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Lottery slides
The document summarizes a presentation made to the Joint Legislative Program Evaluation Oversight Committee about options for increasing proceeds from the North Carolina State Lottery for education. The presentation identified five key findings from an evaluation: 1) NC Lottery performance is slightly above average compared to other states; 2) Expanding retailer networks could increase revenue; 3) Alternative retailer compensation approaches could yield additional revenue; 4) Additional options to promote ticket sales could increase transfers to education; 5) NC Lottery could improve measuring advertising effectiveness. It also outlined four recommendations, including requiring retailer growth targets and examining compensation structures.
Lottery slides
- 1. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 1 Program Evaluation Division North Carolina General Assembly A presentation to the Joint Legislative Program Evaluation Oversight Committee March 26, 2018 Jim Horne, Principal Program Evaluator Options Exist for Increasing Lottery Proceeds for Education 1 Program Evaluation Division North Carolina General Assembly 2 Handouts The Full Report Today’s Slides
- 2. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 2 Program Evaluation Division North Carolina General Assembly Our Charge 3 Determine if the Lottery is providing the maximum benefit to the State by examining its operations, existing revenue-generating strategies, and efforts to reduce costs Team included Jeff Grimes and Emily McCartha Report p. 2 Program Evaluation Division North Carolina General Assembly Overview: Five Findings 1. NC Lottery’s performance is slightly above average when compared with other states 2. Expanding the retailer network could increase lottery revenue 3. Alternative approaches to the structure and amount of retailer compensation could yield additional revenue returned to the State 4
- 3. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 3 Program Evaluation Division North Carolina General Assembly Overview: Five Findings 4. Additional options to promote sales of lottery tickets could result in increased transfers to education 5. Lottery could improve how it measures the effectiveness of its advertising expenditures 5 Program Evaluation Division North Carolina General Assembly Overview: Four Recommendations 1. Require Lottery to establish targets for retailer growth and to annually report on its achievement in meeting these targets 2. Direct Lottery to examine the retailer compensation structure and develop alternatives for rewarding retailers 6
- 4. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 4 Program Evaluation Division North Carolina General Assembly Overview: Four Recommendations 3. Direct Lottery to provide a business case for options to increase the sale of lottery tickets 4. Require Lottery to develop tools to measure the increase in sales resulting directly from advertising and to annually report on its efforts to measure the effectiveness of advertising expenditures 7 Program Evaluation Division North Carolina General Assembly 8 Background
- 5. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 5 Program Evaluation Division North Carolina General Assembly Background 9 • 44 states operate lotteries • NC Lottery sold its first ticket in March 2006 • As of June 30, 2017, NC Lottery has returned $5.2 billion to the State for education • Ticket sales have grown every year Report pp. 3,5 Program Evaluation Division North Carolina General Assembly Background 10 • NC Lottery is a $2 billion business • Fiscal Year 2017 sales were $2.4 billion • Proceeds to education were $622.5 million Report p. 3
- 6. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 6 Program Evaluation Division North Carolina General Assembly Background 11 Lottery sales are based on two types of games: • Instant scratch-off games (68%) • Draw games (32%) Report pp. 5-6 Program Evaluation Division North Carolina General Assembly Background 12 • Introduced in January 2015 • Available at approximately 200 locations Report pp. 6-7
- 7. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 7 Program Evaluation Division North Carolina General Assembly Background 13 Report pp. 3-4 Lottery Prizes 62.4% Earnings for Education 26.5% Retailer Commission 7.0% Other 4.1% Program Evaluation Division North Carolina General Assembly 14 Findings
- 8. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 8 Program Evaluation Division North Carolina General Assembly Finding 1 NC Lottery’s performance is slightly above average when compared with other states 15 Report p. 8 Program Evaluation Division North Carolina General Assembly NC Lottery Performs Slightly Above National Average on Two Key Metrics Per capita sales: •NC Lottery $197 •National average $185 Per capita returns to the State: •NC Lottery $52 •National average $48 16 Report p. 9
