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Lottery limbo


With the lottery’s future uncertain, Oklahoma lottery officials scramble for ways to increase the games’ popularity and help schools statewide.

Peter Wright March 26th, 2013

When the Oklahoma Lottery’s first instant ticket was sold in October 2005, the odds were that the numbers underneath the scratch-off film would be worthless to whoever bought it. Yet the dollar exchanged for that card was intended to be the first of millions raised for education.

Rollo Redburn
Credit: Mark Hancock

Politicians and industry officials guessed that figure could be upwards of $150 million per year, depending on how likely Oklahomans were to buy tickets. But no one really knew, and if you asked for a wager, they would say, “Wait until it’s started.”

As it turns out, the lottery has sent about $70 million to schools annually. Now, after a relatively steady stream of revenue for seven years, lottery officials fear sales of some tickets are about to fizzle out at the same time as their cost of business goes up. With an uncertain future, some state legislators are calling for a second look at the lottery’s structure.

The Oklahoma Lottery Commission projects that overall revenue, which is the sum of all lottery ticket sales, will drop by more than $16 million — from nearly $200 million in fiscal year 2012 to $183.6 million in 2013. The profit sent to education could fall by more than $5 million. Revenue is expected to drop again next fiscal year.


Hedging a bet
Rollo Redburn, the commission’s executive director, said predicting numbers that are inherently unpredictable is difficult. For instance, a sudden craze over a Powerball jackpot could boost revenue, but he is most concerned about more manageable sales of tickets for such lottery games as Scratcher or Instant Win.

“We’re at the bottom of the industry on the payout of our Scratcher games,” he said.

Unlike “online games,” in which players can win ever-changing jackpots by randomly matching numbers, Scratcher games offer set prizes instantly. That prize money comes from ticket sale revenue, which is the same source of funding for education.

The state requires that 35 percent of all revenue must go directly to public schools, colleges or related education funds. That “profit restriction” limits how high prizes on Scratcher tickets can go, which Redburn said results in limiting sales.

“If the profit restriction was removed, we could put more money into instant payouts,” he said. “Players will have more fun. Our sales will go up, and our profits will go up.”

Most state lotteries don’t require that a specific percentage of their revenue go toward education. Eliminating that requirement has long been a goal of Oklahoma’s Lottery Commission, but the idea is gaining more urgency as the agency and the lottery funds shrink.

The agency’s operating expenses, which are also drawn from ticket sale revenue, have dropped annually since 2008.

Redburn said the staff has been reduced through attrition, with advertising expenses down by 71 percent to $1.6 million from a peak of $5.6 million in 2008.

Now the commission hopes to reduce the cut retailers get for selling a ticket from 6 percent to 5.5 percent.

“We are at the point that we have to consider all of our expenditures as a way to protect prizes,” he said.


Negotiating a win
Just getting a lottery started in Oklahoma was rough, said former Gov. Brad Henry. In his first run for governor, he campaigned vigorously for it.

He said the lottery would create a new stream of money to schools, and he pitched it as a way to recapture money spent by Oklahomans on game tickets in bordering states.

“It made sense to me because we had all kinds of gaming in Oklahoma,” he said.

Eventually, the Legislature approved a bill allowing a statewide vote on the matter, and voters overwhelmingly passed two state questions creating the lottery.

Getting the bill to that stage, however, required compromises.

Sen. Clark Jolley

Henry’s original version of the lottery included video gaming, often available in other states, but that was removed to win legislative support for a state vote. If video gaming had been included, Henry contends, the lottery would have made more money. The 35-percent requirement was also a compromise intended to reassure legislators that schools would see cash.

“What we didn’t realize was by setting that arbitrary number, we were holding down revenue that could go to education,” he said.


A quiet House
A measure in the state House would have removed that 35-percent requirement, but its author, Rep. Mike Shelton, D-Oklahoma City, pulled it from consideration when it became apparent there was no appetite for passing it.

In the Senate, Clark Jolley, R-Edmond, won approval of two lottery-related bills. One, Senate Bill 863, could lead to a privatized lottery, a trend in other states.

“My legislation simply empowers the governor to accept bids and proposals. It doesn’t require it to be done,” Jolley said. “We don’t want to force something if the plan isn’t right.”

A private contractor might take issue with some of the changes proposed in Jolley’s other bill, SB 955.

Among other things, it would prohibit the sale of lottery tickets online, a popular feature of some private lotteries, and it would redirect more lottery money go to gambling-addiction treatment programs.


Pluses and minuses
Gambling addiction is one reason some will continue to oppose the lottery outright. Andrew Spiropoulos, an Oklahoma City University law professor and a fellow at the right-leaning Oklahoma Council of Public Affairs, said the social and economic costs of a lottery are too high. Even if education received more money, he said, it wouldn’t be worth it.

“I’d say it just doesn’t matter how much you raise,” Spiropoulos said. “The fact that we can’t have a perfect society ... doesn’t mean that the state should encourage gambling.”

Lotteries prey on the weakest members of society, he said, and money spent on a lottery ticket is removed from an active market. If voters knew how small its contributions to education are relative to the state budget, he said, they might rethink it now.

Legally, lottery funds for common education, which have been around $30 million annually, are supposed to be used only as additional funds, not as a way of replacing funds that otherwise would come from state appropriations.

In practice, however, that’s difficult to quantify. State education funding has been flat for two years, leading some to suggest it’s been folded into the budgeting process, replacing money that would have been included either way.

But the more than $500 million sent to education from the lottery so far is still a significant number, said Henry, and if that money hadn’t been there, then cuts to school funding over the past few years could have hit harder.

“The cuts would be deeper at the local schools in everyone’s hometowns without the lottery,” Henry said.

 
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