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The Massachusetts Lottery, one of the most vaunted in the nation over the years, faces "a significant threat of becoming somewhat obsolete" as the COVID-19 pandemic accelerates industry-wide shifts toward online and cashless interactions, Lottery Executive Director Michael Sweeney said Tuesday.
Sweeney and other officials warned during a Lottery Commission meeting Tuesday that the agency's model, built exclusively around in-person cash sales and a driver of foot traffic and customers at Lottery retailers, may not be sufficient for the new normal. That could create problems for a major source of municipal funding.
Other states, including neighbors New Hampshire and Rhode Island, have allowed portions or all of their lottery business to shift online during business shutdowns that have marked the COVID-19 pandemic.
"Technology, as much as it was increasing previously, has really in a lot of people's estimates moved forward three to five year in the course of three months," Sweeney said.
While some convenience stores that sell Lottery products remained open during the outbreak, overall sales have tumbled in the past two months. April's net profit dropped to $71.6 million, about $22.5 million less than in April 2019, Sweeney told the Lottery Commission on Tuesday.
Before the virus hit Massachusetts, the Lottery had been on track for a strong year. Sales through February lagged the record amount in fiscal year 2019 by only $7.5 million, roughly two-tenths of a percentage point, according to data Sweeney presented.
With figures updated to reflect sales through April, however, the current fiscal year is more than $195 million, or 4.3%, lower than last year's benchmark. Sales have dropped across product lines.
The Lottery last year set a record with $1.09 billion in profit, which the state then distributed in local aid to cities and towns. Through the first 10 months of fiscal 2020, Sweeney said, the agency's profit is $94.7 million lower than during the same stretch last year.
"The lost revenue to the Lottery is permanently lost revenue," said Comptroller William McNamara, a member of the Lottery Commission. "Someone who because of this shutdown, they can delay a refrigerator purchase they might make, they might push out clothing purchases, but thinking about consumer behavior, when a Lottery sale is lost, it doesn't come back. You don't get to make it up in August."
Treasurer Deborah Goldberg, who has urged lawmakers to authorize online and cashless lottery operations, said Tuesday that lawmakers could make an "immediate impact" to mitigate losses — and generate additional revenue to support a strained state budget — by bringing the system in Massachusetts more in line with its peers.
"Everyone is looking for: where are we going to get revenue from?" she said. "We have to note, and I said it in the last meeting but it's only continued, that the states that do have an online lottery have had incredible increases in sales. One day in March in Michigan had not a $1 million gross, but a $1 million net."
Rhode Island began offering instant games and Keno online this month, which Sweeney described as "the only logical business model to follow in this world." In Massachusetts, Keno declines have been particularly sharp because restaurants and bars that host games are closed.
The Massachusetts Lottery implemented some changes, such as processing prizes up to $50,000 by mail and, starting May 9, requiring appointments for in-person processing of prizes greater than $20,000.
Even as business activity begins to resume, Sweeney said consumer behavior will likely remain pushed toward favoring cashless, contactless purchases that lack COVID-19 transmission risks — a trend that could leave the Lottery lagging.
"I do think we face a significant threat of becoming somewhat obsolete, particularly as other gaming opportunities continue to avail themselves of the technology that's out there, everything from DraftKings to other areas including casinos," Sweeney said. "We do receive what I would characterize as a significant amount of business from the states that border us, particularly New Hampshire and Rhode Island. It would only make sense that as both of those lotteries go online, there will be some level of decrease (in Massachusetts)."
Gov. Charlie Baker included language in his fiscal year 2021 budget proposal that would allow players to purchase Lottery products using smartphone apps for cashless payment or with debit cards, but not online or with credit cards. Baker's budget remains in the House Ways and Means Committee.
Goldberg's office filed a standalone bill (H 37) in January 2019 to create an online lottery system, but lawmakers have not acted on it since holding a hearing in July where some retailer groups expressed concerns about the small-business impacts of shifting sales to the internet.
The Legislature's website lists the bill as remaining before the Committee on Consumer Protection and Professional Licensure, co-chaired by Rep. Tackey Chan of Quincy and Sen. Paul Feeney of Foxborough.
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