Wednesday, December 29, 1999
Lottery audit critical of returns
The Associated Press
FRANKFORT, Ky. — The Kentucky Lottery is rewarding advertising firms, contractors and its employees to the detriment of players, taxpayers and retailers, according to a report released Tuesday by the state auditor.
But lottery President Arch Gleason said the report takes items out of context, ignores important facts and overlooks that the lottery paid more to the state last year even though total sales were down from the previous year.
“It's disturbing to see it made out like the players lost,” Mr. Gleason said. “We don't feel like the state lost.”
Mr. Gleason said the lottery paid $153.8 million to the general fund during the fiscal year that ended June 30. In addition, another $5.8 million was paid from unclaimed prizes to a trust that finances housing for low-
income people. The housing allotment was ordered by the 1998 General Assembly.
The total was slightly more than 1998, even though total lottery sales declined from $585 million to $583 million.
The lottery report said taxpayers lost because the lottery failed once again to return 35 percent of total sales to the state. The lottery has never reached that threshold, which is suggested in the 1988 law that created the games.
But lottery officials have long argued that returning a strict percentage of sales would mean fewer real dollars. Mr. Gleason said the state pays about 60 percent of sales in prizes, and lowering prizes would mean smaller sales and fewer dollars to the state.
Harold McKinney of the auditor's office said the report does not argue the point, but only notes that the percentage goal was not met. “I don't think we can draw that line,” Mr. McKinney said. “One way to test that would be to try it.”
The report also said players collected $9.4 million less in 1999 than the previous year. Mr. Gleason said $4.3 million of the total was money players won but did not cash for some reason.
Another reason for the difference is the sales of Powerball, the multistate game that pays 50 percent of sales in prizes.
Powerball sales made up a larger percentage of total sales in Kentucky in 1999, and Kentucky's other games pay more than 60 percent in prizes.
Mr. Gleason said retailers were paid less in commissions because of lower sales and because the unclaimed prize fund, which partly went to reward sales leaders in previous years, went to the housing fund instead.
Advertising expenses did go up in the year as the lottery tried to boost sales, Mr. Gleason said. And salaries and benefits rose about 5 percent.
The contracting expenses were largely attributable to the expiration of the old arrangement with the lottery's operator of online games and the signing of a new contract, Mr. Gleason said.
Mr. Gleason said the lottery was not given a chance to review the audit before its release and just received a copy Tuesday.
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Lottery audit critical of returns
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