Georgia Lottery Corporation business practices in question by the state

Georgia sells more lottery tickets per capita than any other state lottery but one, according to a state audit of the Georgia Lottery Corporation.

As reported in the Athens Banner-Herald, a declining percentage of lottery revenues are going back to the education programs the lottery is required by law to fund, and the corporation that runs the lottery must reform its business practices, according to auditors in the Performance Audit Division of the Georgia Department of Audits and Accounts.

Under the new law, the lottery was supposed to contribute about 35 percent of proceeds to education, but the figure hasn’t been that high since 1997, auditors found. In the 2016 fiscal year, 25.5 percent of lottery proceeds went back to the state for education programs.

Most of the money the state gets goes to fund two programs that benefit the HOPE college scholarship program and the statewide voluntary pre-kindergarten program.

But as lottery growth declined and many more students qualified for HOPE, legislators have cut the scholarship’s value and stiffened eligibility.

As a result, the HOPE covers a declining part of college costs for most recipients of the lottery-funded scholarships.

The amount of money the GLC transferred back to the state jumped from $945 million in the 2014 fiscal year to $981 million in 2015 and $1.1 billion in 2016, according to auditors in the department’s Performance Audit Division.

The lottery sold $1.1 billion in tickets the year after the first tickets went on sale June 29, 1993 and have nearly quadrupled since. Net ticket sales reached $4.3 billion in the 2016 fiscal year.

Of that $4.3 billion, $2.75 billion went out as prizes. Operating expenses accounted for $456 million, including $271 million in commissions to retailers. About $1.1 billion went back to the state’s education fund.

GLS’s second-largest expense administrative expense was about $100 million paid to contractors, mostly to two corporations, Scientific Games and International Game Technology, to design and run the lottery and its ever-changing games.

Since the contracts were first awarded in 2002, GLC has renegotiated contracts with each of the two companies three times, and each time, got a lower base rate — from about 1.3 percent of sales down to about .8 percent beginning in 2018.

In fiscal year 2016, International Games Technology’s base compensation was $48.4 million, and
Scientific Games’ base pay was $32.2 million.

GLC should periodically put the two huge contracts out for bid instead of periodically renegotiating contracts, the auditors said.

The GLC has no policies for how it handles large purchases of $75,000 or more, according to the audit report.

The GLC also paid out $30 million for advertising and $32 million for personnel salaries and benefits.
GLC also paid out $712,344 in employee bonuses in 2016, compared to $1.9 million in 2010, before
state lawmakers enacted limits on lottery employee bonuses.

The state auditors questioned the lottery corporation’s research in determining optimal prize payouts, and said GLC should also analyze how it’s spending advertising money.
Georgia spends more money on lottery advertising than any other state, they found.

The GLC needs a do-over on a 2013 study that said each 1 percent increase in payout rates would mean $13.5 million more in ticket sales. Most of the factors used in weighing the options weren’t statistically significant, they said.

​Georgia’s prize payout rate of 64.8 percent of proceeds is about average compared to other states, but much higher than in the beginning. Payouts were 51.6 percent of sales in the lottery’s first year. The state lottery law calls for “as near as practical” payouts of “at least” 45 percent.
 
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