February 13, 2014 | Posted in Arkansas Lottery | By

An old myth keeps resurfacing about the Arkansas Lottery: The idea that by not allocating a large percentage of its revenue for scholarships each year, the Arkansas Lottery is somehow more profitable and able to “generate” more scholarship money in the long-run.

Currently, about 19% – 20% of the Lottery’s revenue goes to scholarship. Lottery proponents say if the Arkansas Lottery were required to allocate 30% of its gross revenue for scholarships (like many state lotteries), it would have less money to spend on promotional activity and prizes, which drive lottery ticket sales. By letting the Arkansas Lottery allocate a smaller percentage of revenue for sales, the Lottery is able to spend more money on prizes, which leads to more lottery ticket sales and–ultimately–more college scholarships.

To put it bluntly, this idea is complete nonsense.¬†To prove it, let’s do the math.

Right now, the Arkansas Lottery projects total sales for 2014 at around $460 million. If everything goes according to plan, they will sell close to half-a-billion dollars worth of lottery tickets and they will put somewhere around $90 million in the state’s college scholarship fund. Sales and scholarship funding for 2014 are not on track, but for the sake of example let’s crunch these numbers.

Take a look at the table below.

Gross Lottery Revenue 20% for Scholarships 30% for Scholarships
$ 460,000,000.00 $ 92,000,000.00 $ 138,000,000.00
$ 440,000,000.00 $ 88,000,000.00 $ 132,000,000.00
$ 420,000,000.00 $ 84,000,000.00 $ 126,000,000.00
$ 400,000,000.00 $ 80,000,000.00 $ 120,000,000.00
$ 380,000,000.00 $ 76,000,000.00 $ 114,000,000.00
$ 360,000,000.00 $ 72,000,000.00 $ 108,000,000.00
$ 340,000,000.00 $ 68,000,000.00 $ 102,000,000.00
$ 320,000,000.00 $ 64,000,000.00 $ 96,000,000.00
$ 310,000,000.00 $ 62,000,000.00 $ 93,000,000.00

The column on the left shows gross lottery revenue; in the middle is the scholarship money if the Arkansas Lottery allocates 20% of that gross revenue for scholarships; and on the right is scholarship money if they allocate 30% of that gross revenue for scholarships.

Doing the math, we see that if the Arkansas Lottery raised its scholarship allocation from 20% of gross revenue to 30%, the Arkansas Lottery could pay out more for college scholarships than it currently does even if its ticket sales plummeted by $150 million!

The math is pretty clear. But what can the experiences of other states tell us?

Well, a few years ago we published an article highlighting how Louisiana’s lottery paid out $30 million more for education than Arkansas’ lottery did even though Louisiana’s lottery took in $100 million less. How was the Louisiana Lottery able to take in less money but pay out more? Louisiana earmarked 35% of its gross lottery revenue for education while Arkansas only earmarked 20%.

It really is that simple.

So let’s recap: If the Arkansas Lottery raised its scholarship allocation from 20 cents on the dollar to 30 cents on the dollar:

  1. Scholarship funding would almost certainly go up.
  2. Even if lottery ticket sales dropped as a result, they would have to drop by more than $150 million before scholarship funding would be any worse than it currently is.

Does anyone really think putting more money toward scholarships is somehow going to cost the Arkansas Lottery $150 million a year? If the Arkansas Lottery is serious about funding college scholarship, raising the percentage they allocate from 20% to 30% is the obvious thing to do.

Jerry is the founder and president of Family Council. He began Family Council in 1989 after a successful effort to amend the Arkansas Constitution to prevent the use of public funds for abortions. He and his wife reside in Little Rock. They have four sons.