"My dog ate the homework". No, it didn't work for me either. But Colorado Lottery Division Director Mark Zamarippa tried the dog story on the Denver Post and Great Outdoors Colorado (GOCO) board and got away with it.
Lottery gross revenues for the fiscal year ending June 30, 1999 showed a decline from fiscal 1998. According to the Post story, Zamarippa was addressing a GOCO board meeting. Some members were worried whether the new lottery approach to advertising (stress buying lottery tickets because money goes to beautify Colorado, instead of ads aimed at greed) was affecting lottery revenues.
The Post reported "Zamarippa said the lottery will be studying the effects of the new ads but said it is difficult to isolate whether the decline in sales is due to a change in ads or other factors such as player cynicism."
Huh? "Decline in sales due to a change in ads?" The NEW lottery ads did not go into effect until July 1, 1999. The decline in sales of $6 million took place between July 1, 1998 and June 30, 1999, the period when the lottery division used humans dressed in chicken costumes assaulting other humans as an advertising incentive to sell lottery tickets.
Perhaps Zamarippa was misquoted. Reporters aren't perfect. But it is going to be difficult to poormouth the "beauty of the land" approach to lottery ads if the 2000 fiscal year gross is compatible with the previous three years. In round numbers, the lottery has averaged $367.8 million for fiscal years 1997 through 1999), making 1999 gross sales of $368.4 million right in line.
There are major, higher costs to the lottery from one source: Retailers. In the past three years, amounts paid by the lottery to retailers has jumped from $20.9 million in 1997 to $27.8 million in 1999. That reduces the amount available for distribution to Great Outdoors Colorado, the Conservation Trust Fund and Colorado State Parks.
Retail commissions and bonuses for 1999 were greater than the combined cost of ticket purchases and vendor fees of $10.8 million, marketing costs of $10.1 million, and employee wages of $6.8 million. In fact, the TOTAL administrative costs were only $5.5 million more than retailer commissions and bonuses.
Part of the key to a rapid increase in payments to retailers (33 percent between 1997 and 1999) may be a practice reinforced by lottery rules in 1997: "...the Director may provide such additional compensation to licensees as is deemed appropriate by the Director to further the sale of lottery tickets, so long as such additional compensation is made available to all licensees..."
As of 1998, retailers were receiving six percent of the ticket value for on-line sales and seven percent for scratch game tickets, plus permitted bonuses for prize tickets sold. As of fiscal 1997 (the last auditor's report listing the figures) there were 2,765 retailers, 90 percent of them convenience stores, gas/convenience stores, liquor stores, and groceries.
Back in 1982, Denver Post reporter Ray Flack reported "more than 5,000 retailers sought licenses to sell $1 lottery tickets when the game begins in mid-January (1983), but only 2,000 outlets will be needed for the initial game..."
The amounts paid retailers are not set in statute. They are set by the lottery chief or at the direction of the lottery commission. If they were reduced by 40 percent, that would free up an additional $11 million for distribution.
If you have a product that draws customers into a retailer's store, do you consider that "draw" in deciding how much to pay the retailer to display your product? Who needs who in lottery sales? If a retailer doesn't have lottery tickets, will customers cross over to a store that does, and while there, buy some additional products?
During the $21 million lotto prize drawings, retailer Joyce Mowery, whose Borderline Deli and Lotto is 15 yards inside Colorado's border with Wyoming, told the Denver Post "Lotto's pretty much our main business. It keeps me in a job." On the Friday before the drawing, she told the Post her store sold about 30,000 tickets, which would give her $1,800 in commissions plus possible bonuses.
A lottery press release published in the Statesman Jan. 17, 1997 referred to amounts paid out since the start of the lottery Jan. 24, 1983 stating "through Oct. 31, 1996, approximately 2,745 lottery retailers have secured $165.2 million in commissions and bonuses." That means the $74 million received by retailers in the past three years equals 45 percent of all the moneys received in the previous 13 1/2 years.
Retailers getting so much gravy are a powerful lobbying force to keep the lottery going and going. But if the lottery put retailer contracts up for competitive bidding, using the average of the three lowest bids as the amount to pay all retailers, there may well be another 3,000 retailers in Colorado who would love to bid low enough to, in turn, have lottery players walk into their stores.
Jerry Kopel writes a column for the Statesman based on 22 years past experience as a state legislator.
Copyright 2012 Jerry Kopel & David Kopel