Money, Politics, and the Arizona Lottery

hoard_of_ancient_gold_coinsHoard of Ancient Gold Coins(Photo: Swiss Banker, English Wikipedia)

Since the Supreme Court’s 2010 Citizens United v. Federal Election Commission decision, concerns over the propriety of corporate donations to political campaigns have become a mainstay of contemporary politics. Though the infusion of money into politics predated this court case, Democrats and Republicans alike have recently bemoaned the growing prominence of Super PACs and the outsized influence large donors can play over presidential elections. However, Citizens United has had even more pernicious effects outside of Washington. “The real problem” with the Supreme Court’s decision, attorney David Boies noted in 2015, “is at the state and local level, where an infusion of a certain amount of money can totally swamp [elections].”

What Boies ignored, however, was that the infusion of money into state level politics was hardly an innovation of the post Citizens United era. This past November, the Arizona Lottery celebrated the 36th anniversary of its creation. Though often overlooked as a commercial curiosity, lotteries provide an apt example of the role single corporations can play in deciding state-level elections. Lotteries began as desperate ploys for revenue in the 1960s, but private-sector companies began spreading lottery referenda around the country in the 1980s, engaging in what political scientists call “astroturfing” to create new markets for their products. A review of the history of lotteries in the post-World War II United States and a study of the role one company had in bringing legalized gambling to Arizona indicates not only the dangerous effects corporate influence can have at the state level, but the longstanding connection between corporate politics and the spread of gambling in the late twentieth century.

In 1964, New Hampshire legalized the nation’s first modern state lottery. As one of just three states without a sales or income tax, New Hampshire turned to gambling in an ultimately futile attempt to raise revenue without levying new taxes. Enterprising state officials in other revenue-starved northeastern states soon followed. By 1978, 13 states had instituted a lottery, yet it was rapidly becoming clear that lotteries were not the financial panaceas that proponents had claimed. Lotteries raised just a small percentage of total state revenue and could not replace state-level taxes as means of funding state governments. For example, though New Jersey’s lottery was hailed around the country for its high sales and massive revenue, it raised just 2.75% of total state revenue in 1979, its eighth year in existence, failing to meet the glowing expectations that had spurred its approval.

Despite the failures of lotteries in the Northeast, budgetary shortfalls helped spread legalized gambling across the country. In 1980, Arizona was desperate for new sources of income. Many of the state’s roads were in disrepair and its educational system faced a critical shortage of funding. Yet, in the midst of a nationwide recession and in the wake of tax revolts around the country, state officials were reluctant to raise taxes. Therefore, Arizona legislators turned to legalized gambling. A legislative report estimated that the profits from the lottery could reach $27 million a year, which some lottery supporters claimed would allow for huge reductions in Arizonans’ annual tax burden.

For all this popular enthusiasm, though, the main support for the lottery law came not from troubled taxpayers or even state officials, but the corporate boardroom of Scientific Games, a Georgia-based lottery ticket manufacturer. In the 1970s, gaming corporations had begun contracting with state lotteries to provide tickets, advertise games, and set up the machinery necessary to run lotteries. Scientific Games provided tickets to almost all of the nation’s state lotteries and, in the 1980s, sought to expand its own customer base by pouring money westward to bring a lottery to Arizona. Though the idea of a lottery had traditionally enjoyed very little enthusiasm among Arizona voters, Scientific Games secured a spot on the ballot for a lottery proposal by paying circulators to gather more than 50,000 signatures in two months. Arizona business and religious leaders—as well as Governor Bruce Babbitt—loudly opposed the lottery, yet the haphazardly assembled Stop the Lottery committee was only able to raise $8,000, a tiny sum compared to Scientific Games’s massive war chest. The company’s extensive advertising campaign ignored the failure of lotteries in the Northeast, promising overflowing state coffers if Arizona residents legalized gambling in their state. Eventually, on the same day they voted to elect Ronald Reagan to the White House, just over half of Arizonans voted to make Arizona the first state west of the Mississippi River to raise revenue through a lottery.

