Jerry Kopel

KOPEL: LET'S CUT COLORADO'S HIGH PAYMENT TO RETAILERS

Millions in lottery revenue there for taking

Colorado’s state government is facing a shortfall of $600 million or more, and everyone is trying to figure out how to bring more money into the coffers.

No one, however, seems to recognize that one revenue source is standing by, waiting to be tapped. The state needs to take a portion of the money that’s now going to retailers who sell lottery tickets. With the state budget deficit-prone, Colorado grocery stores and other lottery licensees need to take less.

According to the state auditor’s report, when millions of dollars can be captured by the state, they SHOULD be taken.

We could easily lop $6 million from the commissions paid to lottery retailers, plus, perhaps, millions more — as suggested in this column.

In the August 2008 report, the state auditor pointed out, “licensed retailers earn commissions on individual ticket sales of 7 percent on each scratch ticket sold and 6 percent on each jackpot ticket from Powerball, Lotto and Cash 5 sales.”

There are also bonuses for redeeming tickets, selling certain winning tickets, meeting sales forecasts and displaying lottery-marketing materials.

The lottery paid retailers $33.7 million in compensation over fiscal 2007, 90 percent of it in commissions and 10 percent in bonuses. At the time the auditor’s report was issued, the 2008 fiscal numbers were not yet available to the public.

Those numbers were $33.7 million in commissions and $4.7 million in bonuses in fiscal 2008. The $38.4 million paid to retailers in fiscal 2008 set a record as the highest amount in commissions and bonuses paid in the fiscal history of sales in Colorado.

The auditor’s office reviewed lottery games offered, administrative costs, retailer compensation and prize structures in Arizona, Minnesota and Wisconsin — states with lotteries similar to Colorado’s. The comparisons were for fiscal year 2006, the most recent year when numbers were available.

Arizona gave commissions and bonuses of $31.3 (6.7 percent); Minnesota, $27.3 million (6.1 percent); and Wisconsin $32.2 million (6.3 percent). Arizona’s total ticket sales were similar to Colorado’s; Minnesota’s sales were $19 million less, and Wisconsin’s were $40 million more.

Our Legislature’s auditor urged the Lottery Commission to consider cutting the cost of retailer compensation. The response was, “while the lottery believes it current retailed compensation is fair, it agrees to evaluate the lowering ... and the impact of doing so.”

In its response to the auditor, the lottery said it would conduct its review starting Oct. 1. However, it doesn’t need to wait until October. House Bill 1002 by Rep. Buffie McFadyen, D-Pueblo, and Sen. Abel Tapia, D-Pueblo, will shortly go the governor for signing.

It will provide the Lottery Commission the power under CRS 24-35-208 to decide: “The manner and amount of compensation, if any, to be paid to licensed sales agents necessary to provide for the adequate availability of instant scratch game tickets to prospective buyers and for the convenience of the public.”

When the lottery began, potential licensees probably did deserve commissions. The lottery needed to show licensed stores that ticket sales would not reduce their income by diverting money customers otherwise would spend on regular store goods.

In 2009, the licensed retailers statewide (2,900 as of fiscal 2007) need the lottery. The lottery doesn’t need to “sell itself” to stores anywhere.

If the lottery begins by copying Wisconsin, the compensation to Colorado licensees could be reduced by $6 million.

Only three states offer a higher percentage of lottery revenue to licensed lottery-ticket vendors than Colorado: Rhode Island, 12.3 percent; Oregon, 8.9 percent; and Michigan, 7.5 percent.

The state auditor also suggested making our prize percentage numbers run close to the numbers in Minnesota, Wisconsin and Arizona. Wisconsin had total prizes of $294 million in fiscal 2006 and paid 58 percent in prizes compared to 60 percent for Colorado based on $281 million.

In a separate report by auditor-hired Clifton Gunderson LLP, for the fiscal year ending June 30, 2008, the numbers showed 62.26 percent return of game money in prizes, amounting to $315 million.

If Colorado reduced the payback to 59 percent or 60 percent, Colorado could add between $7 million and $10 million more to funds that could go the general revenue.

That would provide $13 million to $16 million in additional revenue for the next fiscal year.

And, if you look at Senate Bill 200, this year’s Lottery Supplement Appropriation Bill, you find $392 million in lottery prizes instead of $336.7 million and $49 million in retailer compensation instead of $41.7 million. We still have a short wait to see if this supplemental is accurate.

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When Bill Owens was governor of Colorado for eight years, he made certain the advertising used for the lottery would reflect with honor on the state.

Until that time, the ads on TV exploited the idea of winning large sums rather than on putting the money to good use by funding such beneficiaries as Great Outdoors Colorado, the Division of Parks, the Conservation Trust Fund and the general revenue fund.

I have seen nothing more on TV recently dealing with the lottery than what helps create more gambling addicts. The advertising company now in control is doing its job as decided by the commissioners. Somehow, Coloradans played the lottery often under Bill Owens without being urged by ads sounding and looking as
if they were sponsored under the Limited Gaming Act for the various casinos.

Gov. Bill Ritter can make the difference. The commissioners serve at his pleasure. This is one area where Bill Owens has done a better job.

Jerry Kopel served 22 years in the Colorado House.