10-2 Lottery Scholarship $ Enriching Others?

10-02-06

SANTA FE -- New Mexico's state lottery turns out to be an even bigger rip-off than we thought.
From the beginning we knew our chances of winning the big one are something like one in 80 million. For some reason that wasn't enough so they added some more numbers we could choose and the odds went up from astronomical to something like our chance of being a victim of terrorism.
So why would anyone ever want to play the lottery? When they advertise a $100 million prize, that's only if you wait 40 years to get it all. If you want it now, figure on about half that amount. Then Uncle Sam gets his cut off the top which leaves you with about $33 million.
That's nothing to sneeze at but it's not much compared to the odds against winning. You can do better at an Indian casino and they're not known for their generosity. But you can find bets in casinos in which the house advantage is less than one percent.
In New Mexico's version of the Powerball lottery, players get 56 percent of the of the amount bet. Operating costs are 20 percent and the remaining 24 percent goes to college student scholarships. That means it takes $76 to raise $24 for the students.
Over 40 states and territories participate in the Powerball lottery. So we can make comparisons with the experience of other states. Some states have tried monkeying with the percentage that goes to winning players.
But for some reason, when the winning percentage drops to near 50 percent, many players drop out. When the odds of winning are so high to begin with, it really shouldn't make much difference if the winning amount is reduced slightly. But it does.
It is reducing operating costs that makes the big difference, though. That's where other states are saving money that could be going into New Mexico college scholarships. Only four states spend more on administering their lottery than New Mexico.
Obviously, there are some benefits to size. The states with the lowest administrative costs are the biggies. But all of the states that are smaller than us also have lower administrative costs than we do. That means New Mexico has a lot of fat that it needs to trim.
Think New Mexico, a results-oriented think tank that has been responsible for a number of advances in our state, recently issued a study of the New Mexico lottery's operating costs and discovered several areas that need attention. And there is some urgency.
Unless our high operating and administrative costs are sufficiently cut in the next five years, the lottery will not generate sufficient money to fully fund all the students eligible for lottery scholarships.
The first step is for the state to re-bid the contract with its online vendor, GTech, which receives 8.52 percent of sales, while similar states pay as low as 2.16 percent. That can't be done immediately because the contract runs through late 2008.
The last time the contract came due, it was extended for another five years, without re-bidding. GTech agreed to a reduction from 10.35 percent, at that time, making it look like a good guy. But it isn't.
GTech originally got the business on a sole-source contract. In states where GTech has faced competition, it has agreed to contracts as low as 2.99 percent in Idaho. Not surprisingly, GTech had lobbyists at the New Mexico Legislature advocating for the original state lottery.
It is time for GTech to get out of New Mexico unless it cleans up its act quickly. That might be possible. The Rhode Island company is being bought by a multinational corporation based in Italy. The sale would create the world's biggest lottery operator.
Might that mean a better citizen of the lottery business or an even bigger, greedy giant? We need to know soon because student scholarships are running out of money.