Bigger Jackpot Is Seen as a Revenue-Boosting Lure

California’s lottery system has been funneling extra cash into the state’s public schools for two decades, with no stronger year than the last one. And next year’s bonus is likely to be even larger, with the addition of a new game whose record prize is almost twice as big as what can currently be won.

The California Lottery Commission voted two months ago to add Mega Millions, which builds up huge jackpots by including players in 11 other states. The push for joining the multi-state lottery was included in Gov. Arnold Schwarzenegger’s extensive proposal to overhaul state government, called the California Performance Review.

After the individual winners, the latest of whom is a woman who came forward this week to claim a $72-million SuperLotto Plus jackpot from a ticket bought in Alhambra, education could be thought of as the big winner of the lottery. But in the primer that follows, the state’s top educator notes that lottery revenue has not always been a plus for schools.

Question: How did California get in the lottery business?

Answer: A state budget crisis in 1982 led to an initiative that was promoted as a way to raise money for schools without hiking taxes. It was backed in part by a gambling company that supplied lottery products. Although the governor, the attorney general and some religious leaders opposed the measure, voters overwhelmingly approved Proposition 37, the California State Lottery Act, in 1984. Half the revenue was to be paid out in prizes. Of the rest, no more than 16% could cover administrative costs and at least 34% was to go to public education.

Q: How much money has gone to schools?

A: In its two decades, the lottery has sent public education more than $15 billion. Last year was the fourth straight that schools got at least $1 billion -- equivalent to about 2% of all education funding, or about $131 per pupil. Chances are good that the billion-dollar trend will continue: While the lottery’s business was up and down through the ‘90s, total sales last year amounted to $2.9 billion -- the highest ever.

Q: So educators are satisfied?

A: Not always. Although any money for education is appreciated, California Supt. of Public Instruction Jack O’Connell says, the lottery has never been a “predictable, stable” revenue source. Although he frequently urges local districts not to use lottery money for recurring expenses, local officials find it difficult to resist in this era of tight state budgets. And the mere existence of the lottery sometimes gives state legislators an easy excuse to deny money for programs that educators say they need. O’Connell says lawmakers tell them: “ ‘Well, we’ll let the lottery money go for that.’ ”

Q: How is revenue divided among schools?

A: About 80% flows to K-12, 13% to community colleges and the rest is shared by the two state university systems, adult education, charter schools and classes operated by the juvenile prison system. The money is paid quarterly and distributed on a per-student basis.

Each district has the flexibility to decide how its share is used. The most recent data (2001-02) have 77.8% going toward salaries and benefits for teachers and staff, 18.6% for books and supplies and 3.6% for operational expenses. Last year, the lottery paid for the equivalent of 11,517 full-time teachers and 2.9 million textbooks. (In all, the state has about 305,000 K-12 teachers.)

Q: If the lottery is doing so well, why did it add Mega Millions?

A: A state commission on government reorganization predicted that even more money -- as much as $500 million -- could be gained by adding a multi-state game that used bigger jackpots to attract more players. Other states that recently added Mega Millions saw revenue jump about 20%. (The same official who led the reorganization review was recently appointed to lead the lottery, and he and two others chosen by Schwarzenegger unanimously selected Mega Millions over its primary competitor, Powerball, a 30-state game that offered better odds but lower jackpots.) The new game -- to be offered later this year -- is also expected to combat “jackpot fatigue,” the tendency for players to put off buying tickets until they see jackpots reach a certain size.

Q: How would this new game work?

A: It’s much like California’s current big game, SuperLotto Plus -- a ticket costs $1, players 18 and older pick a series of numbers, then hope for the best when the big drawing comes around twice a week. Mega Millions would draw many more players because it is sold in 11 other states: Georgia, Illinois, Maryland, Massachusetts, Michigan, New Jersey, New York, Ohio, Texas, Virginia and Washington.

Q: Isn’t there a better chance of being struck by lightning than winning a Mega Millions jackpot? So why play?

A: Because anyone could win as much as $363 million. That’s the record Mega Millions jackpot to date, shared by a player in Illinois and another in Michigan in May 2000. When California adds the game, officials predict jackpots will get even bigger.

It is true that a person is more likely to be hit by lightning (1 chance in 700,000) than to buy a winning Mega Millions jackpot ticket (1 in about 134 million). And once California enters the mix, officials say that chance will probably grow slimmer (1 in 170 million). By comparison, the odds of winning the jackpot on a single play of a Nevada Megabucks slot machine is generally said to be about 1 in 49 million, according to Dave Schwartz, of the Gaming Studies Research Center at the University of Nevada, Las Vegas.

But every lottery jackpot is eventually won by someone, and the chance of winning either the jackpot or a lesser Mega Millions prize is 1 in 43. When viewed that way, lightning turns out to be the longshot.

Q: Are the odds that different for existing California games?

A: Sometimes they are better; most times they’re about the same. SuperLotto Plus gives players 1 chance in 41 million of winning a jackpot, while the chance of winning the smallest prize is 1 in 49. Five other games (Scratchers, Fantasy 5, Daily 3, Hot Spot and Daily Derby) also offer a wide range of odds. But with less risk, there is also less reward. The biggest SuperLotto Plus jackpot so far was $193 million, shared by three players in February 2002.

Q: What’s the upside for players?

A: The lottery has handed out $21 billion in winnings since it began, producing 1,776 millionaires, about 93 a year. Each had the option of spreading the payments over 26 years, or taking a lump sum equal to about half the jackpot. Of the state’s 18,000 lottery retailers -- grocery stores, gas stations, liquor outlets and the like -- the one who sells a winning ticket gets a payment equal to half of 1% of the jackpot.

Q: What’s the downside?

A: The vast majority of players win little or get nothing for their money beyond the experience of having played -- and knowing that schools share in revenues. And while national lottery officials hotly dispute critics who say the games lure poor people into spending more than they can afford, everyone recognizes that a lottery can be a powerful attraction to people with gambling addictions.