Opinion: Daily Journal

More Confusion on Lottery

RALEIGH – Does the Easley administration have a clue?

I don’t ask this question lightly, nor am I the first to ask it. You can pick your topic and blast away at the new governor’s apparent lack of attentiveness – The Charlotte Observer ran a story on Sunday full of grousing by Democrats disaffected with their leader. Today, I’ll choose an issue that Easley can’t possibly be accused of overlooking: his quest for a state-run lottery.

South Carolina’s so-called “Education Lottery” began operation earlier this month. Lots of foolish North Carolinians journeyed over the state line to play, creating lots of good photo opportunities. Our state’s news media fell right into line, running stories about the first jackpot winner (Lois Bolen of Gastonia, N.C., $10,000 richer) and speculating about the impact of the South Carolina game on the prospects for a lottery north of the border.

Gov. Easley’s spokesman, Fred Hartman, was quick with a quote. “Conservatively speaking we stand to lose about $125 million this year” to South Carolina’s lottery, Hartman told the Associated Press. He estimated a similar flow of funds southward, $125 million to $150 million, for other media outlets.

First little problem: South Carolina’s own lottery officials don’t agree. They say that North Carolina players will make up between 5 and 10 percent of the expected gross, a number very much in line with historical experience in lottery states with non-lottery neighbors. Since another arm of South Carolina state government projects the lottery will take in a total of about $381 million this year, the AP reports, the South Carolina lottery is essentially estimating the sale of $19 million to $38 million in tickets to North Carolinians.

That’s awfully low. Indeed, the most plausible projection of Virginia lottery sales to North Carolinians is between $80 million and $100 million a year – and there are more than twice as many of our residents in counties next to South Carolina than there are in counties bordering Virginia. So I tend to discount the South Carolina estimates, and after all they have an incentive to understate N.C. players so that our state won’t create a competing game.

So is Hartman right with his $125 million to $150 million number? Frankly, his numbers also seem to me to be an understatement. Based on historical patterns, North Carolinians may well spend more than that on the South Carolina lottery. No one really knows, of course, but I wouldn’t be surprised if the number were higher. In fact, the John Locke Foundation posted a higher projection last year (about $200 million). You can read more about our methodology here.

This is where I just can’t grasp the Easley strategy. You’ve got a free-market organization that is, at best, a lottery skeptic, projecting a gross revenue number that is higher than the governor’s. So why are they low-balling the number? My guess is that they don’t even know that they are.

Okay, so by this point lottery opponents might be aghast. Why are you giving ammunition to the folks who want to get our state government into the gambling business? I’m not. You see, the confusion about how much North Carolina will “lose” to neighboring lotteries is far, far worse than you think. All of the numbers I’ve cited so far are useless in measuring the net affect of a lottery. They look only at how much money North Carolinians will spend on lotteries. They do not look at how much money North Carolinians will win. That is, they aren’t measuring revenue loss to other states, at all, whether you choose the South Carolina estimate of $19 million to $38 million or Hartman’s estimate of $125 million to $150 million.

The real number that matters is the net revenue to South Carolina (and to other states with lotteries) after subtracting N.C. prizes won and administrative costs. Even with our somewhat higher projections of gross sales, the Locke Foundation found that the net revenue loss from North Carolina to South Carolina, Virginia, and Georgia combined would be about $102 million. In the context of the billions of dollars we spend educating North Carolina students, this is not a large amount of money.

More importantly, it is far exceeded by the estimated administrative costs of running a North Carolina lottery, about $150 million. Basically, if we set up a lottery in our state in order to keep other states from “raiding” our education revenues, we would be spending a dollar to save 68 cents. It would be totally irrational to do so.

The news media don’t understand this, but with new reporters tossed onto the lottery beat every few months I’m not surprised. What does surprise me is Easley’s clumsy handling of the issue. It’s his signature program. His own supporters have reason to expect more competence, here.