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Looking at lottery expenses
Hill Jack
State Sen. Jack Hill

Comparing various states’ lottery expenses can be tricky. We settled on using total revenues less payouts leaving the balance that would logically be expenses. That’s not the only complicating factor but an important one.

The six lotteries compared to Georgia are in the top ten lotteries in sales and those for which information was available.

The Georgia Lottery’s operating expenses, as compared to lotteries of similar size, are higher than most at 16.49 percent of total sales, although salaries totals were second-lowest.

For fiscal year 2014, the Georgia Lottery had the second highest percentage of operating expenses of the New York, Florida, California, Massachusetts, Pennsylvania and New Jersey lottery systems. The New York Lottery had the highest percentage dedicated to operating expenses at 18.25 percent. These percentages are based on the total ticket sales minus transfers to the state and prizes awarded. It is worth noting the Georgia Lottery paid out $2.4 billion in prizes — comprising about 60 percent of their gross ticket sales for that year. The Georgia Lottery’s prize expenses in FY14 were just below the median prize expense percentage for lotteries of similar size by gross sales.

FY14 Georgia Lottery operating expenses (in 000)
Retailer commissions and bonuses $239,322
Contractor fees $76,390
Advertising $19,563
Salaries and benefits $25,923
Retailer merchandising and marketing $19,532
Rent, utilities and maintenance $4,882
Depreciation $1,597
Professional fees $1,601
Gaming equipment $1,620
Other $3,386

This list only represents the Georgia Lottery’s expenses that were directly paid out for day-to-day expenses in FY14. These numbers do not include any capital costs, fidelities, payments for compulsive gambling addiction education programs, or other general operation costs.

Also not included is what the Georgia Lottery terms “non-operating revenues” such as decreases in value of prize expenses. Non-operating expenses are not paid out directly but still must be considered as part of the cost of running the lottery. The operating expenses presented above do not include a number of other expenses that the Georgia Lottery incurs, so the total cost of the items in the list look smaller than the total revenues less payout figure that is used in the preceding paragraph.

The Big Four expense items

Each state reports its finances differently making it hard to directly compare total operating expenses. There are four areas that are consistently reported by some of the top lottery systems in terms of total sales in FY14: retailer commissions, contractor fees, advertising, and salary expenses can all be compared between the Georgia, New York, Florida, and Massachusetts lottery systems. Data comes from each state’s financial and annual reports.

Out of these four lottery systems, Georgia spent the lowest percentage of total operating expenses on retailer commissions at 36.08 percent. The other three systems’ costs were higher by 28 to 41 percentage points, with New York spending the most at 76.64 percent.

Retailer commissions can be affected by the size of the state and the number of retailers that sell lottery products. Retailer commissions rise as the number of locations that sell lottery products increases.

Georgia also spent the second-lowest percentage of operating expenses on contractor fees, at 11.52 percent. Contractor fees include services that are supplied by outside vendors to fulfill gaming needs. Florida and New York were higher at 18.14 percent and 13.05 percent, respectively. Massachusetts, on the other hand, only spent 1.5 percent. Advertising costs put Georgia in the second highest position behind Florida, but only by 2 percentage points. Georgia’s salary expenses, at 3.91 percent of total operating costs, made it the second lowest to New York’s 1.72 percent.

Corporation vs. state agency

Of the states compared, the Georgia Lottery is the only entity that functions as a corporation rather than a state agency. This is important to note because while Georgia is on par with these other lottery systems in terms of total sales, there may be differences in operational costs due to the corporate structure.

When comparing the Georgia Lottery to the smaller Tennessee Lottery, which is also a corporation, expense percentages between the two have a much lower variation despite the Tennessee lottery having $2.6 billion less in total ticket sales. In the four areas of retailer commissions, contractor fees, advertising, and salaries, the Georgia and Tennessee lotteries were within about 4.5 percentage points of each other in spending for each area in FY14.

In retailer commissions, for example, Georgia’s 36.08 percent of total operating costs were just below Tennessee’s 40.42 percent. For contractor fees, Georgia spent 1 percentage point less than Tennessee at 11.52 percent. The Georgia Lottery spent slightly more on advertising at 5.89 percent compared to Tennessee’s 3.57 percent, and slightly less on salaries at 3.91 percent compared to Tennessee’s 5.77 percent. The Tennessee Lottery’s overall transfers to the state were also very close to Georgia’s at 23.8 percent. The similarities between the Georgia and Tennessee lottery systems suggest that corporations have more expenses to account for than state agencies, making their percentages of total costs similar despite the large difference in total sales.

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