Monday, March 18, 2013

Lottery director opposes spending mandate

Posted By on Mon, Mar 18, 2013 at 4:41 PM

Arkansas Lottery Director Bishop Woosley has issued a statement explaining his opposition to legislation that would require that 30 percent of lottery revenue be spent on college scholarships.

He's right, of course. The legislature has no business setting arbitrary takeouts from lottery income. The biggest expense in the lottery is the payout of winnings to players, not administrative expenses. To increase the share of revenue going to scholarships, it will mostly have to come from winnings in the form of longer odds to win. When the odds get longer, it can depress play.

I'm not lottery fan, but I'm less of a fan of legislative micromanagement. It's a backdoor way to kill the lottery. If you want to kill the lottery, just kill it. Slow strangulation only strangles college kids with steadily diminishing returns on scholarship expectations.

Here's what Woosley said:

RE: HB2263
MARCH 18, 2013

House Bill 2263 mandates that 30% of total lottery proceeds be used to fund college scholarships. The Arkansas Lottery Commission (ALC) strongly opposes this bill because of the immediate and detrimental effect it will have on lottery ticket sales, revenues paid to our retailers in the form of sales commissions and most important, college scholarship revenue.

Setting aside a greater percentage of the lottery revenue toward scholarships may sound like a good idea. We all want as many Arkansas students as possible to have the chance to go to college. But if HB2263 becomes law, the Arkansas Lottery Commission will be forced to significantly lower lottery game prizes paid to Arkansas players. Lower prizes will depress ticket sales. Reduced ticket sales mean reduced scholarship revenue. In the end, Arkansas students would get a bigger slice of a much smaller pie.

The Arkansas Lottery now responsibly operates at 13 positions below its allotted positions under statute. The agency has reduced its salaries paid out by more than $750,000 in the past 18 months, placing heavier workloads on staff members. To attain the mandate of HB2263, the agency will face new and deeper cuts in already reduced operational costs, including staffing.

When ticket sales shrink, retailer commissions paid to over 1,850 businesses across Arkansas will go down, cutting into their profits. In addition, this mandate will likely result in future lottery vendors demanding higher contract rates, further diminishing the amount of money the lottery will raise for scholarships for Arkansas students.

Arkansans don’t have to speculate about what will happen if HB2263 is enacted. They need only look at the low per capita sales of the Louisiana and Oklahoma lotteries, where percentages are in place, and at the dismal sales of the Texas lottery following the enactment of similar legislation in Texas in 1997. That year, the Texas legislature imposed a prize payout limitation, and Texas lottery revenues slumped from $2.3 Billion to $1.4 Billion in two years. Upon convening in 1999, the Texas legislature reversed the legislation, but it took five years for the Texas lottery to return to its previous production levels. In those seven years, the Texas lottery’s sales fell a cumulative $3.54 Billion, cutting Texas lottery profits for the state by almost $1.1 Billion.

HB2263 would undoubtedly have a negative effect on the Arkansas Scholarship Lottery advertising budget. States with similar mandates have been forced to slash advertising dollars paid to statewide and local newspapers and television and radio stations.

Most important are the Arkansas students and their families who have relied on Lottery Scholarship funds for over three years and will continue to do so. If enacted, HB2263 will reduce by millions of dollars the scholarship funds for those students and families. Those scholarships in many cases make the difference between a student being able to attend college, or not, due to insufficient funds.

Just like the hundreds of small businesses to which it is so closely linked, the Arkansas Scholarship Lottery's financial health depends on its ability to adapt to the market and make the most in dollars, regardless of percentages. For the sake of Arkansas students and families, and for those small businesses across Arkansas, the Commission will actively oppose HB2263.

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