Profit Margin Change Could Improve Pa. Lottery Games

Oct 21, 14 Profit Margin Change Could Improve Pa. Lottery Games

Oct. 21, 2014 – Legislators in Pennsylvania passed a bill on Monday that would allow the Pennsylvania Lottery more flexibility and would give state lawmakers final say on new types of lottery games.

According to Pennsylvania Lottery Executive Director Sylvan Lutkewitte III, the bill will allow the Lottery to offer players bigger or more prizes and better odds on lottery games.

The changes in prize structure would be made possible by the Lottery’s profit margin – the percentage of revenue they’re required to return to the state – being lowered.

If Pennsylvania Governor Tom Corbett signs the bill, the Lottery would only be required to return 25 percent of their revenue to the state, a two-percent decrease from the current 27 percent margin.

While that may sound like less lottery money in the state coffers, Lutkewitte says that a lower profit margin allows the Lottery to offer better odds and more prizes; the net effect of lowering the profit margin will actually be an increase in sales.

The strategy of lowering profit margins to increase sales has worked well in several states; the North Carolina Education Lottery saw six years of record returns after eliminating their 35 percent mandated profit margin.

In Florida, a one-and-a-half percent drop in profit margin between 2012 and 2013 corresponded with more than a half billion-dollar increase in revenue and an extra $110 million in profits for the state.

Lutkewitte told Pennlive.com Monday that the Lottery could begin planning the changes to prizes and odds on instant games “really immediately,” though it would be a few months before new games shipped to retailers.

Department of Revenue Secretary Dan Meuser said Monday that the changes could result in an extra $40 million over the next three or four years, and $20 million each year after that.

Meuser told Pennlive.com that he was also comfortable with the bill’s expansion of legislative oversight, as the Lottery wanted to work with lawmakers to introduce new gaming products like Keno and Internet-based games.

In a hearing before the Senate Finance Committee in January, Meuser described potential benefits of introducing Keno in the state.

The new game “would present the Lottery a chance to grow its retailer and player bases simultaneously,” by introducing the terminal-style game at bars and restaurants.

Along with the reduction in the Lottery’s profit mandate, Keno could generate as much as $200 million a year once it was fully integrated with the rest of the Lottery’s offerings.

While the Lottery already has a plan for Keno, which they have said could be rolled out within six months, Internet games are further out.  Meuser said simply Monday that the Lottery knew adding Internet gaming to their portfolio would be difficult without legislative approval.

 

In some states, just a small change in the mandated profit margins could have an enormous impact.  Read LotteryHUB’s exclusive interview with Rollo Redburn, executive director of the Oklahoma Lottery, who says a 35 percent profit margin there is handcuffing the Lottery’s ability to fund important programs for the state.

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Written by Matt Isaacs

Matt is the Editorial Manager for the LotteryHUB News Team. Matt graduated from Rutgers University’s School of Journalism and Media Studies in May 2013

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