As MWR's slot revenues fall, exchanges look to lotteries for relief
September 10, 2005
More than 178,000 retail outlets across 41 states and the District of Columbia sell lottery tickets. Last year, these businesses earned more than $3 billion in commission on ticket sales of almost $49 billion.
Military exchanges want a piece of that action.
Congress is weighing a first- ever proposal from the Department of Defense to amend current law to allow lottery ticket sales in stateside exchanges, except where such sales would pinch the businesses of blind vendors already selling lottery tickets on base.
No state lottery tickets would be sold on U.S. bases overseas.
The proposed legislation says the secretary of defense “may authorize the military exchanges to sell or exchange chance for any lottery authorized by state law and conducted under the authority of a state agency.”
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 from Europe and Korea through 2009.
The troop pullback is expected to cut in half about $100 million in net MWR funding from the operation of slot machines at U.S. bases overseas.
John M. Molino, deputy undersecretary of defense for military community and family policy, confirmed that the loss of slot machine revenue was the reason AAFES officials gave Congress to urge approval of lottery ticket sales in exchanges. But a bigger motivator for AAFES, he said, is the obvious business opportunities stateside lottery sales present.
Lawmakers have been silent on the AAFES proposal since it arrived on Capitol Hill in May. At least a few members of Congress are expected to oppose it vigorously on moral grounds, arguing that lottery sales would encourage military shoppers to gamble, said a congressional staff member who has studied the proposal.
Lottery retailers get a commission of 5 percent to 8 percent on tickets sold, depending on state rules and incentives. Pennsylvania lottery officials pitch it to retailers saying they will attract more customers and that 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 within lottery states, according to the North American Association of State and Provincial Lotteries.
AAFES 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 doesn’t know if other lottery retailers will oppose ticket sales in exchanges. Currently, the law allows only blind vendors to sell lottery tickets on base. Molino said he doesn’t know how many blind vendors do so, but the proposed legislation would bar exchanges from encroaching on their sales.
Under the Randolph-Sheppard Act, the blind are allowed to sell state lottery tickets and other products on federal property but under state licensing agencies.
The Army is the service most worried about a drop in slot machine revenues from a global re-stationing 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 MWR revenue, for the Army alone, will fall from $90 million to $40 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 [nonappropriated fund] operations.”
According to Isaacs, the Army considered setting up its own lottery program during the 1980s in Europe where enough soldiers and family members lived to make a lottery “financially viable.”
“But by the time we got around to seriously considering it, the population began to diminish,” he said.
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 safer way to entertain troops, and with more favorable odds, than gambling alternatives found off base. A Defense Department report to Congress several years ago concluded that slot machines don’t significantly impact member indebtedness or aggravate pathological gambling disorder.
Isaacs said the transfer of troops stateside will relieve some of the need for MWR 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. We’re going to see some significant increases in the populations of certain CONUS (continental United States) installations.… The slot machine program has been one of the major components that allows us to fund those things,” Isaacs said.
Exchange profits also fund MWR programs. The Army last year received $150 million from AAFES. But Isaacs predicted the overall gain to MWR 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,” said Isaacs.
A congressional staff member who requested anonymity challenged that assessment. Lottery ticket sales could be a boon, both to exchanges and to MWR revenues.
“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, he said, 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.”
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