March 14 (Bloomberg) -- Georgia’s lottery players are the biggest suckers in a nation buying more than $50 billion a year in tickets for state-run games, which have the worst odds of any form of legal gambling.
Players in Georgia, whose per capita income is about 10 percent below the U.S. average, are doing the most damage to their personal finances. They spent the second-highest chunk of their income on the lottery, which funds college scholarships and pre-kindergarten, according to the Sucker Index created by Bloomberg Rankings.
Governors use lotteries to pay for education, environmental protection and other programs. In the past fiscal year, sales rose for 26 of the 43 states that have games, helping close budget gaps from declining tax revenue and federal aid. The pot comes disproportionately from lower-income residents, according to a Journal of Behavioral Decision Making study.
“You’re taking from those with few means and helping those with more means,” Charles Clotfelter, a Duke University economics professor, said from Durham, North Carolina. “To link that tax revenue to a benefit that goes largely to middle-and upper-class citizens is a little stunning,”
“It’s a pro-rich wealth-redistribution technique in Georgia,” Clotfelter, co-author of “Selling Hope: State Lotteries in America,” said in a telephone interview.
Georgia residents spent an average $470.73 on the lottery in 2010, or 1 percent of their personal income, while they received the sixth-highest prize payouts, 63 cents for each dollar spent, the Sucker Index shows. Only Massachusetts had higher spending, $860.70 per adult, more than three times the U.S. average.
Georgia had per capita income of $34,800 in 2010, below the national average of $39,945, while Massachusetts’s was higher at $51,302, according to data compiled by Bloomberg.
Massachusetts players were the biggest lottery winners, getting back almost 72 cents on the dollar, according to the data compiled by Bloomberg. That state still places second on the Sucker Index because spending as a percentage of personal income is the most, at 1.3 percent.
New York ranked third in the index, followed by Michigan and South Carolina. The lowest scores went to Oklahoma, Washington, South Dakota, Montana and North Dakota. Alabama, Alaska, Hawaii, Mississippi, Nevada, Utah and Wyoming don’t have state lotteries.
Bloomberg Rankings created the Sucker Index with 2010 data from the U.S. Census and annual reports from state lottery commissions, which include multi-state games. The total dollar amount of prizes awarded was subtracted from ticket sales, and then the difference was divided by the total personal income of each state’s residents.
Georgia’s lottery law says the state should contribute “as near as practical” to 35 percent of the proceeds to pre-kindergarten and the Helping Outstanding Pupils Educationally (HOPE) scholarships, which pay full tuition for in-state public and private colleges and technical schools. A share that large was last transferred in 1997, according to a state audit.
Last year, with the lottery-funded programs facing a $300 million deficit and “on the brink of bankruptcy,” Governor Nathan Deal enacted scholarship changes that raised grades and test scores for eligibility, eliminated funding for books and fees and cut payments for remedial classes. He also cut the pre-kindergarten program to 160 days from 180.
In the fiscal year ended June 30, the Georgia lottery gave 25.3 percent of revenue, or $846.1 million, to education. The percentage of proceeds awarded isn’t as important as the dollar amount, which has been growing, said Tandi Reddick, the game’s media-relations manager in Atlanta. In 1997, the lottery gave 35 percent of revenue, or $581 million, she said in an e-mail.
The Georgia lottery had record sales in the week ended Feb. 11, taking in $101.2 million and surpassing a 2007 record by more than $5 million, said Reddick, who declined to predict education funding levels for this year or the future.
“There is a delicate balance that must be achieved between prizes paid and profits returned,” Reddick said. “If we believed for a moment that the lottery could increase the annual dollar amount returned to education by reducing prize payouts, thereby increasing the percentage return to the HOPE scholarship and pre-K programs, we would not hesitate to do it.”
Twenty-nine states expect budget deficits of $47 billion for the fiscal year that begins July 1, according to the Center on Budget and Policy Priorities, a Washington-based nonprofit group that researches issues affecting lower-income Americans.
The drive to collect more from numbers games paid off in the year ended June 30, 2011, with 26 states reporting higher revenue than the year before, according to La Fleur’s, a lottery research firm in Rockville, Maryland. Total sales increased 3 percent to $56 billion.
The National Gambling Impact Study Commission, in a 1999 report, found lotteries to be the most widespread form of gambling in the U.S., and the type with the longest odds.
Unlike Georgia, with its dedicated stream to education, Massachusetts returns 95 percent of lottery revenue to its municipalities to do with as they wish: $802.2 million for the fiscal year that ended June 30, 2011. The rest goes to gambling-addiction programs, cultural groups and community services, said Paul Sternburg, director of the lottery.
“We paid over $3.1 billion in prizes last year, so there are a lot of winners out there,” Sternburg said in a telephone interview. “Massachusetts has always had the highest payout. I don’t think we can go any higher. If we went any higher, we’d be hurting our net profits.”
In January 2011, Massachusetts lottery officials examined the “portfolio mix,” particularly the instant scratch-off tickets priced at $1, $2, $5, $10 and $20, Sternburg said from his office in Braintree, Massachusetts.
“Our tickets -- they weren’t popping out,” he said. “We went back to basics: Make the tickets more attractive. You can see, when our first tickets went on sale in April, it’s been going up ever since.”
Massachusetts Governor Deval Patrick signed a law last year allowing casino resorts. Sternburg said they’ll be open in two to three years and will take a chunk of lottery cash, at least temporarily.
“At that point we’re expecting between a 3 percent and 10 percent hit in revenue,” Sternburg said. “You have to change your portfolio, come up with new products.”
A study commissioned by the Georgia lottery last year found that three casinos, if approved, could draw about $1 billion in revenue. Without any operating now, the lottery’s focus is on “fresh and exciting” games for players, and the possibility of a national game, Reddick said.
“The biggest challenge facing the Georgia lottery is finding ways to grow a mature lottery,” Reddick said.
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