State-sponsored Gambling: A Fool's Game

The poorest Israelis disproportionately play Mifal Hapayis and Toto: their towns have more lottery kiosks per capita than richer ones.

Alon Ron

The long arm of the Israeli law does not hesitate to crack down on underground casinos, basement poker dens and even gaming websites that accept Israeli customers. Gambling is illegal in Israel, with two exceptions: Mifal Hapayis, the national lottery, and the sports betting council’s Toto. These are state-run, and to gain legitimacy, give most of their earnings to public causes like building schools and hospitals (the lottery) or athletes and sports facilities (the Toto).

Both were established when Israel was young and poor. Mifal Hapayis was founded in 1951, when Tel Aviv asked the state for permission to establish a lottery to pay for the construction of Ichilov Hospital.

Those spartan days are long gone but Mifal Hapayis and Toto are still around and more prosperous than ever, partly due to online gaming — and Israelis are spending more than ever on them. Given the addictive nature of gambling, we should ask: Does Israel still need Mifal Hapayis and Toto? Who profits from them? Does their contribution to society outweigh the damage they cause?

Mifal Hapayis operates under a special provision of the Finance Ministry, which oversees its activities. Defined as a company for the common good, nearly all of its 6.5-billion-shekel ($1.67 billion) annual budget is derived from lottery profits. After the lottery prizes and operating expenses, it nets around 1.5 billion shekels a year. It pays its employees handsomely: Their average salary is 22,000 shekels a month, 2 1/2 times the average Israeli wage. The chairman gets 52,000 shekels a month, and the CEO’s monthly salary is 78,000 shekels.

A portion of the income from the lotteries is allocated to local projects, according to a formula that takes into consideration the size, socioeconomic status, distance from central Israel and rate of military service of the community. These projects must be approved by the national lottery’s board of directors, and the funds are channeled through the local governments.

Hapayis says that in 2014, 60% of its revenues went to lottery winners. Of the remainder, 1.66 billion shekels went toward the construction of schools and other public buildings and 125 million shekels went to scholarships, art, science culture and other projects. In addition, Hapayis gave the Education Ministry 1 billion shekels, earmarked for building schools in 2015 and 2016.

Bonanza for the rich

In 2011, after Uzi Dayan, a former deputy chief of staff and national security adviser, became the chairman of Mifayal Hapayis, the criteria for the distribution of funds were eased. Any community with a population of under 5,000 would be eligible for up to 500,000 shekels a year, irrespective of socioeconomic status. Rich towns could also get Hapayis money.

Meanwhile, despite all its commitments, the Hapayis is sitting on about 3.8 billion shekels, money allocated historically to the Education Ministry or to local governments but not spent — mainly because the state failed to put up its share of the funds for the projects, or to complete the paperwork lined up. Since the state failed to match the amount, Hapayis kept its share and the money just sits there, though it’s making capital gains.

According to its report for 2014, that year Hapayis posted financing gains of 72 million shekels, or 1% of its revenues that year. Evidently it’s investing the money conservatively.

Earn less, gamble more

Over the years the lottery expanded from holding a single weekly drawing to offering scratch tickets and games of chance sold through its Hapayis booths. The innovation, introduced in 2005, lifted annual revenues from gambling from 3.3 billion shekels in 2005 to 6.2 billion shekels in 2014, an increase of 87% inside a decade. During that time, the average wage increased by 25%.

One new wrinkle is Electronic Hish-Gad, nine different games (called poker, blackjack, etc.) that cost up to 30 shekels each to play. Sounds like casino, is designed like casino but it’s really just fancy scratch cards. EHG brought in 573 million shekels in 2014, or 9% of Hapayis’ revenues. Another iffy game on offer is Keno, which is more like roulette: The player picks seven numbers from the 70 on the board and a lottery is held every half-hour. It costs between 2 shekels and 7 shekels to play, and the payout is 500 times as much.

An older game is Chance, with prizes ranging from a few dozen shekels to thousands of shekels. There are seven rounds a day, and sometimes more.

Hapayis has 640,000 individual subscribers (400,000 households, some have more than one subscription). Each month Hapayis holds five lotteries for them, with prizes ranging from a car to foreign travel to 1.5 million shekels, the big prize. The chance of winning 50,000 shekels is one in 21,000. The chance of winning 1.5 million shekels is 1 in 640,000.

Hapayis’ advertising budget in 2015 was 80 million shekels, of which 65 million shekels went on pushing brands and 15 million shekels on image. Some of that is designed to beat the competition — Toto launched Racer, which offers betting on horse races that competes with Hapayis’ popular game Chance.

