Q: What is the biggest hindrance to the lottery. Why?
A: There are several factors that negatively influence the ability of the lottery to increase sales: restrictions on advertising, restrictions on the types of games that can be offered, restrictions on how players can pay for lottery games, restrictions on locations that are typically good for lottery sales, prohibition on use of the Internet to accept second-chance drawing entries, competition from more than 100 tribal casinos for player entertainment dollars, specifics of appropriations of lottery money to beneficiaries and the 35 percent minimum mandated profit requirement, or “profit restriction.”
This last item is by far the biggest obstacle to the ability of the lottery to provide more money for Oklahoma education programs. The Lottery Act provides that all lottery profits go to the state for appropriation to Oklahoma education programs. The reason this is an obstacle is because of simple business logic which is supported by the case studies of other state lotteries.
The logic is this: provide lottery products that your customers like to play, that support a popular beneficiary and that provide a reasonable payout, and you will be successful. We work very hard to provide products that our players enjoy. They are colorful, offer differing play styles to appeal to different player preferences, and are appropriate for our market. Regarding beneficiary, most lotteries support education, and it is a popular and well-chosen beneficiary for Oklahoma.
The problematic factor mentioned is prize payouts. If you have a profit requirement, as Oklahoma does, that requires at least 35 percent of every sale to go to profits, that requirement reduces how much can be used to pay for other costs, the most critical of which is prize payouts. Reducing prize payouts directly impacts sales and profits by reducing how well the products are accepted by our players.
It is difficult to estimate what would happen in Oklahoma if the profit requirement were removed. However, there is reason to believe that Oklahoma would see increases in prize payouts, better acceptance with lottery players, better sales and more actual dollar profits for Oklahoma education programs. The profit may not be 35 percent, but it would be a smaller percentage of a larger amount of sales.
Which games are you interested in adding? Which games were eliminated?
A: The lottery started scratcher sales on October 12, 2005. To date, we've introduced approximately 330 different scratcher games in price ranges of $1, $2, $3 and $5. New products are introduced every two months. Games are pulled and replaced when they sell out, all the top prizes have been won or their appeal has died out.
Oklahoma lottery players are interested in games with better payouts, including more $5 games and adding $10 games. We can't because of the profit requirement. These games require higher payouts which we cannot afford to offer to our players.
Poker Pick is a poker-themed game we are developing with our gaming vendor right now, for release in September. It is unusual because it is a combination instant win and draw game. When a ticket is purchased, the player can determine if it is an instant win immediately. The ticket also has a draw component which comes into play for the nightly drawing.
Q: Would you say the Oklahoma Lottery is successful?
A: We have one of the most restrictive legal requirements in the nation regarding a 35 percent required profit; we have the lowest scratcher payouts in the nation; we compete with 110-plus tribal casinos for gambling entertainment dollars; our advertising is restricted and is at minimal levels so that we can keep prize payouts as high as we can; locations where we can offer lottery tickets are modestly restricted; the types of games we can offer are greatly restricted; the ability of our players to use alternative forms of payment are restricted and the ability to use the Internet for any aspect of a lottery transaction, including simply taking an entry for a second chance drawing over the Internet, is prohibited.
Yet, the Oklahoma Lottery pays out approximately 97-plus percent to the state, as prizes and to retailers and vendors. For eight years, the lottery has continued to provide a steady revenue stream of $69 million to $71 million to the state for the benefit of Oklahoma education programs. Short answer: Yes, I believe we have been successful.
Lottery staff has worked very hard to keep operating costs low so that we can put as much as possible into prize payouts and keep players interested in our games. Through (fiscal year) '13, most spending categories have been reduced, and major reductions have been taken in advertising and marketing expenditures. Personnel has been reduced from 40 in January of 2007 to 27 now. Reductions have been made to payouts, all in order to make sure the mandated 35 percent profit requirement is met.
Last year, the lottery proposed a slight reduction to the only other major expense, commissions to our retail partners, but that rule change required approval by the governor and the change was not approved. Advertising spending consists mostly of radio in the Oklahoma City and Tulsa metropolitan areas, several boards leased along heavily traveled interstates, minimal Web-based advertising, sports partnerships and participation in several events around the state. Further reductions to funds available will reduce the already decimated advertising budget or reduce payouts in the scratchers, which are already about the lowest in the nation.