Georgia lottery falls short of target

Peter Mantius

Thursday, April 29, 1999 | 12:13 p.m.

ATLANTA -- For the first time in its history, the Georgia Lottery Corp. last year fell short of its target for funding education, the main selling point used to win voter approval for a state lottery in 1992.

State officials blame a statistical fluke in payouts for Cash 3, the lottery's most popular game. But it is the second consecutive year lottery officials have been faced with the payout problem caused by the fixed-odds, casino-style game.

Lottery officials drained an $8 million Cash 3 reserve they control to plug the gap the first year, but couldn't turn to that reserve again because the fund was depleted.

State law requires the lottery to return "as nearly as practical" 35 percent of its net proceeds to the treasury, where it can be appropriated by the General Assembly for HOPE scholarships, pre-kindergarten and school construction and technology.

But lottery payments dipped to 33 percent for the fiscal year ending June 30, 1998, according to State Auditor Claude Vickers. The $555 million transferred to the state was more than enough to cover HOPE and pre-K costs, but it was $33 million below the statutory target.

Vickers said the lottery came up short because it had to make unusually high payouts to winners of Cash 3, particularly those who bet triple numbers. "The law of averages caught up with us on those triple numbers," Vickers said. "But since the inception of the lottery, we're really close to a 35 percent return.

"A reasonable person, in looking at the way they've conducted their business ... would conclude they're probably doing it right."

Georgia Gov. Roy Barnes said he was pleased with the way the lottery was being run.

But Harold Parker, state president of Common Cause, said the law shouldn't allow the lottery leeway with the language "as nearly as practical" to a 35 percent payout.

"That's a loophole you could drive a bus through," Parker said. "The lottery should make up the difference out of their advertising budget in order to honor their commitment to education."

State Sen. George Hooks (D-Americus), chairman of the Senate Appropriations Committee, wasn't concerned. "I think we're on safe ground," said Hooks, who helps decide how lottery money is spent. "We fully funded HOPE and Pre-K and our lottery reserves (within the state treasury) are full."

However, temporary shortfalls could affect discretionary capital spending for projects like computers or school construction, Hooks noted. "We need to keep an eye on it," he said. Lottery President Rebecca Paul said there was little she could have done to attain the 35 percent target last year.

"We could have cut our ad budget and fired everybody and still not make up the big Cash 3 payouts," Paul said. The lottery spent $17.4 million on advertising in fiscal year 1998, about half of that year's shortfall.

Cash 3 generated ticket sales of $627 million that same year.

The game is designed to pay out 50 percent of ticket sales . Players pay either a dollar or 50 cents to pick a number between 000 and 999. If their number is randomly selected, they win $500 or $250, depending on the size of their bet.

Any combination of numbers can be bet, and any has an equal chance of winning. But players tend to prefer triple numbers, such as "888" or "444", and the lottery sometimes has to pay thousands of winners when one is drawn.

Between December 1997 and February 1998, triples were drawn four times. The lottery's total liability on those four drawings exceeded $50 million. As a result, the lottery paid out 53.50 cents in prizes for each $1 in Cash 3 sales in fiscal 1998.

The year before was even worse; the average payout was 53.99 cents per dollar.

To meet the 35 percent contribution target, Paul said, the lottery emptied an $8 million Cash 3 reserve account and transferred $7.7 million from an unclaimed prizes fund.

It also intentionally reduced payouts on scratch-off games, but that strategy backfired by driving players away.

So last year, Paul significantly raised scratch-off payout ratios.

Raising scratch-off payouts made it harder to meet the 35 percent payback target, but it spurred sales. Paul said Georgia is on track to have its fifth straight increase in annual sales this year, a rare accomplishment for a state lottery.

Asked whether the lottery would meet the 35 percent payback target this fiscal year, she said: "We'll be 34 percent and change. Our goal is to raise dollars, not achieve percentages."

In fiscal 1998, Georgia was 15th among 38 state lotteries in the percentage of proceeds returned to the government, according to La Fleur's Lottery World, a Maryland-based trade publication. Georgians rank third nationally in spending a percentage of their income on the state lottery.

That ranking could suffer when Alabama and South Carolina begin their own lotteries. But Paul said there is little danger the Georgia Lottery won't be able to sustain the needs of its highest-priority programs -- HOPE and pre-K.

"The lottery should make up the difference out of their advertising budget in order to honor their commitment to education."Harold ParkerOF COMMON CAUSE

"We could have cut our ad budget and fired everybody and still not make up the big Cash 3 payouts."Rebecca PaulLOTTERY PRESIDENT