Hapayis does not cavil at product placement. Radio Tel Aviv was even fined a few years ago for mixing editorial and commercial content. In an unrelated lawsuit, two fired talk-show personalities, “Slutzky and Dominguez,” claimed that Radio Tel Aviv had banned them from mentioning two news stories about Hapayis in their show (one was about one worker trying to poison another; another was about illicit sex between a manager and worker at Hapayis). Neither the radio nor Hapayis would comment on this claim.

“Electronic Hish-Gad is a misnomer. These are gambling machines and you can lose a lot of money in a short time,” says Avrum Tomer of the Jewish Statesmanship Center.

In October, Knesset member Merav Michaeli (Zionist Union) tried to outlaw the machines. Her initiative failed to pass the Interministerial Committee for Legislation. though she did find an ally in cabinet member and Shas party chairman Arye Dery.

“Mifal Hapayis is proud of its contribution to Israeli society ... but it’s convenient for it to blur the sources of its money, the fruit of addiction of the weakest segments of society,” says Michaeli. She charges the state with “taxing” the poor through the lottery, while it should be funding these schools and public buildings itself.

Hapayis runs 2,700 lottery booths throughout the country. Their location lends credence to Michaeli’s postulation about targeting the poor. Rich cities have less booths per capita than poor ones, according to a study by Radio Galey Israel. The low-income towns of Beit She’an and Kiryat Malakhi have one booth for every 1,200 and 1,300 residents, respectively, while in the comfortable communities of Mevasseret Zion and Kochav Yair, there is one kiosk for 5,000 residents. Omer, also wealthy, has one booth for 7,300 people, while the disadvantaged town of Yeruham has 1 per 3,000.

Tel Aviv has 99 booths in its poor south and 45 in its rich north.

Mifal Hapayis categorically denies any deliberate policy of placing booths in poor areas and says its formula is roughly one booth per 3,000 people.

Nag, nag, nag

While Hapayis was founded by a finance minister, Toto was founded by law in 1967. Its revenues are about a third of the lottery’s, at 2.6 billion shekels in 2014, on which it netted 480 million shekels that year. Its main brand is Winner, which brought in revenues of over 2 billion shekels in 2014, a year in which the Toto smartphone app was introduced.

About 75% of Toto bets are related to soccer and 25% basketball and other games. Its management body, the Council for the Regulation of Sports Betting, paid out about 1.6 billion shekels in prize money during 2014, a year its revenues reached 2.55 billion shekels. Toto also uses its profits for public causes, but while Hapayis money basically supplements municipal budgets and the Education Ministry, Toto money finances sports.

Until a year ago its distribution was based on criteria set by a public committee headed by an appointee of the Culture and Sports minister. But after the establishment of the National Sports Council during Limor Livnat tenure as minister, it took over setting distribution policy, though it has yet to do much. Meanwhile, today about half the Toto money goes to elite and competitive sports, including Olympic sports, sports for youth, women and people with disabilities, and one-third goes to building facilities.

Because of bureaucratic problems between Toto and various bodies that are supposed to carry out projects, Toto also has a fund with some 900 million shekels, managed by investment banks, that is generating nice capital gains but otherwise isn’t doing anything. Toto stated that the money is earmarked for projects and by nature, from approval of a project to its execution, years may pass, it pointed out. Toto also noted that the capital gains are also used in the service of sports.

Meanwhile it’s also a heavy spender on advertising: about 30 million shekels a year. That doesn’t include the 60 million shekels a year it spends on sponsoring the Israeli soccer league, which has been renamed, as part of the sponsorship deal, the Winner League.

Toto too has stepped up activity in the last decade, its turning point being 2002, when Winner — now the source of 92% of its income — was launched. The old-style betting form where you had to choose the outcome of 16 games (win, lose, draw) is barely a player any more.

But the big change Winner brought was increasing the frequency of betting from once a week (when the teams played) to once a day, and online betting. With Winner, you can bet not only on a particular team winning, but on various statistics, or events during games. For example, in soccer you can bet on the number of goals, which team will score first, which team will lead at halftime and the like. You can also bet on tennis, volleyball and other sports, including foreign sports.

As for Toto’s Racer, launched two years, where are the horse races?

Not in Israel: Instead, you bet on horses that are running in England and Ireland, where races take place almost every day. The payoff is on the spot; the excitement is all the greater, and ditto the potential addiction.

“A study in France has proved that the danger of addiction to horse racing is lower than other forms of betting,” Toto said in a response.