NC House budget relies on higher lottery revenues, even with ad restrictions

acurliss@newsobserver.comJune 11, 2014 

LOTTERY07.NE.051713.CCS

Lottery players line up in May 2013 to buy tickets from cashier Karen Leach at C Mini Mart on Poole Road in Raleigh.

CHRIS SEWARD — cseward@newsobserver.com Buy Photo

  • Lottery ad spending and sales

    A consultant to the state lottery said in a recent report that spending on ads is “highly related” to sales. Recent figures in North Carolina don’t bear that out. For example, ad spending jumped by 17 percent from the 2009-10 fiscal year to the next. But sales increased only 2.8 percent. The next year, ad sales increased by a more modest 6.5 percent, but gross sales jumped by nearly 9 percent.

    Here are the most recent numbers at a glance:

    Fiscal yearAd spendingAd spending changeSalesSales change
    2007-08$8.6 million$1.07 billion
    2008-09$11.2 million30.2%$1.29 billion20.6%
    2009-10$11.8 million5.4%$1.42 billion10%
    2010-11$13.8 million16.9%$1.46 billion2.8%
    2011-12$14.7 million6.5%$1.59 billion8.9%
    2012-13$15.3 million4.1%$1.69 billion6.3%

    Source: N.C. Education Lottery, Delehanty Consulting LLC

The plan by leaders in the state House to finance teacher pay raises by juicing lottery sales includes language that clamps down on lottery advertising – and could make it difficult for the lottery to raise the millions projected for raises.

House leaders are budgeting $106 million more from the lottery to offer teacher pay raises, but that figure does not take into account more advertising restrictions that were also written into the budget, the lottery’s executive director, Alice Garland, acknowledged in an interview Wednesday.

State Rep. Paul Stam, an Apex Republican and lottery critic, wrote the restrictions. He said they are tough enough that they should significantly hamper the lottery.

Lottery officials provided the $106 million estimate to House budget writers in a meeting last week after they were asked to provide a menu of options for increasing lottery sales and profits to be used by state government. The extra money is expected to come as a result of doubling the lottery’s advertising budget that would generate at least a roughly 23 percent increase in lottery ticket purchases.

Garland said the option House leaders adopted was presented without knowledge of the added advertising restrictions.

“When we provided the $106 million, we were providing it under today’s conditions – what our legislation says today about what we can and cannot do” with advertising, Garland said. “We believe that we can hit that target under today’s advertising conditions.”

Garland said the lottery hasn’t projected sales or profits for education that take into account effects of the additional ad restrictions. Last year, she expressed concern to lawmakers that the restrictions, which were adopted in the House but failed to advance in the Senate, would hurt sales.

Garland said Wednesday that she did not want to be characterized as expressing the same concerns now, repeating several times only that lottery officials had provided information last week that was based on the current lottery law and what it says about advertising.

The lottery’s sales have beaten projections over the past three fiscal years, providing surpluses of about $84 million that, under the House plan, would also go in part toward teachers in the coming budget year.

State Rep. Nelson Dollar, a Wake County Republican and a chief budget writer, said in an interview that legislators had confidence the lottery would produce enough to provide for the teacher increases. He said the lottery has often provided conservative estimates.

“The lottery will be able to perform,” he said.

Ads already restricted

Stam said the new restrictions mirror a bill he filed last year, known as the Honest Lottery Act, that he said “plants the seeds of the ultimate destruction of the lottery.” He believes the lottery dupes citizens into spending money without realizing how unlikely it is for them to win big.

Stam said he was not concerned that teacher raises are now tied closely to the promise of increased lottery sales.

If his effort instead stifles the lottery, lawmakers could shift money from elsewhere in the budget to pay for teacher raises, Stam said. He said he is supporting the overall plan to allow for more lottery ad spending because it also adopts his efforts to implement more restrictions.

“Am I happy about it? No,” Stam said. “I’m sanguine.”

North Carolina’s lottery already operates under one of the most restrictive advertising laws in the nation. As it is now, ads cannot “have the primary purpose of inducing persons to participate in the lottery.” The lottery cannot market the games as relief to financial trouble.

That’s why many of the lottery ads in the state focus on the names or types of games and try for a splash of humor. Some other states pitch the games as a way to get rich.

State law has capped spending on advertising at 1 percent of sales since the lottery began in North Carolina in 2006. Almost all of the ads are on radio or TV.

The new House plan, made public Tuesday, would lift that cap to 2 percent of sales. More ads would lead to more sales and more profits for education, lawmakers said.

Lottery ad spending would double from $17.5 million to $35 million under the House plan. But the additional restrictions contained in the House budget bill would alter how that ad money could be spent. The House plan would:

•  Prohibit ads or sponsorships in connection with college sporting events. High school events are prohibited, too, but the lottery does not currently sponsor or advertise in connection with high schools.

•  Require ads, including billboards, to include information about the amount of the lump sum payout and not just the larger amount – to be paid in annual installments – that is often associated with large jackpots for Powerball and Mega Millions.

•  Ensure that lottery ads spell out odds of winning top prizes and inform players of the low prizes offered.

No to college hoops?

The restriction on college sports – especially basketball games – could affect sales, Garland said. College sports have been an integral part of the lottery’s advertising plan.

“It’s a very big part of our plan,” Garland said. “Quite frankly, that’s kind of the prime thing folks are watching, and so to be on air with an ad in that same time frame, we’d probably have to buy a whole lot of not very valuable time to even get the same number of eyes.”

The lottery also has sponsorship deals for signs and logos at 10 of the 16 UNC system universities as well as at Duke University and Wake Forest University.

Legislative analysts wrote in a report last year that there was not enough data available to assess the financial impact of banning collegiate tie-ins.

Garland said it could be costly to carry out the change dealing with annuity and lump sum payouts because officials would have to reconfigure billboards and other systems to display different sets of jackpot numbers. North Carolina would be the only state to do it that way, she said.

She said the lottery has already started providing more information about odds and prizes in line with what the bill proposes.

The House plan would provide average raises of 5 percent for teachers, with the largest increases going to teachers who have just started.

It differs from the effort in the Senate to raise teacher pay. Senators want raises of about 11 percent for teachers who are willing to give up tenure while cutting the number of teacher assistants in second and third grades.

House members will be voting this week on their budget, and the lottery provisions are expected to get more scrutiny. Senate and House members ultimately will have to resolve differences in their budget plans before one version goes to Gov. Pat McCrory for approval or a veto.

Curliss: 919-829-4840; Twitter: @acurliss

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