Lottery Math and Political Calculus

From an announcement today:

Seeking more money for HOPE scholarships and pre-K funding, Lt. Governor Casey Cagle and Senate Majority Leader Bill Cowsert (R-Athens) have announced legislation they hope will ensure that pre-K and higher-education for children and young adults is funded at the highest possible level. Essentially, they’re proposing to raise the payout percentage until sales start to drop. 

The trade-off is a classic business school dilemma. To maximize profits, you have to cut costs -but if you cut costs too much by spending less on marketing, or reducing the jackpots- you risk reducing total sales. But a mere 1-percent increase in returns to add as much as $40 million annually to pre-K and HOPE programs, according to Cowsert.

“Our goal is to make certain that we find that economic ‘sweet spot,’ where returns are maximized to pre-K and HOPE without significant reductions in overall sales,” said Sen. Cowsert. “Through a simple empirical formula, we are going to find that spot. Any adverse changes to the Lottery’s sustainability will be detected, and our formulas can be altered, quickly and easily.”

Current law requires the lottery to deliver “as nearly as practical” 35 percent of gross sales as profits; however the lottery has not hit that number since 1997. The Georgia lottery returns slightly more than 25 percent of its sales to the state for pre-K and HOPE programs. Senate bill 5 will mandate a return of 26 percent of gross sales to the state in fiscal year 2018. In fiscal year 2019, the Lottery will be required to return 28 percent of sales to the state. In 2020, the Lottery will be required to return 30 percent of sales to the state. In any year, if ticket sales drop by 5 percent or more, the percent return will be frozen and no further increase will be required.

Lt. Governor Cagle said he hopes “…this legislation will generate additional funds for these critical education initiatives and provide long term sustainability to the programs.”

If successful, the measure would also allow someone running for Governor in 2018 to announce $40 million extra education funding that hadn’t been tainted by the casino question.


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