As required by state statute, the highly acclaimed Wisconsin Legislative Audit Bureau (LAB) has completed a review of the Wisconsin Lottery, based on an examination of trends in lottery sales, operating revenues and operating expenses, the development and management of instant games, and the Lottery’s oversight of its contracts with private firms.
There has been a dramatic decline in the sale of pull-tab tickets. Pull-tab ticket sales totaled about $25.3 million during fiscal year 1988-89. However, by fiscal year 2007-08, sales had dropped to $3.2 million. The Wisconsin Lottery says the decline is due, in part, to private pull-tab vendors operating illegally or under a loophole in state law allowing any business to offer a game of chance with its products as part of a promotion. Pull-tab ticket sales are not expected to increase until or unless private illegal games are stopped or if the exemption for private vendors is modified. Wisconsin Department of revenue Secretary Roger Ervin, in a letter to auditors, says Lottery staff has conducted a market analysis showing the Lottery could generate an additional $23 million per year in revenue if statutes were changed to allow Lottery-only games.
Another noteworthy item in the audit involves the contract for product information services, a term that simply means advertising. Milwaukee public relations firm Hoffman York is contracted by the Wisconsin Lottery to publicize lottery games. Almost all funds appropriated in the state budget for product information go to Hoffman York. The 2007-09 state budget increased the annual product information budget from $4.6 million to $7.5 million. Hoffman York received $7.2 million during fiscal year 2007-08 and used it to buy radio and TV time to publicize games.
The Wisconsin Lottery is required by its contract to formally review and evaluate Hoffman York’s performance each year. The LAB discovered the Lottery “has not done so. Instead, agency officials provide ongoing verbal feedback and conduct quarterly surveys of Wisconsin residents to gauge their awareness and opinions of the Wisconsin Lottery.”
While the audit was being conducted, the Lottery started to make an evaluation form for its product information contractor. The audit reports says:
“To measure the effectiveness of Hoffman York’s product information services, the Wisconsin Lottery compared initial 12-week ticket sales for 16 publicized scratch-off games with average 12-week sales data for comparable unpublicized scratch-off games that were introduced during the same period.”
Following a 2005 LAB recommendation, the Lottery began using an evaluation tool to determine each instant game’s first 12-week ticket sales and overall sales. During fiscal year 2007-08, 113 instant scratch-off games were available for purchase at some time. The LAB audit is recommending the Lottery include product information costs in its evaluation tool for instant games and require Hoffman York to consistently report amounts spent to advertise individual games.
In his response to the audit, Wisconsin Department of Revue Secretary Roger Ervin wrote that despite the challenge of precisely determining the effect of lottery advertising, it works. Ervin says the Lottery stopped advertising during 1993 and it lost about $19.5 million in instant ticket sales, a loss of at least $25 for every $1 of advertising not spent.
Other notes from the audit:
During fiscal year 2007-08, Wisconsin Lottery ticket sales totaled $494.7 million.
The Wisconsin Lottery provided taxpayers with $146.5 million in property tax relief during fiscal year 2007-08.
During fiscal year 2003-04 through fiscal year 2007-08, ticket sales increased 2.4 percent.
Once again, I commend the LAB for their consistently outstanding work. Here’s the audit report.
