BuSiNeSS PlAN - California Lottery

Fig. 5.12 CSL Scratchers Game Growth from 2001-2007Figure 4.12 – CSL Scratchers Game Growth from 2001–2007$2.0$1.737$1.930$1.827In Billions$1.5$1.189 $1.184$1.212$1.339$1.0$0.5$0FY01 FY02 FY03 FY04 FY05 FY06 FY07How the CSL Maximizes Scratchers SalesThe CSL’s business practice since 1996 has been to channel availableadministrative moneys back into supplemental Scratchers prizes. TheCSL does this because money added to Scratchers prizes generates anincrease in sales which in turn produces additional revenues for education.The CSL’s experience is that every $1 invested in Scratchers prizes resultsin $7 of sales and $2 for education. In other words, for every $1 the CSLcan invest in Scratchers prizes, it can generate $2 for education.Largely based on this higher payout strategy, Scratchers sales haveincreased from just over $527 million in fiscal year 1996-97 to $1.93 billionin fiscal year 2005-06. During this time period, the Scratchers prize payoutwas increased from 51.52% of sales to 58.32% of sales.The CSL’s experience isthat every $1 invested inScratchers prizes resultsin $7 in sales and $2for education.It should be noted that there is a limit to this strategy, because thereis an optimal amount that should be invested in prize payouts thatwill maximize total contributions to education. As shown by other statelotteries, this optimal amount is far higher than what the CSL can reach.Most state lotteries are able to offer significantly higher prize payoutlevels due to more flexible or nonexistent legal restrictions, and theyhave seen gains in Scratchers sales far in excess of California. Unfortunately,the $164 million in supplemental Scratchers prizes in 2005-06 appearsto be the maximum amount that can be reached, with lesser amountspredicted for future years.California Lottery 2007–2010 Business Plan – 53 –