the Minnesota State Lottery. The owner has posted 19 winners in the last year and a half alone.

Diane Andresen is not one of them. Still, she comes to the station day after day to buy scratch tickets, $50 to $60 worth every week. She once won $1,000 playing scratch, 15 years ago. Most of the time, she scrapes away the thin latex coating on the cards and finds only losers.

Andresen, 48, who sells pulltabs for a living, knows she has spent thousands more than she's won. Why does she keep buying? "It's in hopes of winning."

Andresen's constant losses are part of a giant jackpot for the Minnesota lottery. The state-run gambling operation is raking in record profits year after year. Its success has been immune to economic downturns and stoked by the soaring popularity of habit-forming and ever-multiplying scratch games.

A Star Tribune analysis of 10 years of lottery sales and income shows that scratch games are now driving the lottery's growth, not lotto games and their much-hyped, huge Powerball jackpots. The state lottery is expecting a record $358 million in scratch sales in fiscal year 2013 — about $150 million more the other lottery's products combined.

Scratch sales grew an average of 3.4 percent annually over the past decade, according to the newspaper's analysis of sales at more than 4,000 retailers. By contrast, lotto sales have slid, falling an average of 1.4 percent annually over the last 10 years. Last year, however, a price hike and several big Powerball jackpots boosted lotto revenues 30 percent.

The instant gratification can make scratch games addictive, and some blame the lottery for taking advantage of the poor. Lottery officials say they try to mitigate the damage of problem gambling and point out that the lottery has contributed more than $2 billion to the state budget and environmental programs since it began in the early 1990s. To keep it growing, they have spent more than $75 million advertising and marketing their products in the last decade, records show.

They make no apologies for doing exactly what's expected of them: making money.

"We have to recognize that we are in a very competitive marketplace," said Don Feeney, the lottery's research and planning director. "We are competing with everything on display in a store."

The lottery's popularity comes despite the odds. The chance of winning any money is about 1 in 3 to 1 in 4, but goes from about 12 percent odds of getting your money back on the cheapest ticket to a 1 in 405,773 chance of winning the $1 million prize on the $30 ticket, the most expensive the lottery sells.

That hasn't stopped customers from buying $2 billion in scratch tickets all over the state in the last decade. East Grand Forks has the highest per capita sales (North Dakota doesn't have scratch tickets). Detroit Lakes, International Falls and Waite Park rank closely behind.

John Mellein, the agency's former director of marketing and sales, attributes the record sales to a more strategic and aggressive promotional campaign with a focused message: the lottery offers fun and entertainment.

The lottery conducted dozens of surveys and focus groups dissecting its customers' age groups, income brackets, computer and social media usage, and shopping habits. Many of those studies suggest that a broad swath of Minnesotans play scratch, regardless of income.

But for years a key demographic has largely shunned the lottery: young people. The lottery's own studies show that no other age group buys tickets less than those 18 to 24.

In an effort to understand why, one survey in 2011 asked 18- to 34-year-olds to draw a "typical" lottery player and compare it to a drawing of themselves. The results: Those taking the surveys were often depicted as young, active and energetic; the lottery players were typically shown as older and sedentary. A 24-year-old drew a picture of a 52-year-old lottery player saying, "I have seen a lot of places in my day."

The lottery's marketing often has skewed younger. Its presence on social media has grown; recent commercials feature cute puppets clowning with former Minnesota Twins Bert Blyleven and Kent Hrbek. Some of its bestselling new scratch products feature Twins and Vikings logos.

There's also been an increase in cartoonish, multicolored tickets that pop out from vending machines and gas station cases. The $5 "Stinkin' Rich" scratch game features a cartoon skunk. In 2009 the lottery offered 49 different kinds of scratch tickets; it will offer 75 this year.

The lottery's goal: offer more products in hopes of finding something for everyone in just about every age group and income bracket in every area of the state. The number of lottery retailers, who get a 5.5 percent cut of every ticket sold, grew to 3,126 by the end of the year. Lotto tickets can be bought at dozens of gas pumps and ATMs across the state, a first in the country.

"No one needs to buy us," said Mellein, who retired last month after 16 years with the lottery. "As long as we can project that fun and entertaining to players, they will enjoy our products. If we don't, we're not on their minds."

Nearly every study on state lotteries in the past 20 years has concluded that it's played most frequently by lower-income populations, said Earl Grinols, a Baylor University economics professor who has studied gambling and lotteries.

University of St. Thomas professors Kathryn Combs and John Spry found in a 2008 study that all of the Minnesota lottery's products were regressive — that lower-income groups bought higher shares of lottery tickets.

Scratch tickets were found to be the most regressive, with 20 percent of the state's lowest-income population buying 30 percent of the tickets. Half of the top earners bought 27 percent of the tickets, the study found.

That tax is something Alan Miller said he sees each day at the Clark station he runs with his wife. Miller estimated that about 75 percent of his customers buy scratch tickets and that about half of those likely are low income. He said many of his customers buy groceries from his store with food stamps or EBT cards, yet spend hundreds of dollars a year on scratch tickets.

That's been good business for the Millers. Their store has sold about $7.6 million in lottery tickets in the last decade, ranking among the highest in the state; they've kept about $42,000 a year. "That pays for half my payroll right there," he said.

Yet Miller said he's often bothered by customers on public assistance who buy lottery tickets. "It's a tax on the poor," he said.

The lottery's Feeney acknowledged that the lottery is regressive, but said if there's harm from that, it's minimal. As to whether lottery sales are driven by the poor, he said, "I just don't think there's enough low-income people to drive $520 million in lottery sales."

Scratch tickets are also considered the most addictive form of gambling because, like slot machines, there's a quick result.

Feeney said that his product can be addictive but that the goal of the lottery is to minimize that addiction. That's why he works with state and national groups that fight problem gambling, including serving as the board president on the National Council on Problem Gambling and on board of the Northstar Problem Gambling Alliance.

The lottery also contributes $2.2 million a year to compulsive-gambling groups.

Despite the lottery's success, Feeney said it is still far from where it can be in sales, compared with other states. In 2011, Minnesotans bought an average of $91 in lottery tickets, good for 33rd out of the 43 states that have lotteries.

To boost sales, Feeney said, means more studies, advertising, tickets and retailers, all in hopes of getting more people to buy more of their products.

"In that way," he said, "we're no different from Coca-Cola or Lexus."

brandon.stahl@startribune.com 612-673-4626 howatt@startribune.com • 612-673-7192