Jerry Kopel

Lottery 2007

October 19, 2007

By Jerry Kopel

Perhaps the motto for the Lottery audit for the fiscal year ending June 30, 2007 ought to be "If you can't be first, it's good to be second best."

Gross income for 2006-07 was $455,916,812. That was nearly $13 million below 2005-06. But before you start crying, it was also $39 million more than in 2004-05. In other words, it was the second highest gross income total ever achieved by the Colorado lottery since the lottery sales began in 1982.

Main reason for the drop in gross revenue was Powerball. The lottery pundits had predicted only a two year hike in income once Powerball playing began in the fiscal year ending June 30, 2002. They were wrong, but smaller jackpots did hit Powerball this past fiscal year.

Powerball revenues were $79.9 million is 2002, $74.7 million in 2003, $85 million in 2004, $91 million in 2005, $119.8 million in 2006, and $101.6 million in 2006-07.

The auditor's belief was the high Powerball numbers in 2005-06 happened because the jackpot reached "heights of $340 million and $365 million, contributing to the extensive growth...The highest Powerball jackpot in fiscal year 2007 was $240 million."

In the fiscal year beginning July 1, 2007, Colorado finally had a Powerball winner, entitled to a $9.4 million cash prize, or $20 million over a thirty year period, according to wire press stories.

The other three lottery games showed increases over the last fiscal year. The most powerful game (and in my opinion the most addictive) is Scratch which was up $3.3 million to $297.1 million.

Lotto was up $1.5 million to $39.8 million (a very minor sum compared to pre-Powerball introduction) and Cash 5 increased about $500,000 to $17.4 million.

Colorado's statutes only require the players receive back at least 50 percent of the gross sales income. But the lottery staff is obviously aware the higher the paybacks, the greater the play.

Of the Scratch game gross revenue, $199.7 million was returned to players, which is 67.22 percent. Lotto gave back 51.9 percent, and Cash 5 returned 52.9 percent.

Only Powerball did not meet the 50 percent bracket, and it does not have to. The 50 percent applies to the total gross played. Powerball gave back 49.6 percent, which was its highest return to date. It has never given back 50 percent or more.

For the past six fiscal years, gross sales of Powerball tickets amounted to around $542.7 million, with a payback to players of roughly $250 million.

Overall return to players was $276.9 million, or 60.74 percent. The previous fiscal year return was 60.07 percent. The records of 61 percent and higher returns are found in the fiscal years before Powerball.

The money available for distribution after expenses was $119 million. Greater Outdoors Colorado received $51.3 million, the largest amount possible under the constitution's limitations. The Conservation Trust Fund got $47.6 million and Parks and Recreation walked out with $11.9 million.

This left $8.2 million in surplus for public school safety, health, and repairs under CRS 22-54-117. Over the past six years, the spill-over given to public schools has totaled $37 million.

This year the Lottery hired a new marketing vendor, Cactus Marketing Communications, who came on board in September for three years, with a maximum $9 million annual budget. Cactus replaces Karsh and Hagan, which held the contract since the lottery began in 1982. Hopefully, there will be no nutty ads.

Commissions and bonuses to retailers amounted this fiscal year to $33.7 million, which is slightly under 7.4 percent of the total gross ticket sale numbers. Paying high commissions and bonuses made sense when the lottery was just beginning. Frankly, retailers should be paying the lottery for the privilege of selling tickets, since the addiction brings customers into the stores.

A reduction of $6 million from the $30.3 million paid in commissions (not bonuses) to retailers would have allowed the Conservation Trust Fund and Parks and Recreation to receive nearly equal their share received for the fiscal year ending June 30,2006.

There is presently a law suit which could be based on a Charles Dickens novel. The audit states "In 2001, a plaintiff filed a class action suit claiming that the Lottery breached its contract with players by continuing to sell instant tickets in games in which the top prizes had already been claimed.

"After exhausting the appeals process, the plaintiffs filed and were granted a petition for certiorari by the Colorado Supreme Court. The parties are currently briefing the case. At the present, it is not possible to predict the outcome of this action."

In my opinion, in the future the lottery should be required to notify future players that the major Scratch prizes have already been awarded. It could be done either by court decision or by legislative requirement.

If you or I did what the lottery has been doing by its silence, my guess is we would be facing a criminal fraud action, especially if ads continued to mention the higher prizes as available.

(Jerry Kopel served 22 years in the Colorado House.)

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