Lottery revenue falls short after adding Mega Millions

Saturday, June 17, 2006 posted 04:59 AM EDT

SACRAMENTO - One year after California joined the multi-state Mega Millions lottery game, sales have fallen short of expectations as the new game has cannibalized some sales of the existing Super Lotto program.

Combined sales of Super Lotto Plus and Mega Millions tickets are likely to reach about $1.2 billion this year, short of the $1.4 billion projected when California joined the 11-state game in June 2005, said California Lottery acting director Joan Borucki.

"I think it's (because of) that initial start-up period that you have with a new product and getting your customers to feel comfortable with it and even recognize that it's available," Borucki said. "And maybe some error on our part that it didn't pick up as quickly as we would've liked."

The previous year, sales of Super Lotto alone were almost $1.1 billion. This year, Super Lotto is down to about $720 million, while Mega Millions is expected to come in around $460 million.

That means Mega Millions cannibalized some sales of the existing Super Lotto program as expected, but brought in enough of its own sales to add at least $80 million to overall lottery revenue.

But lottery officials remain convinced that joining the game was a good move that is paying off for education.

About 34 percent of lottery funds are supposed to go toward schools, or about $370 million from Super Lotto and Mega Millions this year.

Including other lottery products such as scratch tickets, overall lottery sales were almost $3 billion as of April 30, meaning the lottery is on track to transfer more than $1 billion to California schools.

Mega Millions has also survived a serious legal challenge in its first year. Gambling opponents joined with some supporters of increased education funding to file a lawsuit in Sacramento challenging California's authority to join a mega-state lottery and its implementation of the program.

But the judge ruled in favor of the state earlier this month, with the caveat that lottery officials work out some discrepancies with the other states over how much time winners have to claim their prizes.

Attorney Nicholas Roxborough, of Woodland Hills, who represents the California Coalition Against Gambling Expansion, said his clients aren't likely to appeal the ruling, but may ask the Legislature to examine ways to get more lottery funds provided for education.

In particular, he suggests the lottery should consider a cap on prizes, with the remainder going to education.

"Why do you need a more than $100 million prize pool?" Roxborough asked. "I think people will play whether it's $100 million or $200 million. At some point why keep it growing exponentially?"

But Borucki said it is the growing prize pool that creates the most excitement in the public and generates substantially increased sales.

The slow start by Mega Millions, she said, got a significant sales boost after a $315 million jackpot was claimed in November from a ticket sold in Anaheim shared among seven people.

Any jackpots in excess of $100 million tend to have a similar effect, she added.

At the same time, there are already several bills pending in the Legislature to revise the funding formula for the lottery.

Sen. Dean Florez, D-Fresno, has proposed a bill that would increase the percent of lottery revenue that goes to schools to 45 percent, up from the current 34 percent.

Borucki said the lottery would like to be able to provide more funds for education, but she argued that decreasing the prize pool has been shown to be self-defeating in other states where it reduced lottery sales overall.

"The entire goal of this organization is to make as much money as we can for education," Borucki said. "There's a combination of ways to do that. But it all comes down to selling the product. ... Telling people that they're going to receive less in payouts isn't going to help me sell my product."

Assemblyman Gene Mullin, D-San Mateo, has authored a bill to target the Mega Millions funds toward specific school programs. His bill would distribute the funds based on schools that have the most special-education students, English-language learners and low-income students.

While the distribution formula would be based on those needs, the schools are not required to spend the funds specifically on those programs.

If approved, the bill would create a measure to be placed on the November ballot for voter approval.

Some education groups, including the California Teachers Association, oppose the Mullin bill because they don't believe distribution of the money should be restricted by a weighted formula.

Aside from the issue of whether the state should sanction gambling, the education community generally has mixed feelings about Mega Millions and all lottery games, noting that while they provide more money for schools, the funds are generally less than the public assumes and in the past have served as an excuse to reduce other funds for schools.

In the current fiscal year, the state budget for K-12 education is about $61 billion, with about $1 billion of that coming from the lottery.

"Although the lottery money has helped education, sometimes its a double-edged sword," said CTA spokeswoman Sandra Jackson. "There are those times you talk to people about the need for increasing funding for education, and they'll say ‘I thought the lottery did that. Why do we need to give education more money?' "

"What they don't realize is the money given to education is not a significant amount when it comes to money per student or per classroom."

Related Links
	Lottery News & Stories
	California Lottery Results
	Search Past California Lottery Winning Numbers