Since news broke of a deal struck between the Illinois Lottery and private management firm Camelot Illinois, many in the state have become familiar with the top-line lottery numbers: it’s the 12th largest lottery in the U.S. with per capita average sales of about $223, and last year it commanded $2.85 billion in total sales.
Lottery revenues, however, are in trouble. With draw games like Powerball falling by $74 million over a single year, it should be easy to spot this kind of drop. But a $60 million increase in instant tickets makes up enough of the difference that Lottery Fund revenues only appear on the surface to have fallen by a measly 0.5%, or $14 million.
Much of the new Camelot deal is still shrouded in secrecy, buried in the page-long redactions of the company’s bid. There’s no way to know whether Camelot is promising Illinois more than it is able to give.
As reported by the Chicago Tribune, Camelot’s proposal calls for 15% of any profits beyond their “guaranteed” first tier goal, then 20% if it meets a second tier goal, and 25% for meeting a third tier goal or beyond. But Camelot asked the state not to release the dollar amounts of those levels. The Tribune report notes, “if those levels are set artificially low, it could mean more money for Camelot and less for the state.”
Lawmakers have become frustrated seeking answers about the deal. Rep. Lou Lang (D-Skokie) told the Tribune, “It is a significant issue that requires much analysis… This analysis cannot be properly accomplished without all of the information and data.”
The Daily Line set out to answer Lang.
Despite unpredictable performance, wagering is still a powerful force for state tax revenues. FY2017 saw a harvest of $1.31 billion in overall wagering, which the Commission on Government Forecasting and Accountability measured as an 8% increase from the previous year. Lottery-related revenues, at $738 million, made up over half of that. Compared to video gaming, horse racing and riverboat dollars, the Lottery Fund transfers dominated wagering.
The relative proportion of the lottery to other wagering revenues may elicit some early optimism, especially when the most recent COGFA figures indicate Lottery Fund transfers to the state’s General Revenue Fund rose 1.5% from last year, increasing by $1 million from $68 million. The growth sounds promising. But it’s not. Overall Lottery Fund numbers fell by 7.5%, dropping from $165 million last year to $153 million in the current year.
Lottery revenues saw disappointing declines in FY2016, but shot upward in FY2017, gaining $58 million and in the process creating the illusion of strong growth. It’s easier to see this when you hold up the $728 million in FY2017 state revenues beside the $815 million from just three years ago. The same thing is happening with horseracing and riverboat revenues, which are down by almost $700 million from a decade ago. The only yearly rise in wagering revenue has come from video gaming which has continued to climb steadily since 2013, reaching $296 million last year.
In what might be considered the best of the bad news, despite these falling state revenues, greater portions of overall lottery receipts are being transferred to state coffers. It’s hard to tell how long that will last if yearly lottery revenues take off under Camelot management, or whether video gaming taxes will create more for of a boost for the state.
What does Lang think?
“Those businesses don’t exist to make money for state government. They exist to make money for their shareholders,” Lang told The Daily Line. “There’s a benefit. The state makes money. The local government makes money. People get hired. Florist shops sell more flowers, etc. So it’s an economic driver, but they’re not in business to make money for the state so they don’t feel any specific pressure to bring in more revenue to fill in the gaps.”
The gaps are everywhere: in the contracts, in the Lottery Control Board’s notoriously sparse agendas, and in the flagging yearly lottery revenues.
A few gaps can be closed by an evaluation of monthly holdings, which can be seen in the Lottery Board’s recent revenue and investment reports. As of five days ago, lottery security holdings were roughly $280 million through PNC Bank, with an interest rate that maxes out around 7.4%. Investment income only makes up about $725,000, yielding a modest 3.3% average return.
Month to month cash balances are a different matter, of course. September revenues brought $91 million to the Lottery Fund–not a terrible month, comparatively–which were added to the carry-over balance. After $68 million in deposits to the Common School Fund, and $285 million in prize payouts, the Lottery Fund cash balance itself is sitting at around $129 million right now.
Compared to the normal monthly figures for the Lottery Fund, September numbers look like strong growth. But the key figure in all this is the carry-over from August: $393.6 million. Those dollars–or at least, $381 million of them–aren’t some slowly-accrued rollover, but a single-shot month with skyrocketing receipts. For context, August 2016 receipts were $94.9 million. August 2015: $91.7 million. August 2014? $89.1 million.
And previous monthly receipts from the current year have also fallen far beneath the impressive August 2017 numbers. The most the fund has seen in a single month year was $139 million in March. Normally monthly receipts run between $87 to $118 million. The anomaly isn’t entirely attributable to ticket sales either. Although notably higher than average, they were only at $142 million; prize payment transfers, at $285 million, are mainly responsible for the single-shot, sky-high monthly receipts in the midst of a 3-year downslide.
Lang, who sponsored the state’s original video gaming bill, believes it’s time to start cultivating industry growth in wagering.
“We have to figure out a way to use a valid and legal industry to fill in its own gaps. We should be figuring out ways to enhance the gaming industry. I know that’s heresy to some that are opposed to gaming,” he said. “But we already have gaming. This isn’t a question of whether we should now legalize something we don’t have. It’s a question of giving an industry an ability to grow so that state revenue can grow and more people can be hired and we can improve our economic opportunity.”
With stagnant growth rates over the last three years in Lottery Fund revenues, and combined drops in horseracing and casino revenues, it’s difficult to discern whether the numbers for video gaming will continue to grow with new supportive state mechanism. Even if they do, how reliable will wagering, in general, be as a revenue driver for the state?
“The word you just used is the key word: reliable,” said Lang. “Folks that get gaming revenue in particular municipalities that have casinos or racetracks can not afford to build a steady stream of income into their base because next year it may be lower.”
So what’s the holdup?
“I think one of the biggest challenges people in the gaming industry face is their own inability to sit down as a cohesive industry and deal with some of the issues which are joint issues that they could be moving together on,” said Lang, who recently called for a video gaming summit in the state to deal specifically with the fractious nature of the industry’s leaders.
“Those guys are busy fighting with each other and it’s better for their industry if they aren’t,” he said. “They create competition for each other. But when people within the video gaming industry can talk to each other, and people in the the casino industry can’t talk to each other, and people in the horseracing industry can’t talk to each other–and none of the separate sub-industries can talk in a group–then how do they propose to resolve their issues moving forward?”
It’s difficult to view any wagering sub-industry as an underdog worth championing when state revenues from gambling have long been considered a tax on the poor. But if the state’s lottery revenue loss can’t be staunched under Camelot management, pressure will have to be applied somewhere.