Wealth Not Expected from Lotto

It’s a question most people entertain at least every once in a while, no matter their position in life:
What would I do if I won the lottery?

Love it or hate it, since the lottery’s inception on Sept. 28 more Arkansans than ever will be asking that question.

Ernie Passailaigue, executive director for the fledgling Arkansas Scholarship Lottery, recently told a group gathered in Rogers for their monthly Leadership Benton County meeting, “We’re not in the business of maximizing lottery sales … but to provide entertainment and fund the greater good here in Arkansas.”

That’s how he views the lottery, he said, as a product offering with entertainment value.

In his presentation to the group, Passailaigue showed a pie chart titled “The Lottery Industry as Entertainment.” It shows lottery as commanding 38 percent of the entertainment market, beating out such standbys as books (23 percent), home video (19 percent) and music and movies (a combined 20 percent).

Passailaigue said the odds of winning the Powerball, the now 31-state draw game that will first be available in Arkansas on Oct. 31, are 1:195 million.

“What they really do is fantasize,” he said of Powerball players. “Chances are you are not going to [win].”
Oklahoma has awarded only 11 million-dollar plus prizes since its lottery began in late 2005; Missouri has awarded 285 million-dollar plus prizes since it began in 1986.

Windfall
Despite the odds being astronomical, some area wealth advisers said it could be prudent to consider what one would do with a financial windfall, whether it be from the lottery or an inheritance.

Passailaigue said since the ASL is a state agency, it is prohibited from referring winners to any one company or individual that might be able to help them with their newfound riches.

“We tell them they might want to get professional help” in the form of a tax attorney, accountant and the like, he said, but that’s where the advice ends.

It’s a similar story in Oklahoma. A spokesman for the Oklahoma Lottery said, “As are all the other lotteries, we’re in the business of running a lottery not providing financial/investment advice.”

Missouri provides a little more support. Susan Goedde, communications manager for the Missouri Lottery wrote in an e-mailed response: “We advise big winners to seek financial and legal advice to help them determine the best way for them to claim a prize. We also tell them to take their time and make a good decision about how to claim. We don’t want anyone to rush through the process.

“We also hold annual millionaire’s reunions, at which we hold presentations that will help our winners, such as general financial information, personal safety, etc.  We occasionally send mailings to millionaires with important information, such as any tax changes, etc.”

Area financial advisers said it’s not likely they will target lottery winners for their businesses.

 “I don’t think you’ll see more wealthy people from it. That’s just the law of averages,” said James Bell, a CFA with Garrison Asset Management in Fayetteville. The firm would welcome a lottery winner as a client, he said.

His sound financial advice for anyone hitting it big?

“Pay off your debts and put it into something super conservative for six months and have time to catch your breath and have rational thoughts,” Bell said.

Jim Blount, president and principal of the Point Financial Group in Springdale, said one’s chances of winning the lottery are about as good as getting hit by a meteorite.

However, his company has provided services for a client in another market and has learned a little about the process.

“Very few people make a good financial decisions when they get a windfall,” Blount said, so his best advice would be to set the money up in some way so that the winner has an ongoing income stream, either through a financial adviser or the lottery commission.

“Your circle of friends will grow,” he said, but if the money is “locked up” you’re self-limited and “if a poor decision is made, then you only lose a month or two of income.”

“This is a windfall that [they] didn’t expect, so by doing that it would give them some stability that they didn’t think they’d ever have,” Blount said. “I think that if someone should win a lottery they should look at doing something [they] always wanted to do.”

Critics Say
Passailaigue said he recognizes the lottery business has a down side. The ASL will direct a minimum of $200,000 per year toward the Arkansas Department of Health for the treatment of compulsive gambling and educational programs.  

Scratch-off tickets, like those currently for sale, are the only “instant win” games the ASL will offer, he said. Close to half of the games will eventually be of the draw variety, which tends to be less addictive.

The ASL will maintain a level-headed approach to marketing. “You’ll never see an ad by us that says you can change your world,” he said.

“If you play, play it as a game,” he said, with discretionary money. “Most people get that point.”

“Our goal is to have a lot of people play a little bit, not a few play a lot,” Passailaigue said.

Passailaigue also brought stats to combat the myth that the lottery preys on those who can least afford it.

“The old wives tale is just not true,” he said.

Statistics he showed, supported by the National Association of State and Provincial Lotteries, claimed that people with incomes between $45,000 to $75,000 were the most likely to play, while people with incomes of $25,000 or less are the least likely to play. Also, Passailaigue said, people with incomes of $75,000 or more spend about three times as much on lotteries each month than do those earning less than $25,000.

Both Passailaigue and the NASPL say studies indicate that lottery players “closely resemble the overall population” of each state or province.

It’s too early to tell if those statistics will hold true in Arkansas.

As of Oct. 6, there were 74 lottery retailers in Benton County and 86 in Washington County.

According to the ASL, sales in Benton County for the lottery’s first two weeks were $340,200, or an average of $4,597 per retailer. For Washington County, sales were $580,800, or an average of $6,753 per retailer.

Statewide, sales were just more than $19 million for the first two weeks.

Oklahoma expects to lose between $10 million and $12 million in border buying revenue next year because of the ASL.

Goedde said Missouri estimates it will lose between $25 million and $30 million in annual sales due to the Arkansas lottery.

Theoretically those sales will go to the ASL, which will pay out about 60 percent of in prizes to Arkansans.