Tennessee's lottery could reap as much as an extra $249 million over a seven-year period by joining forces with Georgia, according to a consultant hired by the state lottery board.
The additional proceeds would stem from Tennessee's starting its lottery Dec. 2 about three months earlier than without Georgia's help and leveraging Georgia's attractive rates with two major gaming vendors, consultant Gerry Wexelbaum told the board yesterday.
"It appears that a joint venture with Georgia would be the most attractive route financially for Tennessee," he said. "We're talking about a considerable amount of money that would not have been there without Georgia's involvement."
In the short term, the Volunteer State could see $66 million to $88 million in additional proceeds and over the seven-year period between $101 million and $249 million, he said.
The proceeds would be what's left after Georgia takes its cut of the extra money generated by the partnership, said Wexelbaum, working for North Highland Co.
He and board members declined to say how much that split would be, saying they don't want to show their hand before upcoming negotiations.
"My guess, and it's just a guess, is one-fourth," board chairman Denny Bottorff said as his estimate of what Georgia's take of the additional revenue would be.
Wexelbaum also wouldn't disclose exactly how he reached those figures, although he briefed the board on the process in a separate, private meeting.
His economic analysis was compelling enough for board members to vote yesterday to continue discussions with Georgia.
"In light of the numbers, it would be prudent to look at it further," board member Marvell Mitchell of Memphis said.
If Tennessee goes solo, it's very unlikely it could get the low rates Georgia pays to the two companies that run its games, said Wexelbaum, who has worked as a consultant for five other lotteries and surveyed 14 states in compiling his economic analysis.
Paying gaming vendors is the second-highest expense of a lottery behind prize payouts, he said.
Georgia pays its electronic gaming vendor, GTECH, 1.28% of total sales, and Scientific Games, which runs its scratch-off ticket games, 1.2875%, Wexelbaum said.
Those low rates would be unattainable for a startup such as Tennessee because the average is typically closer to 2% to 4%, he said.
Georgia lottery CEO and President Rebecca Paul last month broached the subject of a partnership. Georgia estimated it would lose $100 million in ticket sales once Tennessee's lottery got started.
Since then, lottery board members have visited Paul's operation in Atlanta, as well as the Atlantic lottery in Canada, a consortium of four provinces, to get a better handle on the ups and downs of a partnership.
The board plans to decide on the Georgia offer by Sept. 1.
Board explores uses for extra income
Lottery board members yesterday said they want to know how many more college scholarships could be funded with additional proceeds from an alliance with the Georgia lottery.
But the calculations aren't that simple, said Brian Noland, associate executive director of the Tennessee Higher Education Commission.
Because only a certain number of students qualify for scholarships, the extra money would play more of a role in helping fully fund those scholarships, giving lawmakers the latitude over time to increase scholarship amounts, Noland said.
The extra money also could flow to pre-kindergarten programs, which lawmakers agreed to pay for with excess lottery revenue after scholarships are financed.
Rep. Chris Newton, R-Benton, who co-sponsored the lottery legislation, said the additional proceeds also could help expand the early childhood program and increase the scholarship program's reserve fund.
THEC estimates that in its first year, the lottery without any extra money from a potential partnership with Georgia would generate $220 million to $230 million in net proceeds, and roughly 30,000 first-time freshmen would qualify for scholarships. Those scholarships would cost about $170 million, Noland said.
But once the lottery funds scholarships for freshmen through seniors, Noland said, the annual cost could rise to $270 million to $280 million.
Lawmakers set scholarship amounts of $3,000 for students attending a public or private, four-year university and $1,500 for those in a two-year degree program.