Nov. 22, 2002 – The V.I. government gets much less money for participating in Powerball and other lottery games than other jurisdictions, an examination of U.S. mainland public lottery programs indicates.
Amid considerable hoopla, Powerball, a "jackpot-driven" lottery (in the terms of the trade) has arrived in the Virgin Islands. Sales of the $1 tickets have reportedly been brisk. But relatively little of that money will make its way to the General Fund of the Virgin Islands.
The principal objective of a public lottery is to raise funds for public purposes — to support schools, hospitals and other service systems and programs. In order to be successful, a lottery much provide enough prizes to motivate the public to buy tickets, so as to compensate ticket sellers and cover administrative costs. But the reason for all this activity is to raise funds for the government.
How does the Virgin Islands stack up against the lotteries in the mainland states — all of which are running similar systems?
While government statistics often are hard to come by in the territory, the mainland lotteries are quite open about their sales and the percentages of them that go to their general fund after all costs have been deducted. A casual perusal of the state lottery Web sites linked to the Powerball site shows these percentages of lottery receipts flowing into their respective general fund coffers:
National average – 31 percent
West Virginia – 37 percent
District of Columbia – 37 percent
New Hampshire – 30 percent
Nebraska – 30 percent
Delaware – 30 percent
Iowa – 26.5 percent
Nebraska – 25 percent
Minnesota – 21.6 percent
Idaho – 19.3 percent
Rhode Island – 18.4 percent
Virgin Islands (apparently) – 2.6 percent
Some of these figures come from pie charts shown on the Web sites, some are from audited financial reports posted on the Internet, and many are from end-of-year press releases on total sales and contributions to their general funds filed by most of the state lotteries. The national average of 31 percent was reported by the Multi-State Lottery Association, a not-for-profit agency that runs Powerball. (It's known by the initials MUSL, pronounced "muscle.")
The percentage of Powerball proceeds going to the V.I. government General Fund is taken from a recent V.I. Daily News report that stated: "For each dollar spent on Powerball, 13 cents also will go to the V.I. Lottery, which turns over 20 percent of its revenue to the government."
And 20 percent of 13 percent is 2.6 of the total.
Eugene Boykins is an official of Caribbean Lottery Services, which under contract to the V.I. government has been operating various computer-based lottery games in the territory since February. Boykins told the Source last April that for Powerball, Caribbean Lottery Services would be paying the government "a minimum of 12.5 percent of gross revenues." (See "Go-ahead expected for Powerball in the V.I.".)
CLS is a subsidiary of Leeward Islands Lottery Holding Company Inc., whose directors include Robert Johnson, founder of Black Entertainment Television, and celebrity lawyer Johnnie Cochrane.
The Virgin Islands lottery system has a unique distinction within the nation's public lottery circles: It is the only one ever known to lose money. Last year, in an audit report, the U.S. Department of Interior's Office of Inspector General said the V.I. Lottery was in debt to the V.I. government to the tune of $3.3 million. (See "Audit of lottery finds mismanagement, fraud".)
Several reasons can be advanced to explain why the V.I. lottery games have run at a loss and are apparently scheduled to get only minimal benefits from Powerball:
– There are no economies of scale in a small operation in a place with a limited population such as the Virgin Islands.
– Incomes as a whole are lower than on the mainland while the cost of living is higher, so that there is less discretionary money in local people's pockets.
– Perhaps most important, the lottery games operate within a government structure that apparently tolerates the running of what should be a sure-fire money-making venture at a loss.
In contrast, the Delaware Legislature has decreed that its state lottery must allocate 30 percent of its gross proceeds to the General Treasury. The Minnesota Legislature has specified that administrative costs of that state's lottery cannot exceed 15 percent of gross revenues. Either of those approaches could make an enormous difference in the Virgin Islands.
But in the territory, another reason for limited government receipts is the nature of the relationship between the V.I. Lottery and Caribbean Lottery Services. Most mainland state lottery operations do most of the work themselves and hire contractors to perform specialized tasks and then pay them for services rendered. The V.I. government's relationship with CLS appears to be different: The contractor does most of the work and then pays the V.I. Lottery a fee for the right to operate what would otherwise be a government-run monopoly. That fee is defined contractually as a percentage of gross revenues — 12.5 percent or 13 percent for Powerball and 10 percent for other games.
Even if the V.I. General Fund were getting the full amount of this fee — which in the case of Powerball it is not — these figures are far below the 31 percent average realized by the various states whose lotteries include the Powerball game.
As far as actual dollars, the Daily News cited the V.I. Lottery director, Austin Andrews, as saying that Powerball would double V.I. Lottery revenues to the territorial treasury, to $2.2 million from the current $1.1 million a year. (It was not clear how Andrews arrived at that figure; Leeward Islands executive Ed Lewis said at a public meeting that he estimated the game could bring in about $3.5 million a year to the V.I. Lottery.)
That indicates, in a population of 110,000, a per-person lottery contribution to the treasury of $20 per year, counting children.
The District of Columbia, another jurisdiction whose economy depends on government and tourism (and whose local government is rarely regarded as a paragon of efficiency), is seeing $84 million a year come into its treasury from lottery operations.
That works out to $161.84 per resident, or more than eight times the per-capita gambling contribution seen in the Virgin Islands. But Washington, D.C., does have some advantages. It operate its own games, rather than farming them out. It legally can and does sell Powerball tickets to people from nearby Maryland and Virginia where that game is not played.
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