Lotteries: balancing payouts and good causes

Lotteries: balancing payouts and good causes

State lotteries have long tried to balance the need to fund public and social causes with the ability to offer games and payouts that are appealing enough to keep players interested. Two recent examples from the US highlight the difficulty the lotteries face.

In the state of Oklahoma, the Oklahoma Education Lottery Act created the state lottery in 2003 to support education. After the first two years of operation, the share of sales that was allocated to education was increased to 35% and remained at that level until 2017.

The amount allocated to education hit a high of US$ 71.6 million in 2008 and hovered around US$ 70 million in the five years to 2013. In 2016 the amount fell to US$ 66.4 million.

In order to prevent further declines, the 2017 bill HB 1837 replaced the 35% allocation with a guarantee of “at least US$ 50 million”. The bill’s intention is to “improve sales and lottery revenue to education by ending the counterproductive mandate that 35 percent of profits go to education”.

This legislative change does also mean that the lottery can offer games with higher payouts because the 35% mandate has been removed. The lottery began introducing new higher-paying instant win games in July 2017. The Oklahoma lottery hopes that the new games will attract players back to the lottery, thus increasing revenues and helping to meet its obligations to education.

“We weren’t offering a product that creates enough of a connection with people to continue to play at levels that they play in other states,” explained Jay Finks, Oklahoma Lottery Commission director of marketing and administration.

In nearby New Mexico, the cost of education is also putting pressure on the state lottery. State lottery proceeds are used to support college scholarships but the demand has outstripped the amount the lottery can supply. The amount required is US$ 60 million per year but in 2016 the lottery was only able to supply US$ 46 million, a shortfall of US$ 14 million. In 2017 the amount transferred to the lottery fund was down again to US$ 37.8 million.

In 2017, therefore, it was announced that the scholarships will cover only 60% of the cost of tuition in the new academic year, a reduction from 90%. Just as in Oklahoma, the New Mexico lottery wants the removal of the mandated percentage of sales (30% in New Mexico) going to education to help increase payouts and boost sales.

New Mexico Lottery Chairman, Dan Salzwedel, said, “Unless statutory changes are addressed, the lottery cannot produce a growing and predictable source of funding each year, as is evidenced by this year’s $8.5 million reduction in transfer.”

“The New Mexico Lottery’s ability to maximize scholarship dollars for students has been severely hampered by the 30% return mandate, coupled with an increase in contract fees. New Mexico has one of the lowest prize payouts in the country for Scratcher [instant win] games. Online draw games have experienced jackpot fatigue, resulting in less revenue.”

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