Flashing lights at the lottery

December 24, 2008

THE Massachusetts State Lottery is a $4.7 billion-a-year gambling operation, but unlike destination casinos, it shouldn't require fancy digs to keep its customers satisfied. Yet, a recent report by the Globe's Donovan Slack revealed not only that the lottery spent $1.3 million in renovations to its Braintree headquarters, but that the agency's administrative costs have risen sharply. That should be enough to set off flashing lights and ringing bells - of warning.

Only the luckiest lottery players - winners of $600 or more - must claim their prize at lottery headquarters or one of the system's five regional offices. The real action is at the 7,500 lottery outlets around the state, many of them modest variety stores. And most of their lottery customers are more interested in what appears on their scratch tickets than the decor. Big winners would likewise be only too happy to collect on bets at a lottery headquarters, minus the pricey art deco furnishings, dolled-up reception area, and flat-screen televisions.

Lottery games raised more than $900 million in local aid for municipalities and funding for the arts this year. But there is no public benefit when the lottery pays higher lease rates for its headquarters. The public could be getting shortchanged, too, when the lottery updates its fleet of take-home vehicles and equips employees with BlackBerrys. Net revenues at the Lottery increased by $57 million over the past five years, but administrative costs gobbled up $33 million of the increase at a time when cities and towns need every penny.

State Treasurer Timothy Cahill, who oversees lottery operations, defends many of the expenses. Increased advertising costs and printing costs for instant-winner tickets, he says, translated into higher revenues for the lottery in four of the past five years. Increased phone costs reflect the need to improve electronic communication between the lottery's data center and the 7,500 agent locations. And the headquarters upgrade, says Cahill, was an attempt to get some value from a long-term lease that was rising from $13 to $18 per square foot. Though Cahill argues that the vehicle fleet is smaller than it was under his predecessor, he also acknowledges that he would have kept older vehicles on the road had he anticipated the current economic downturn.

State Auditor Joseph DeNucci is currently conducting one of his office's periodic audits of the lottery. But like prior audits, the main focus is on efforts by players to evade state and federal tax obligations and on sales agents who are delinquent in making payments for lottery products. Because the lottery generates so much income for the state, there is little sense of urgency about auditing its internal operations. DeNucci needs to look deeper. One ripe area would be to determine if some of the 98 field agents, machine repairers, and telecommunication specialists who use take-home vehicles could do the job more efficiently by driving their own vehicles and submitting per-mile expenses. With the bulk of ticket deliveries now handled by private package delivery carriers, it is also worth examining whether more of the services handled by lottery field personnel could be handled over the telephone.

The Globe's efforts to report on the lottery were hampered by slow and inadequate responses to information requests. The reporter was even required to use a code book to cross-reference expenses in her attempt to track lottery spending. Cahill says the lottery has always been resistant to scrutiny. He calls it a "very challenging operation" for any treasurer, especially when it comes to getting timely information. But Cahill has made the top appointments at the agency. It's his job to ensure transparency.

The state inspector general, who reviews bids and procurements, should also take a look at lottery practices. In August, the Globe reported that Georgia-based Scientific Games, which prints most of the scratch tickets for the Lottery, paid $132,000 in consulting fees to Thomas F. Kelly - who is a neighbor and political confidant of Cahill's and has arranged political fund-raisers for him. Kelly, who subsequently registered as a lobbyist for Scientific Games, made a name for himself in the 1980s and 1990s when he was on the receiving end of lucrative state contracts from his former boss, then-state Treasurer Robert Q. Crane.

"Tom Kelly never talked to me about Scientific Games," says Cahill, who says he welcomes any effort to examine the lottery's bidding and procurement processes. "I'm not playing games with this business."

The appetite for gambling may be strong in Massachusetts. But the tolerance for inflated costs and influence peddling is at an all-time low. Cahill, who has his sights on the governor's office, can't risk any false moves when it comes to lottery operations.