Summary of Kansas Lottery Prize Payouts

How does Kansas prize payout compare to other state lotteries?

The Kansas Lottery’s prize payout average ranks 35th out of the 45 state lotteries (data available for 42). Missouri ranks 8th; Colorado ranks 31st; Nebraska ranks 24th and Oklahoma ranks 41st.

Comparison across Midwest states for FY 2015 sales and prize payouts:

Lottery Sales decrease as Prize Payouts decrease 3000 75.00% 71.20% 70.60% 2500 69.14% 67.67% 70.00% 66.58% 66.50% 66.17% 65.52% 2000 65.00% 63.75% 65.00% 1500

58.00% 60.00% 1000 54.74% 55.00% 500 51.75%

0 50.00%

Sales 2015 Payout Percent (Inst) Source: NASPL

The current US median payout of instant game products is 68.1%. Kansas’ current average is 65.1%.

What would happen if the Kansas Lottery lowered its overall prize payouts? Or was required to transfer 30% of revenues to the state?

Because the Kansas Lottery would not be able to reduce the prize payouts of multi-state draw games, an effort to reduce the Lottery’s overall prize payout to players would fall mainly on its instant scratch and pull tab games. However, because of current state law, pull tab payouts could only be reduce to 55%.

The Kansas Lottery has worked with its instant ticket vendors and shared information with other state lotteries to arrive at an optimum balance between prize payouts and what is transferred to the state. Prize structures for instant scratch and pull tab games vary mainly by the game’s price point, type of play action and whether the game has a second-chance drawing component. While the total prizes paid out in Kansas equaled about 57.5% in Fiscal Year 2016, payout percentages for instant scratch tickets range from 58% to 74%.

In 2000, Kansas lowered its prize payouts for instant scratch tickets by up to 5%. Ticket sales the next year dropped by 8.6% ($7.3 M) and then another 8.5% the second year ($6.5 M). The payout reductions were reversed in late 2002 and it took two years to return to 2000’s sales levels.

In 2002, at the request of the lottery director, the Legislature went from requiring the Lottery to transfer 30% of net sales to the State to an annual proviso. This change allowed the Lottery to add higher price point tickets ($10 and $20 games) and sales of instant ticket products and transfers to the state increased. Realizing the positive effects of the changes as well as the increased competition faced by the Lottery for players’ entertainment dollars, the Legislature has continued to add that proviso every year since.

Oklahoma Lottery Experience

Fiscal Year Sales* Transfers to State* In 2009, the state of Oklahoma increased its mandatory 2008 $204.51 $70.97 transfer from the Oklahoma Lottery to the state from 30% to 35% of lottery revenues. Since then lottery sales and 2009 $193.16 $69.13 transfer have yet to reach the same levels as Fiscal Year 2008. 2010 $199.75 $70.03 The 35% transfer requirement prevents the Oklahoma 2011 $198.15 $69.59 Lottery from adding higher price point instant games and 2012 $199.85 $70.21 offering draw games with higher prize payouts.

2013 $200.21 $70.27 The Lottery has tried since 2012 to convince the state legislature to remove or reduce the percentage without 2014 $191.13 $67.68 success. 2015 $171.63 $60.86

2016 $189.62 $67.16

*In millions

New Mexico Lottery Experience

The New Mexico Lottery experienced New Mexico Scratcher Net Sales by sales of instant lottery products in excess of $91M in FY 2007. In FY 2008, payout Fiscal Year was reduced to meet a 30% return on 91366360 monthly gross sales. Instant lottery $100,000,000 86582636 80579767 78420660 79956236 85000000 $90,000,000 75763424 68736331 69886435 69804813 product sales began to decline almost $80,000,000 $70,000,000 immediately and dropped precipitously to $60,000,000 a low point of less than $70M in sales in $50,000,000 $40,000,000 FY 12, FY 13, and in FY 14. Hoping that $30,000,000 $20,000,000 sales would rebound, payouts were $10,000,000 increased in FY 15 and FY 16 and sales $0 moved up more than 19%. In FY17, FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15* FY16* however, the Lottery has seen a new introduction of reduced payouts and sales have responded by dropping 10% so far when compared to FY 16.

Texas Lottery Experience

The experiment of reducing prize payouts occurred at the Texas Lottery five years after its 1992 formation. In 1997, the Texas Legislature hypothesized that a reduction in prize payouts would lead to an increase in revenue stream. Following on that thinking, the legislature ordered the Texas Lottery to increase its profit margin from 27% to 34%. The Texas Lottery followed the legislature’s requirements and profits transferred to the State for public education dropped 24%.

Although the reduced payout requirement was removed in 1999, sales were slow to rebound and it took five more years until sales again reached the levels seen in FY 1997. During that seven year experiment “…Texas Lottery lost $5.2 billion of sales and $1.4 billion of profit. In addition, all of the sales and profit growth that would have been realized over those seven years as irretrievably lost” (Texas Lottery and Virginia’s Report on the Texas Experience).

What could happen if the Kansas Lottery were to increase its prize payouts?

While the Kansas Lottery would need to carefully research to determine the best possible approach to increase prize payouts, sales and profits have increased significantly for states that have raised payouts on its instant scratch games.

Louisiana Lottery Experience

In a March 2015 audit report by the Louisiana Legislative Auditor (Audit control #40140012; Performance Audit Services), auditors found the following:

“ The Lottery has been effective in generating additional revenue for the state from fiscal years 2010 through 2014 primarily because it increased the prize payout percentage on scratch-off games by using a combination of funds from unclaimed prizes and from operational efficiencies.” (p. 1, Report Highlights)

They went on to recommend that the percentage of sales the Lottery is required to return to the state should, in fact, be decreased because such decrease in percentage would allow the lottery to increase its prize payouts and generate more revenue for the state and they concluded that not reducing the required percentage return to the state could cost an expected $16M a year in their state’s revenue stream.

Other state examples:

 North Carolina – 54% to 63% - increased sales $85 mil  Florida – sales increased $662.5 mil to $2.1 bil from 2002 to 2006  New York – 55.4% FY99 to 64.3% FY01 – sales increased by 251%  Missouri doubled sales between 2001 and 2006 by increasing payouts – went from $272 mil 2001 to 551 mil in 2006  California raised payouts from 56% to 64% and increased net sales by 36% in FY12

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