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New Mexico lottery spends the most on administrative costs

New Mexico LotteryNew Mexico Lottery: New Mexico lottery spends the most on administrative costs

New Mexico's lottery spends a far greater percentage on administrative costs than almost any other lottery in the nation, and as a result, risks having to make reductions in the lottery scholarship program if changes aren't made.

Those are the results of a report issued by Think New Mexico, a public policy group which in the past has successfully lobbied for full-day kindergarten, elimination of the food tax and creation of individual development accounts.

"This is the first year they're going to start dipping into the reserves, and they're going to be taking more and more out of the reserves unless something changes," said Fred Nathan, founder and executive director of Think New Mexico.

The group is proposing a regulation that would require at least 30 percent of the total revenue garnered by the lottery go toward scholarships. The percentage now going to scholarships is 23.97 percent, and is projected by the Lottery Authority to drop to 22.07 percent by 2010.

Tom Romero, CEO of the New Mexico Lottery Authority, declined a request to be interviewed about the report.

"The New Mexico Lottery received the most recent report by Think New Mexico late Thursday afternoon," Romero said in a prepared statement. "Think New Mexico has obviously devoted much time and effort to writing their report expressing their views. It would not be appropriate or fair to comment on this report until the lottery staff and I have ample time to thoroughly review their report and recommendations."

Think New Mexico first looked at the lottery last year, when it was seeking funding for Individual Development Accounts. The Legislature instead decided to finance those accounts through the general fund, but Nathan said their review of the lottery demanded further action.

"Even when we got the general fund money we said we still want to do something about the lottery because that is definitely broken and it needs a solution," Nathan said.

Of the 41 states that have lotteries, only four - Arizona, Iowa, South Dakota and Montana — spend a higher percentage on administration than New Mexico, according to La Fleur's 2006 World Lottery Almanac.

When Think New Mexico first looked at the lottery last year, then-CEO Tom Shaheen said costs are higher because vendors need a larger share of the sales to make up for a smaller volume.

"The smaller the lottery — and we're one of the smallest — the higher your vendor fees are going to be," Shaheen said, adding that the vendor contracts come up for bid in 2008.

But Nathan points out that smaller states like Delaware, North Dakota and Vermont spend a smaller percentage on administration, as do more rural states like Idaho, South Dakota and West Virginia.

Ten other states have passed legislation mandating at least 30 percent of lottery revenue go to beneficiaries. The Think New Mexico report notes that lawmakers had that expectation when the bill was first passed. The fiscal impact report then stated that 30 percent would go to beneficiaries.

New Mexico law does require that at least 50 percent of revenue go toward prizes. Nathan said they would oppose lowering that percentage, since it would likely result in fewer players.

Nathan proposed several areas where costs could be cut. For example, the state's contract with its online vendor, GTech, calls for that company to receive 8.52 percent of online sales. By contrast, the same company gets just 2.99 percent of the online sales in Idaho.

Nathan also suggested cutting the percentage paid to regular vendors, and trimming the budget for bonuses, incentives and promotional events.

But, he said as long as 30 percent of the proceeds go to beneficiaries, his group really doesn't care where the cuts are made.

"Rather than micromanaging the lottery, if you made it 30 percent, let them choose where to cut rather than us doing it," he said.

Farmington Daily Times

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1 comment. Last comment 10 years ago by Drivedabizness.
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Northern California
United States
Member #19948
August 9, 2005
151 Posts
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Posted: September 5, 2006, 5:23 pm - IP Logged

Like many other articles, not particularly well researched.

 

I used to manage this contract (on the vendor side) so I feel competent to comment.

 

First - the Lottery did have a big problem with expenses at first. Sales were way under what was projected and the place was top heavy and inefficient. They have since raised their prize payouts,lowered some internal costs (as well as vendor fees) and sales are about 75% higher now than they were then.

 

It's true they pay GTECH over 8% in NM - but of online sales only (nothing on Scratch even though their system handles all validations, etc.).  The actual dollars is about $6 million per year where GTECH get's about 3 or 4 mil in Idaho - an actual even exchange on a per capita dollars charged basis. Once again - the comparison to Idaho is misleading as GTECH also receives/received an upfront multi-million dollar payment in Idaho for software that is not part of the regular sales commission. The authors look like they cherry-picked a statistic but we all know about apples to oranges comparisons, don't we?

Also, GTECH originally was paid 10.5% (with terminal expansion) - so the current rate represents a significant decrease they negotiated in exchange for a contract extension. Cutting the retailer commission is a non-starter. Retailers already feel they should receive a bigger piece of the pie. Bonuses, incentives and promotions do not represent a significant enough percentage of sales to make a real difference.

 

Bottom line is this. This group wants to get their hands on lottery dollars. The state (in it's wisdom) has already come up with a funding formula  that says were the lottery $$$ go. I have no doubt that Tom Romero & Co could find some ways to trim their operating expenses - but trying to manage to % targets is usually a loser for a lottery. People (beneficiaries) spend $, not percentages.

 

DDB