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Tenn. legislators float idea that lower prizes will bring in more money

Oct 31, 2011, 7:38 pm

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Tennessee Lottery

Task force says 'bad idea'

Some Tennessee legislators are eying a reduction in prize payouts for Tennessee lottery players while letting them buy tickets with debit or credit cards.

The proposals are among ideas that are being floated as a way to generate more money that can be used for college scholarships.

Both were criticized at a meeting last week of the Senate Lottery Stabilization Task Force with a lottery official suggesting that a cut in prizes could be a bad business decision and the leader of a conservative group questioning the moral propriety of enticing more people to lose more money on the lottery.

According to Tennessee Education Lottery Corp. figures, 26.5 percent of net lottery proceeds generated last year went toward scholarships while 58.6 percent went into prize payouts to lottery game winners. Another 6.5 percent went to the vendors who sell the tickets and the rest to other operational expenses.

The 26.5 percent translated into $281.8 million for college scholarships and another $11.6 million for after-school programs at the K-12 level. Prize payouts totaled $695.1 million.

Prize payouts actually vary depending on the type of game. For "instant play" or scratch-off tickets, the payout is 66.6 cents per dollar versus 50.2 for online or computerized drawing games.

Some task force members said that reducing the prizes could make more money available for scholarships. Even an incremental adjustment downward in the money paid in prizes — for example, a quarter or half percentage point — would translate into millions more dollars available for scholarships, said Claude Pressnell, president of the Tennessee Independent Colleges and Universities Association.

But Andy Davis, chief financial and information systems officer for the lottery, said that may not be such a good idea for generating more money.

Kentucky tried such an approach in 2008, Davis said, with legislators mandating a downward adjustment in prize payouts. The result was fewer lottery players and a net decline in revenue, meaning about $2 million less was available for education than before the adjustment, he said.

Buying a lottery ticket — especially the "instant play" tickets that make up the bulk of sales — is basically an entertainment for the buyer, he said, and entertainment requires an ability to win reasonably often.

"We are selling a winning experience," said Davis. "If they (players) are not having a winning experience, they will, over a period of time, stop playing."

"I don't think that's correct," said Sen. Randy McNally, R-Oak Ridge.

McNally said he doubted that the typical lottery ticket purchaser would worry about the percentage prize payout when stopping by a convenience store "for a six pack of beer and a carton of cigarettes."

Current law also requires that all lottery tickets be purchased with cash. Several legislators have proposed at least changing that to permit use of debit cards as a means of increasing ticket sales and driving up revenue. Davis said 33 of the 44 states with a lottery now allow debit card purchases and 12 also allow credit card use.

He said that the "Y generation," ages 18-35, is more oriented toward debit cards than other age groups, and legalization of debit cards could enhance "impulse buying" by such people.

Sen. Bo Watson, R-Hixson, said debit cards would provide "a more successful pipeline" for marketing to younger people.

Rep. Harry Brooks, R-Knoxville, filed a bill earlier this year to authorize debit card use — later withdrawn — and Senate Democratic Leader Jim Kyle of Memphis has urged the change.

Bobbie Patray, president of the Tennessee Eagle Forum, said the "pressure for revenue is relentless," but legislators should not let that lead to another step toward enticing people into gambling — especially the poor who are already in debt — in the false hope of making money.

McNally observed that holders of a debit or credit card can already go to an ATM and get cash to buy lottery tickets. Patray said there is still a disconnect between a plastic card and cash for many that helps discourage gambling by those who can least afford it.

Kyle, who is not a member of the task force appointed by Republican Senate Speaker Ron Ramsey, says that debit cards are not used by poor people as much as people with higher incomes. So long as debit cards are the equivalent of cash, coming directly from a person's bank account, Kyle said they do not let people borrow money to gamble — a notion he opposes.

Davis outlined lottery revenue enhancement moves in other states that he said could be applied in Tennessee, including installment of "video lottery" games and Internet gambling.

Eight states have "video lottery," which Davis likened to slot machines. The most recent state to adopt the practice, Maryland, saw a quick $66 million increase in revenue, he said.

Only three states have Internet gambling, Davis said, and they limit players to state residents to avoid federal restrictions on interstate gambling. Nonetheless, he said the legality of the practice has raised legal questions.

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