- 9. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 9 Program Evaluation Division North Carolina General Assembly NC Lottery Ranks in the Top Half Among All States • 18th out of 44 in per capita sales • 14th out of 34 in per capita returns to the State Goal is to be ranked among the top 12 lottery states in next five years 17 Report p. 9 Program Evaluation Division North Carolina General Assembly NC Lottery Ranks Last Among Neighboring States Among six neighboring states, NC Lottery ranks last in: • per capita sales • per capita returns to the State 18 Report p. 10
- 10. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 10 Program Evaluation Division North Carolina General Assembly Finding 2 Expanding the retailer network could increase lottery revenue 19 Report p. 10 Program Evaluation Division North Carolina General Assembly Best Practice for Retailer Density is 1 Retailer per 1,200 Residents • NC retailer density: 1 per 1,455 residents • Top 10 states with highest per capita sales averaged 1 per 1,173 residents • Massachusetts Lottery ranks 1st in per capita sales and 1st in retailer density (1 per 825 residents) 20 Report p. 11
- 11. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 11 Program Evaluation Division North Carolina General Assembly NC Lottery Ranks in the Bottom Half of States in Retailer Density • Overall, North Carolina ranks 26th out of 44 lottery states in retailer density • Among six neighboring states, NC Lottery ranks next to last in retailer density 21 Report p. 11 Program Evaluation Division North Carolina General Assembly Number of NC Lottery Retailers Has Not Significantly Increased During the Last Five Years 22 Report p. 12 5,799 5,867 6,004 6,228 6,612 6,779 6,839 6,774 6,901 6,883 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Fiscal Year
- 12. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 12 Program Evaluation Division North Carolina General Assembly Methods Used by Other States to Boost Retailer Networks • Install lottery machines in ABC stores • Expand to other retail locations such as airports • Increase use of self-service vending machines. • Focus on recruiting new retailers in counties that have lowest retailer density 23 Report pp. 13-15 Program Evaluation Division North Carolina General Assembly Lottery Retailer Market Penetration Varies Across the State 24 Report p.15
- 13. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 13 Program Evaluation Division North Carolina General Assembly Finding 3 Alternative approaches to structure and amount of retailer compensation could yield additional proceeds for education 25 Report p. 16 Program Evaluation Division North Carolina General Assembly NC Lottery Retailer Commission Rate is Set in Statute • Lottery retailers in North Carolina receive a 7% commission set by statute • Plus, retailer incentives have been added, boosting actual compensation rate to 7.04% 26 Report p. 16
- 14. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 14 Program Evaluation Division North Carolina General Assembly Lottery States Differ in How They Reward Retailers • Most states have a sales commission rate as a base and then add incentives • Average retailer compensation rate among the 44 lottery states is 6.28%, ranging from 4.89% to 8.44% • At 7.04%, North Carolina is tied with Tennessee for the 7th highest compensation paid to lottery retailers 27 Report p. 16 Program Evaluation Division North Carolina General Assembly North Carolina’s Retailer Compensation is Above Average Paid in Other States • NC Compensation Rate of 7.04% is higher than • national average of 6.28% • average paid in adjacent states of 6.48% • Retailer compensation directly influences how much money is available to be transferred to the State for education • If the retailer commission rate had been 6% instead of 7%, an additional $157 million would have been available for Lottery Education Fund since the Lottery’s inception 28 Report p. 16
- 15. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 15 Program Evaluation Division North Carolina General Assembly Six States Differentiate Retailer Compensation Rate by Game Type 29 Program Evaluation Division North Carolina General Assembly Finding 4 Additional options to promote sales of lottery tickets could result in increased transfers to the Education Lottery Fund 30 Report p. 18
- 16. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 16 Program Evaluation Division North Carolina General Assembly NC Lottery Began Offering Keno in October 2017 31 Report p. 19 Program Evaluation Division North Carolina General Assembly Eight States Currently Offer VLTs 32 Report p. 19
- 17. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 17 Program Evaluation Division North Carolina General Assembly Three States Currently Offer iLottery 33 Report p. 19 Program Evaluation Division North Carolina General Assembly Finding 5 NC Lottery could improve how it measures the effectiveness of its advertising expenditures 34 Report p. 20
