The Texas Lottery: A Closer Look
In November of 1991, an amendment to the Texas Constitution was adopted to allow the operation of the Texas Lottery. The Texas Lottery was the first lottery to privatize most of the lottery related functions, while retaining oversight, security, accounting, and Marketing functions for Lottery Commission staff. This model was known as the "Lottery Operator Model". GTECH was awarded the initial lottery operator contract and has held the contract to date. GTECH provides the terminals, sales staff, main frame computer (with a hotsite back-up) that tracks and administers the lottery games, communication (dedicated circuits, satellite, radio) that transmit the transactions between terminals and the main frame computer, research and sales support, customer service and repair support, instant ticket storage, ordering, and distribution.
The first lottery ticket, a $1 instant scratch-off ticket called "Lone Star Millions," was sold on May 29, 1992. Players purchase Instant scratch-off tickets and remove latex on the ticket to "instantly" reveal any prize. "Lotto Texas" was the first on-line lottery game in Texas with sales beginning in November of 1992. The term "on-line game" refers to the fact that the tickets for these games are generated from a terminal in a retailer location that is connected to a central computer that tracks and administers these games. Un-like instant scratch-off games where the outcome of the purchase is immediately revealed to a player, on-line games have a set number of drawings during any given week.
The Texas Lottery initially operated as a division of the Comptroller of Public Accounts. In 1993 it became a separate agency, governed by a board of three appointed by the Governor with Senate confirmation. The 16 year operation of the Texas Lottery has been plagued with controversy. From GTECH Corporation's questionable dealings in Texas, and checkered past in other States, to the Texas Lottery Commission's hiring of a Las Vegas Law firm to draft video lottery legislation, every step made by the Lottery Commission has required close scrutiny. In 16 years of operation, there have been nine individuals that have been named Executive Director (includes "Acting").
Currently, the Texas Lottery Commission offers six on-line games and plans to introduce approximately 100 instant scratch-off games for sale according to their 2009- 2013 Strategic Plan. The following on-line games are currently for sale in the State:
Lotto Texas- Jackpot style game with drawings on Wednesday and Saturday;
Mega Millions with Megaplier- Multi-state jackpot style game with drawings on Tuesday and Friday. Megaplier is an extra wager that allows players in Texas to increase their non-jackpot winnings;
Pick 3 with Sum It Up- Daily on-line game with drawings twice a day (six days a week) giving it an instant gratification characteristic that does not exist in any other on-line game offered by the Texas Lottery. Sum It Up is an extra wager based on the sum of the three numbers selected and drawn;
Daily 4 with Sum It Up- New Daily on-line game with drawings twice a day (six days a week) giving it an instant gratification characteristic that attempts to capitalize on the same lure present in the Pick 3 game. Sum It Up is an extra wager based on the sum of the four numbers selected and drawn;
Cash 5- Daily on-line game (six days a week) with drawings that allows winnings to roll-down to next prize level if there are no winners at the top level;
Texas Two Step- Jackpot style game that produces lower jackpots with drawings on Monday and Thursday.
Instant Scratch-off games are currently offered at the $1, $2, $3, $5, $7, $10, $20, $25, $30, and $50 price ticket price. The price per ticket is commonly referred to as "price point". According to the GTECH Weekly Trends Report for weekending 7/12/08, the number games at each price follows:
Price Point
$1
$2
$3
$5
$7
$10
$20
$25
$30
$50 |
Number of Games with Sales
12
15
7
16
4
8
5
1
1
3 |
Instant scratch-off tickets are widely accepted as an "impulse" purchase with immediate gratification. The historical growth of the Texas Lottery can be directly linked to the exploitation of the addictive characteristics innate to instant scratch-off tickets (impulse and immediate gratification). Beginning in 2002 the Texas Lottery began increasing the number of new instant scratch-off games introduced for sales and continued to aggressively raise the purchase price of each individual ticket.
In 2000, the Texas Lottery offered approximately 30 instant scratch-off ticket games for sale, with the introduction of a $10 ticket in November being the most expensive. In 2008, over 100 instant scratch-off ticket games are projected to be released for sale, and there are three $50 instant scratch-off ticket games. This is over a 200 percent increase in the yearly introduction of new instant scratch off games, and a 400 percent increase in the purchase price of these tickets. This expansion of instant lottery products has resulted in instant scratch-off tickets accounting for approximately 52% of total lottery sales in 2000 to over 76% of total lottery sales in 2008.
It is important to note, that though the changes to instant scratch-off games have yielded increased sales over the past several years, the tax rate on the new high priced games is significantly less than the traditional $1 and $2 tickets. This is because the contribution to the prize pool increases significantly with the price point. For example, 72.5 percent of every dollar wagered on a $50 ticket goes to the prize pool, 12 percent goes to lottery administrative expense (5 Percent to selling retailer, 2.699 percent goes the lottery operator, GTECH for operating the games, 4.301 percent goes to administration cost of the Lottery Commission). This leaves only 15.5% to be forwarded to the Foundation School Fund. When compared to the tax rate on a $1 Lottery ticket, the inefficient tax rate is revealed. 60 percent of every dollar wagered on a $1 ticket goes to the prize pool, 12 percent goes to lottery administrative expense (5 Percent to selling retailer, 2.699 percent goes the lottery operator, GTECH for operating the games, 4.301 percent goes to administration cost of the Lottery Commission), leaving 28% to the Foundation School Fund. In other words, the State collects 28 cents for every $1 wagered on a $1 ticket and only 16 cents for every $1 wagered on a $50 ticket.
The demographics of lottery players have drastically changed since the inception of the Lottery in 1992. The Texas Lottery's own studies have shown changes of the economic status, education level, and ethnicity of the typical players of the lottery. In addition, the 2007 Demographic Study of Lottery Players conducted by the Center of Public Policy's Survey Research Institute of the University of Houston reported that overall participation in the lottery is at an all-time low. According to the report, only 38 percent respondents played any lottery game during the past year. This is down from the historical high of 71% in 1995.
The following excerpts from the 2007 report also reveal disturbing results about the small percentage of Texans still playing the lottery:
| Education |
Median Dollars Spent per Month |
| Less than High School Diploma |
$61.00 |
| College Degree |
$8.00 |
| Graduate Degree |
$5.00 |
| |
| Income |
|
| Under $12,000 |
$9.50 |
| $12,000 to $19,999 |
$10.00 |
| $20,000 to $29,999 |
$20.00 |
| $75,000 to $100,000 |
$5.00 |
| Over $100,000 |
$9.50 |
| |
| Race |
|
| White |
$10.00 |
| Black |
$20.00 |
| |
| Employment Status |
|
| Employed full/part time |
$10.00 |
| Unemployed |
$16.50 |
| Retired |
$12.00 |
The above statistics replicate the findings of the 2006, 2005, and 2004 Demographic Reports. The 2004 Demographic Report was the first to show a distinct shift in the demographics of lottery players. The 2003, 2001, 1999, 1997 and 1995 demographic studies had consistently reported that "those with the lowest levels of education and income were the least likely to play" the Texas Lottery.