Lottery Director Says State Policies Affect Education Dollars

Sunday, March 18th 2007, 2:05 pm

By: News On 6

OKLAHOMA CITY (AP) _ State policies that restrict the size of Oklahoma Lottery prizes retard sales and lead to lower-than-estimated lottery revenue for education, according to the head of the statewide lottery. Jim Scroggins, executive director of the Oklahoma Lottery Commission who previously ran lotteries in Missouri and Pennsylvania, said the state law that governs the lottery requires 30% of revenue be set aside as profit for education during the lottery's first two years and 35% in subsequent years.

The profit requirement and fixed expenses for lottery retailers and administrative costs limits how much lottery prizes can be increased to attract more players and stimulate sales, Scroggins said.

``When you have that mandated profit, it restricts what you can actually put into prizes,'' Scroggins said in an interview with The Associated Press. ``People play the lottery to win. The more you can put into the actual prize structure, the more you're going to generate in sales.''

The profit mandate is reflected in the size of prizes paid out in Oklahoma's instant scratch-off games. Scroggins said the average pay out is 53%. Only one other state lottery in the nation _ Louisiana _ has a pay out on instant games under 60%, he said. The nationwide average is 65%.

About eight years ago, Texas lottery officials decided to reduce prizes to funnel more money to the state. Four years later officials realized that lottery sales were going down, not up, Scroggins said.

``If you reduce the prizes, sales will go down. If you increase them, they'll go up,'' he said. ``That's one of the things that holds us back a little bit.

``But, others have made the decision here that there is the mandated profit. If that restriction didn't exist, as far as a mandated profit percentage, I think over time we could raise more hard dollars just because we could put more money into prizes.''

A legislative critic of the lottery, Rep. Randy Terrill, R-Moore, said he is skeptical of Scroggins' analysis.

``Implicit in his theory that prize money ought to be increased is the admission that the lottery is underperforming and in my opinion has largely been a failure,'' Terrill said. ``We're now seeing some of the consequences of that failure.''

Lottery revenue for education is estimated to come in $17 million under budget this year, prompting lawmakers to look for revenue from other sources to fill the funding gap.

Terrill said altering the legislative mandate for lottery revenue ``is not the magic bullet that would fix a broken lottery.'' Instead, he said, it would increase the number of gamblers in the state.

``That's twisted logic if I every heard it,'' he said.

Oklahoma generated $204 million in lottery sales in the nine months after the first lottery ticket was sold in October 2005. The state joined the nationwide Powerball network in January 2006, and an estimated $243 million in sales is expected during the fiscal year that ends June 30.

So far, the lottery has turned over $104.5 million in revenue for educational purposes, including common schools, colleges and universities, the teacher's retirement system and a school consolidation fund.

By comparison, Missouri had $220 million in sales in the first six months after sales were launched in 1986 and $188 million the following year. In 1992, the year Scroggins took over as director of the Missouri lottery, sales were still at $220 million.

``If you compare us to Missouri, we're doing really good in our first year, Scroggins said. Now 21 years old, the Missouri Lottery will have $850 million in sales this year. A total of 41 states and the District of Columbia have lotteries, according to the North American Association of State and Provincial Lotteries.

``Over time I think Oklahoma will grow,'' said Scroggins, 63. ``I don't think it can grow to that kind of a level just because of the population difference.''

The number of people 18 years old and older who can play the lottery in Missouri is roughly twice the number of eligible players in Oklahoma.

Scroggins said sales are also affected by anti-lottery sentiment, the absence of video lottery and competition from other gaming venues, including horse tracks and casinos.

Scroggins said research indicates that only about 45% of those eligible to buy lottery tickets in the state actually do.

``That leaves a large group of people out there who aren't playing,'' he said.

Lottery tickets are sold by about 2,200 retailers _ fewer than Scroggins said he had anticipated. The ratio of retailers to eligible players is about one per 1,000 of the 2.5 million people who are eligible.

Lottery ticket sales are prohibited in liquor stores and the largest group of retailers is convenience stores.

``It is a draw for them,'' Scroggins said. With pay-at-the-pump technology at most convenience stores, selling lottery tickets is one way to lure customers into stores.

``A lottery customer spends more when they come inside a convenience store than a non-lottery customer. And they come inside more often,'' Scroggins said.

Scroggins said sales in the Oklahoma Lottery are estimated to grow 3% a year for the next two years. Historically, lottery growth occurs after the first two years once different products are marketed and people get used to playing, he said.

``This is something that the average guy on the street can invest a dollar in. And he might get lucky Saturday night and win $183 million,'' Scroggins said.

``I think a lot of people look at it that way.''