- 18. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 18 Program Evaluation Division North Carolina General Assembly Annual Advertising Expenditures are Slightly Less Than 1% of Ticket Sales • $20 million spent on advertising in FY 2016 • $20 million spent on advertising in FY 2017 • Question of whether the optimal amount is being spent on advertising is unresolved • Relationship between advertising expenditures and ticket sales needs to be measured at a more granular level over time 35 Report p. 22 Program Evaluation Division North Carolina General Assembly Measuring Advertising Effectiveness is Challenging • Good financial and performance management requires that every operating expense be measured in order to determine its contribution to organization’s mission and return on investment • If you can’t measure it, you can’t manage it – Peter Drucker 36
- 19. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 19 Program Evaluation Division North Carolina General Assembly NC Lottery’s Raw Advertising and Sales Data Are Incompatible for Analytical Review • PED attempted regression analysis to measure the relationship of advertising expense to sales • Measuring relationship between advertising and lottery ticket sales is difficult but it is possible • Studies in other states: • Florida (OPPAGA) • Washington State (JLARC) 37 Report p. 22 Program Evaluation Division North Carolina General Assembly Recommendations 38
- 20. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 20 Program Evaluation Division North Carolina General Assembly Recommendation 1 The General Assembly should require the Lottery to establish targets for retailer growth and to annually report on its achievement in meeting these targets 39 Report p. 22 Program Evaluation Division North Carolina General Assembly Recommendation 1 (cont’d.) • All efforts to expand retailer network should be included in annual report to General Assembly • First report should be submitted to the Lottery Oversight Committee by December 1, 2018 40 Report p. 22
- 21. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 21 Program Evaluation Division North Carolina General Assembly Recommendation 2 The General Assembly should direct the Lottery to examine the retailer compensation structure for all games and develop alternatives for rewarding the performance of retailers 41 Report p. 22 Program Evaluation Division North Carolina General Assembly Recommendation 2 (cont’d.) • Lottery should hire independent contractor • Include comments from retailers on why they participate in selling lottery tickets • Results should be submitted to the Lottery Oversight Committee by December 1, 2018 42 Report p. 23
- 22. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 22 Program Evaluation Division North Carolina General Assembly Recommendation 3 The General Assembly should direct the Lottery to provide business case for options to increase sales of lottery tickets 43 Report p. 23 Program Evaluation Division North Carolina General Assembly Recommendation 3 (cont’d) • If the General Assembly is interested in an option, it should direct Lottery to provide a detailed business case to the Lottery Oversight Committee by December 1, 2018 • Include time frames for implementation and needed statutory changes, if any 44 Report p. 23
- 23. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 23 Program Evaluation Division North Carolina General Assembly Recommendation 4 The General Assembly should require the Lottery to develop tools to measure the increase in sales resulting directly from advertising expenditures and to annually report on its efforts 45 Report p. 23 Program Evaluation Division North Carolina General Assembly Recommendation 4 (cont’d) • All efforts to measure the effectiveness of advertising should be included • First report should be submitted to the Lottery Oversight Committee by December 1, 2018 • Include impact of specific advertising campaign expenditures on sales 46 Report pp. 23-24
- 24. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 24 Program Evaluation Division North Carolina General Assembly Summary: Findings 1. NC Lottery’s performance is slightly above average 2. Expanding retailer network could increase revenue 3. Reducing compensation paid to retailers could yield additional revenue 4. Additional options to increase revenue include authorizing VLTs and iLottery games online 5. Improved methods could help the Lottery measure influence of advertising expenditures on sales 47 Program Evaluation Division North Carolina General Assembly Summary: Recommendations 1. Require Lottery to establish targets for retailer growth and to annually report on its achievement 2. Direct Lottery to examine retailer compensation structure and consider developing alternatives 3. Direct Lottery to provide business case for options to increase lottery ticket sales 4. Require Lottery to annually report on effectiveness of advertising expenditures on ticket sales 48
- 25. Joint Legislative ProgramEvaluation Oversight Committee March 26, 2018 North Carolina State Lottery 25 Program Evaluation Division North Carolina General Assembly Report available online at www.ncleg.net/PED/Reports/reports.html 49