Jerry Kopel

By Jerry Kopel
Great Outdoors Colorado (GOCO) had a wholesome Thanksgiving and a Merry Christmas compliments of the Colorado Lottery for the fiscal year ending June 30, 2005, based on a recently released contract audit.
The year 2005 produced the largest gross revenue the lottery has experienced since the lottery's start-up in 1983: $417 million.
Recent large fiscal year gross revenues:
                                         2002: $407 million (second largest gross)
                                         2003: $391 million
                                        2004:  $401.2 million
The nearly $16 million increase over 2004 was largely eaten up by overhead, including prize money.
Gross profit on sale of tickets was $125.9 million compared to $124.7 million in 2004.
Here is how your $1 spent on the lottery was distributed for the 2005 fiscal year:
                    59.84 cents were returned in prize money.
                         (page 50, lottery audit)
                    25 cents for actual proceeds distribution.
                         (page 14, lottery audit)
                    15.16 cents for overhead and reserves.
GOCO spends lottery money to preserve open spaces, wildlife, state parks and outdoor recreation and to aid local government to do the same.
Since 1992, GOCO's share of lottery earnings has been calculated according to a $35 million base that is increased by a yearly adjustment in the consumer price index. Other lottery distributions go to the Conservation Trust Fund and the Division of Parks and Outdoor Recreation.
Under the constitution, any surplus following payment to GOCO is supposed to go to the state general fund. The legislature and the state voters decided to skip that requirement. The surplus has been going directly to the State Public School Contingency Reserve. For fiscal 2003, 2004,and 2005 combined, the total for schools was $7.8 million.
When it comes to predicting future revenues, GOCO is no different than other state institutions in "bad mouthing" the coming year. If your prediction is low and you come in high, you will be hugged instead of hanged.
This is the fourth fiscal year in a row that GOCO has received as much lottery money as the state constitution allows, but in 2004 GOCO predicted only getting $46 million in 2005. Instead, they received $50.2 million.
So who also benefits? The Conservation Trust Fund received $41.5 million. The Division of Parks and Outdoor Recreation received $10.3 million.
Not every lottery game did well. Lotto took in $38.3 million. Last year, lotto sales were $40.8 million and for some reason, the lottery's spokesperson had told the state auditor they expected an increase of $4 million or more in 2005.
Back in fiscal year 1996, lotto gross sales were $140 million. In recent years, Colorado added "Powerball" which "cannibalized" lotto, since both games deal with picking a series of numbers and waiting for a drawing. Powerball has bigger jackpots, but took in $81 million for 2005, a  decline from $85 million in 2004. The other online game, Cash 5 went from a modest $14.5 million in 2004 to $15.1 million in 2005.
When you think the "grass is greener" on the other side of the fence, remember that in 2005, lotto and  Powerball combined took in $119.3 million compared to lotto taking in $140 million in 1996.
The Powerball prediction for fiscal 2006  is a $6.9 million decrease to $74 million. The rest of the lottery for fiscal 2006 is expected to be stagnant with an overall decline of $6.5 million to $410.5 million.
Would you believe the Sunday "Blue Laws" have been applied to lotto and Cash 5 game drawings? You won't find this in the statutes, but drawings for winners are held every night except Sunday (Powerball drawings are not held in Colorado.)
So what has saved the lottery? The old-fashioned "scratch game". In scratch games, the player scratches off the covering of the ticket to instantly determine if the ticket is a winner. For 2005. scratch game gross sales were $282.7 million, a record high, and $22 million more than in fiscal 2004.
According to the contract auditor "An increase in marketing efforts, including a broader range of price points, additional games and an overall upgrade to the look of scratch tickets, contributed to this increase in scratch sales." It also didn't hurt to return 65.32 percent of gross sales in scratch game prizes.
The contract auditor's report does include one downside to the  scratch game.
"In fiscal year 2001, a plaintiff filed a class action claiming that the lottery breached its contract with players by continuing to sell instant tickets in games in which the top prize had already been claimed. Although litigation continues, it is the opinion of lottery management that the ultimate outcome will not have a material impact on the lottery's financial statements."
I disagree. The lottery is in a lose-lose situation with potential  major damages and really bad publicity. In my opinion, continuing to tout large prizes when there aren't any constitutes ... well, you know what it constitutes.
Gov. Bill Owens administration's  decision to cancel the greedy type of lottery ads urging "get rich quick" has not hurt. While gross revenues are up, the cost of marketing  and communication has dropped $500,000 between 2003 and 2005. It could be cut further without damage.
There was a time when the lottery offered inducements to retailers to push lottery tickets. I think the lottery could make moderate cuts in the amount paid in retailer commissions without harming the lottery. No store wants to lose the right to sell lottery tickets. They received $26 million in 2003 and $27.8 million in 2005,  not counting  bonuses for selling winning tickets.
So what does the future hold for the lottery?
Hopefully, a tightening of overhead expenses. Even a drop to $400 million gross revenue should continue to provide full distribution to GOCO.
The next administration will have to make some tough choices on lotto and Powerball. Any further declines in gross revenue may require a choice: Either lotto or Powerball, but not both.
And remember, a $1 gift directly to the same causes quadruples the amount given compared to  purchase of a lottery ticket.
(Jerry Kopel served 22 years in the Colorado House.) 

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Copyright 2015 Jerry Kopel & David Kopel