It did not take long to realize precisely who would benefit from Arizona’s new lottery. A few months after the referendum, Arizona’s Lottery Commission unanimously selected Scientific Games as the provider of tickets for the state’s scratch games. Though committee members maintained that the company had made the best proposal, other state officials viewed the decision with suspicion, believing that Scientific Games had been given an advantage because it had funded the lottery referendum. Republican State Senator Ray Rottas from Phoenix declared that “this is the first time in Arizona that an initiative has been bought and paid for,” claiming collusion between the company and state officials. The close relationship between the company and the state has continued over the last thirty-five years. Scientific Games has provided tickets for the Arizona Lottery since the Lottery’s inception and, in 2015, the company signed contracts extending its tenure as the state’s source of instant tickets as well as the software for its computer systems.

Scientific Games’s promise that a state lottery would be an easy alternative to taxes has proven woefully off the mark. Since 1996, Arizonans have spent approximately $8.77 billion on lottery tickets, $750 million in 2015 alone. Almost 60% of that sum was returned to players in prizes, with just 28% of lottery revenue going to state coffers. Despite the hyperbolic claims by company officials in 1980, lottery revenue represents only 2% of Arizona’s annual state revenue. Meanwhile, over the last thirty years, the Lottery has devoted $440 million to administrative costs, including multiple contracts with Scientific Games.

Though it has failed to become a major moneymaker for Arizona, lottery supporters have continued to maintain that gambling provides a harmless source of extra revenue, that the state might as well take as much non-tax income as it can. Yet there has been a high social cost to lottery legalization. Lottery revenue comes primarily from the pockets of the state’s poorest citizens. “They don’t advertise up in the foothills [for the state’s richest residents],” Republican Jeff Groscost, former speaker of the Arizona House of Representatives noted in 2002. Instead, the lottery “overwhelmingly … targets people that have less education and less means.” Lottery representatives have maintained that lottery tickets appeal to a middle-class audience, claiming in 2013 that the average player was a white 52-year-old with at least some college education and an income of $53,000. What the Lottery’s statistics do not take into account, however, is the frequency with which players buy tickets. Studies have shown that a small group of lottery players accounts for a large percentage of lottery sales, and that this group is poorer, less educated, and disproportionately comprised of people of color. The true demographic is a far cry from the image of the “average” lottery player put out by Arizona and other state lotteries.

Arizona represents just one example of the outsize influence the private sector can have over state-level referenda. Scientific Games successfully funded lottery initiatives in the District of Columbia and Colorado in 1980 as well as California and Oregon in 1984, and forthcoming work by historian David G. Schwartz from the University of Nevada, Las Vegas indicates that the casino industry conducted similar operations around the country in the 1990s. These incidents provide insight into the discreet role the private sector has played in the expansion of gambling over the last fifty years. While the first state lotteries were driven by state officials who believed a lottery represented a painless source of revenue, the spread of lotteries and other forms of gambling has since been the work of profit-hungry corporations. Debates over privatized lotteries—considered or put into place in Illinois, Indiana, Pennsylvania, and New Jersey— ignore that some public state lotteries have been effectively private since their inception. Companies’ success at paying for political protection indicates the moneyed infiltration of state level politics and the need for voters and officials to examine precisely who is behind even seemingly benign ballot measures. Otherwise, taxpayers risk placing even more power into the hands of American corporations who have hit the jackpot on state-level politics.

About the Author

Caitlin Flanagan and Jonathan D. Cohen

Jonathan D. Cohen is a PhD Candidate in the Corcoran Department of History at the University of Virginia. His dissertation, For a Dollar and a Dream: State Lotteries and American Inequality, examines the rise of state lotteries in economic, religious, political, and cultural context of the late twentieth century United States. He is the co-editor of All In: Gambling in the Twentieth Century United States (forthcoming, University of Nevada Press). ​Caitlin Flanagan is a Jefferson Scholar at the University of Virginia, where she is pursuing her B.A. She in interested in intersection of political and intellectual history, with particular attention to religion in modern America.

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