By Mary Lazich
Tuesday, Jul 8 2008, 02:21 PM
Every year, the highly regarded Legislative Audit Bureau (LAB) is required by state law to conduct an audit of the Wisconsin Lottery. The financial review is complete and here are the audit’s key findings.
More than 99 percent of the lottery revenue comes from instant and online ticket sales. Total ticket sales increased 13.3 percent during the past five fiscal years, from $435.0 million in 2002-03 to $492.8 million in 2006-07. Sales of scratch-off and pull-tab games increased 13.9 percent during that period, while online game sales increased 12.5 percent. Ticket sales decreased during 2004-05 and 2006-07 due to the timing of large Powerball jackpots that have a sizeable effect on online game ticket sales.
Expenses from game development and production decreased by 14.1 percent over the past five fiscal years. The decreases were the result of the state entering into a seven-year contract with GTECH Corporation in June 2004 to maintain the instant and online gaming system and provide telecommunication services. Other expenses decreased by 16.7 percent over the past five fiscal years. Lottery staff attributes those decreases to strategies implemented to reduce costs.
Under the state Constitution, net proceeds from the Wisconsin Lottery must be used solely for property tax relief to owners of primary residences in Wisconsin and through the farmland tax relief credit to certain farmland owners in Wisconsin. Property tax relief totaled $697.9 million over the past five fiscal years, including $160.0 million in 2006-07.
State laws and legislative action impose limitations on four types of lottery expenses. The LAB reports the Wisconsin Lottery is in compliance with each of the limitations:
1) The LAB reports, “At least 50 percent of Wisconsin Lottery sales be returned to players as prize payments. As a percentage of ticket sales, prize expenses have remained generally consistent, although they increased to 59.3 percent during 2006-07. Wisconsin Lottery officials attribute the 1.3 percentage point increase between 2004-05 and 2006-07 to offering higher-priced instant games that include higher prize payout percentages. They also note that the 2006-07 prize payout percentage may be higher because the Wisconsin Lottery paid the $100,000 prize for Supercash! eight times more in 2006-07 than in 2005-06.”
2) The LAB reports that state law “limits certain administrative expenses to no more than 10.0 percent of gross operating revenues. These administrative expenses include all expenses except prize payments and retailer compensation. The Wisconsin Lottery’s administrative expenses have remained within the statutory limit and were 5.9 percent of gross operating revenues during 2006-07.”
3) The LAB reports, “The Wisconsin Constitution prohibits the expenditure of public funds or of revenues derived from lottery operations for promotional advertising. It directs any advertising to provide information about the chances of winning and prize structures. Through legislative action, the Wisconsin Lottery’s product informational advertising expenses have been limited to $4.6 million annually since 1990-91. This expenditure authority was not exceeded in 2006-07. The Legislature has increased the Wisconsin Lottery’s annual product informational advertising budget to $7.5 million beginning with 2007-08. Wisconsin Lottery staff project that increase will produce an additional $15.0 million in annual lottery ticket sales.”
4) The LAB reports state laws “establish maximum compensation rates for basic commissions and performance program payments to retailers who sell lottery tickets. Basic commission rates are 5.5 percent of the retail price for online tickets and 6.25 percent for instant tickets. Performance program payments to eligible retailers may not exceed 1.0 percent of total ticket sales. The Wisconsin Lottery’s retailer performance program payments have remained within the statutory limit for the past five fiscal years and were 0.9 percent of ticket sales during 2006-07.”
The LAB gave the opinion in their audit that the Lottery’s “financial statements present fairly, in all material respects, the financial position of the Wisconsin Lottery.”
Here is the LAB full report of the Wisconsin Lottery audit.
Once again, I commend the LAB for their outstanding and thorough analysis.
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