Why does Walker want to have us see even more lottery ads?

As someone with a goofy interest in fiscal issues related to gambling, this article from the Wisconsin State Journal’s Matt DeFour caught my eye. It says that Governor Scott Walker’s budget has provisions that will make the already-numerous Wisconsin Lottery ads show up even more often, with the idea of ramping up interest and sales.

Walker’s 2017-19 budget calls for increasing annual lottery advertising spending by $3 million to $10.5 million per year, a 40 percent increase…

“The additional commitment to advertising for the lottery comes from lottery sales, not taxpayers,” Walker spokesman Tom Evenson said. “This was deemed a good management tool to protect future benefits of property taxpayers.”

That statement by Evenson is wrong. Expenses accumulated by the lottery absolutely come out of the taxpayers’ pockets, because higher expenses for the lottery means there is less money left over for property tax relief. Here’s an illustration of how the Lottery Fund works, using the report from October 2016.

Lottery Fund, FY 2015-16
Starting balance 2015-16 $18,744,908
Sales, other revenues $627,287,975
Interest earnings + transfers in $225,524
Total expenses 2016-17 $455,785,885
Total remaining $190,472,522
Required 2% of revenues reserve $12,545,800
Total December 2015 prop tax relief $158,087,726

As you can see, the only way the extra advertising dollars DON’T cost us more is if the ads translate into extra lottery profits. I can't say whether seeing this thing 6 times during a Brewers game instead of 5 is going to have much influence on whether or not I choose to shell out for a lottery ticket.

But I don't have studies in front of me, so I can't say for sure. Here's what DeFour’s article has in terms of the predicted effect of these ads, which includes a spokesman from the Department of Revenue claiming that the $6 million in additional ads will have a 4.5-to-1 payback.

DOR spokesman Casey Langan said the new advertising dollars are expected to generate $27 million more in ticket sales over the biennium. The state has for many years worked with Milwaukee-based advertising agency Hoffman York “to secure the best return on investment,” Langan said. He said the increase is not related to the current contract with the company, which expires at the end of June.

But the DOR said similar things the late 2000s, and the exact opposite happened, although it’s not a great example given that the economy went to shit right as the ad boost started.

In 2007, when then-Gov. Jim Doyle last increased the advertising budget by $2.9 million, sales were down and the Department of Revenue estimated the ad boost would generate $30 million more in lottery sales over the next two years.

Instead, lottery sales declined by $17.5 million over two years as gas prices increased and the Great Recession hit. Since then, ticket sales have increased for seven straight years.

What’s not mentioned in the article is that the DOR just sent a report to the Joint Finance Committee indicating that the 7-year winning streak was coming to an end. That shouldn’t surprise you since there hasn’t been any $1.4 billion lottery jackpots to lead large numbers of people to have one-time purchases of tickets in the last year, but the DOR’s estimate of a $9.73 million drop in sales for Fiscal Year 2017 is still significant, since it means that property tax relief from the Lottery Fund would also drop on next winter’s property tax bills.

In addition, the DOR’s letter to the JFC didn’t count on increased sales from advertising starting on July 1, which means that the amount available for property tax relief would drop by $21.5 million. Note: I am also including the projected prize payout figures (60.35% of sales) for 2017-18, which is slightly below what was in the October estimates.

Projected lottery fund figures, FY 2017-2018
Starting balance 2016-17 $32,588,022
Projected sales, other revenues 2016-17 $617,514,39
Interest earnings + transfers in $508,994
Total expenses 2016-17 $452,692,298
Total remaining $197,919,117
Required 2% of revenues reserve $12,350,300
Total December 2016 prop tax relief $185,568,817

Starting balance 2017-18 $12,350,300
Projected sales, other revenues 2016-17 $617,514,399
Interest earnings + transfers in $1,109,949
Total expenses 2016-17 $454,588,142
Total remaining $176,071,778
Required 2% of revenues reserve $12,350,300
Total December 2017 prop tax relief $164,036,205

So you can see why the Walker Administration wants to convince people that their extra ads will grow lottery sales - it’s the only way they can avoid the tax hike on next winter’s property taxes that would result from a lower lottery credit. Sure, Walker’s budget has a few other unfunded gimmicks that would make it more likely that your overall property taxes would be lower, but with the available funding for this budget dwindling by the day, it may not be possible to get those proposals through the Legislature, at least in the next 4 months.

And if these ads DON'T pay off with extra sales, then the property tax relief will be even smaller in 2018 and 2019. That doesn't seem like a good deal to me, and I almost wonder if there's another deal in the works where these ad agencies and TV stations get a little extra revenue, and Scotty expects (or is already getting) a little boost from those guys in return. Running even more lottery ads seems to be a case of diminishing returns, and I'd much rather continue to get something back from the small amount of dollars I lose from playing each year, and not have my Brewers game filled with those often-annoying ads.