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Every biennium, about a billion dollars flows into the state’s budget by way of the Oregon Lottery. People who play scratchers and video poker are, in a roundabout way, sending some of their cash to schools and parks and other ventures even as they hope to win the big one.
But what piece of the overall Lottery revenues does that represent? Well, according to the Lottery website, billboards, TV spots and print ads, it’s about 97 cents on the dollar.
Here’s what the Lottery said in a recent print ad that appeared in the June 17, 2012 Oregonian:
"Every time a dollar is played on a Lottery game, think about ninety-seven cents of that dollar helping schools get updated computers, parks get new trails, communities get new jobs and countless other projects that benefit us all. Ninety-seven cents represents over $500 million dollars that is returned to Oregonians every year to help support job creation, schools, state parks and watersheds. Ninety-seven cents really adds up."
We’d seen this same messaging several times before (some variation of the 97-cent ad has been in circulation since October 2010). And so had at least one of our readers who wrote in asking us to take a look at this claim.
We called the Oregon Lottery’s spokesman, Chuck Baumann, to see where they got the figures.
He pointed us to a lengthy report on the Lottery’s home page that details the operation’s finances for fiscal year 2011. The pertinent table, he said, was on Page 24 and showed that the Lottery had net sales of some $9.8 billion in 2011. Of that cash, about $300 million -- or 3 percent -- went to administrative expenses, which left 97 percent for the state.
The thing is, not all of that leftover 97 percent is going to community development. The same chart shows just $523 million going to the economic development fund -- the pot of money that helps schools and parks and other areas of the state. But, as most any math student can tell you, $523 million is not 97 percent of $9.8 billion -- it’s a bit more than 5 percent.
The majority of it -- more than $9 billion -- went to "prizes to the public."
After looking through the report, we found another breakdown of expenses that seemed to tell a different story altogether. This one, on Page 14, showed the Lottery’s total operating revenue at just over $1 billion. Of that money, $514 million went to operating expenses -- prizes, salaries and wages, game vendor charges, market research, public information, etc.
Another $550 million went to the economic development fund -- about 52 percent of the the total operating revenues.
We asked Baumann what the difference was between the two tables.
The one he showed us, which has nearly $10 billion in revenues, counts something called "churn," he said. See, the state’s biggest source of income (as far as gambling goes) comes in the form of video Lottery. Let’s say you sit down to play and put $20 into the machine. You play the full $20 dollars and you wind up with $10 in winning credits and you play them and lose. Well, that all gets added up in the chart as $30 of revenues -- even though that subsequent $10 never existed as real cash into the system.
Conversely, the operating revenues chart that we looked at only represents the initial $20 that you played -- the actual cash into the system.
In the end though, it doesn’t really matter which way you look at it, the Lottery’s ads are clearly misleading. The way the ads read, you’d think 97 cents of each dollar goes to "helping schools get updated computers, parks get new trails, communities get new jobs and countless other projects that benefit us all."
Now, the Lottery does note that $500 million dollars is returned "to Oregonians every year to help support job creation, schools, state parks and watersheds." But, however you slice it, that $500 million is not 97 cents of each dollar played.
If you look at the big total, which includes the churn, that $500 million is about 5 percent of the Lottery revenues. With the smaller operating revenues budget, it’s a bit over 50 percent.
If the Lottery were really returning 97 percent of every dollar played to those programs, the state’s budget problems would be smaller by at least a billion dollars a biennium.
The Lottery argues that the prize money going back to players ultimately benefits the state’s economy -- that’s why some earlier ads simply said "97 cents of every dollar played comes back to Oregon." But even those ads mislead by highlighting state services.
And what’s more, winnings don’t necessarily stay here. If you win $1 million in the Oregon Lottery, would you spend it all in Oregon?
Baumann defended the earlier version but acknowledged that you could "certainly misconstrue" the meaning of the ad we’re ruling on.
We think it’s more than a matter of misconstruing meaning. For nearly two years, the Oregon Lottery has been running a disingenuous ad campaign that tries to paint playing the Lottery as giving back to schools, parks and other economic development projects. Yes, a piece of the revenue goes there -- but not 97 cents of every dollar played. We think a state agency that deals with money in billions -- and spends nearly $13 million a year on advertising, market research and public information -- should know better.
Oregon Lottery, "Comprehensive annual financial report," Nov. 30, 2011
Interview with Oregon Lottery spokesman Chuck Baumann, June 19 and 20, 2012
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