Louisiana Legislative Auditor
Daryl G. Purpera, CPA, CFE

March 16, 2015

Performance audit looks at how the state could receive more revenue from the Lottery

The state could receive an additional $27.6 million in unclaimed prize revenues immediately from the Louisiana Lottery Corp. on top of its regular share of ticket sale revenues, according to a performance audit released Monday by Legislative Auditor Daryl Purpera.

However, the report says if the Legislature takes the $27.6 million in unclaimed prize money but does not reduce the presently-mandated 35 percent share of Lottery revenues the state receives to 25 percent, the treasury would end up losing about $16 million a year by 2020. In that case, Lottery officials would have to decrease the prize payout percentage because “it would not have the money to cover all of the variable costs associated with their current percentage or any increase in percentage,” according to the report.

Decreasing the mandate to 25 percent will also allow the lottery to invest additional funds into scratch-off ticket prizes, which will increase ticket sales and increase the amount transferred annually to the state until that total reaches $3.8 million by 2020, the report said.

The state auditor’s report said the unclaimed prize balance is expected to be about $27.6 million when the fiscal year ends June 30.

By law, the lottery must now forward 35 percent of its gross revenues to the state for use in kindergarten through 12th grade education; and pay another 5 percent to its ticket retailers. The lottery establishes how much it gives winners – usually about 50 percent of the gross revenues. The rest of the money is retained by the Lottery for operations.

The report said between fiscal years 2010 and 2014, the Lottery received $2.1 billion in revenues; sent $748.9 million to the state; paid ticket retailers $115.6 million; paid out $1.1 billion in winning tickets, including $477 million for scratch-off tickets and $650.6 million for games like Powerball; and retained $134.6 million for its operations, including advertising, vendor contracts and salaries.

The report was requested by the 2014 Legislature to determine if the Lottery’s operations and expenditures “are efficient and effective and maximize the amount of lottery proceeds dedicated to education.”

In the 2010 to 2014 period, the report said, the lottery transferred between 35.4 percent to 36.3 percent of its gross revenues to the state. If the Legislature lowered the state’s 35 percent share to 25 percent, besides getting the $27.6 million in unclaimed prize revenues immediately, the state could receive an additional $3.8 million a year in recurring revenues “if the Lottery incrementally increased the prize payout percentage” from the present 62.8 percent to up to 70 percent.

“Using historical sales data from fiscal years 2010 through 2014, we found that incrementally increasing the prize payout percentage from 62.8 percent to as high as 70 percent for scratch-off games would provide the state with the greatest return on the Lottery’s investment of how much it gives in prizes,” the report said.

To increase the prize payout percentage between 2010 and 2014, the report said, Lottery officials used $27.2 million in administrative contract savings and $35.1 million in in money from unclaimed prizes as a means to increase sales. However, if the Lottery had deemed the $27.2 million to be surplus, state law “would have required it to be transferred to the state.” The report said Lottery officials determined that using the money to increase the prize payout percentage “had greater long-term benefits than immediately giving this savings as surplus to the state.”

The state auditor’s report said that by reducing the current 35 percent mandate would enable the Lottery “to increase the prize payout percentage in the future while still covering the variable costs associated with increasing the prize payouts.”

If the payout percentage to the state is not reduced to 25 percent and is maintained at 35 percent, and the Lottery must surrender all of its unclaimed prize money to the treasury, the report said Lottery officials contend there could be a decrease in the prize payouts which “may cause an even larger decrease in sales than the corresponding increase in sales resulting from increasing the prize payout percentage.”

For more information contact:

Legislative Auditor
225.339.3800



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Office of the Louisiana Legislative Auditor | www.LLA.La.gov