ElENATIl:

HOUSE

"tOHARD N. IBERRY, DISTRICT 9.
THIrOOORE II. CURTIII, ~R ..
AL.TON E, OIANCHETTE, DISTRICT 23

GEORGETTE S. BERUBE, Le:WISTON, CHAIRMAN
ANNE ..1,

BACHRACH, BRUNSWICK,

SeCAeTARY

RICHARD J. CAREY, WATr::RVILL£
CHARLES O. DOW, Wl:BT OAROIN£R
LEIGHTON

COONEY,

SABATTUS

THOMAS R. LAPOINTE. PORTLAND
JOHN

M. NORRIB. II, BREweR

WALTER A. BIRT. EAST MIL.LINOC~ET
SAt-iLJ,El. A1HJNOB. SOUTH PORTLAND

Micnae

STATE
ONE

HUNDRED

AND

01"

E. Carpenter

MAINE

SEVENTH

LEGISLATURE

COMMITTEE ON PERFORMANCE AUDIT

January 3, 1977
Senator Jerrold B. Speers, Chairman
Legislative Council
State House
Augusta, Maine 04333
Dear Senator Speers:
In accordance with House Paper 2173, directing the Committee
on Performance Audit to study the State Lottery Commission, we
enclose herein the final report of the Committee.
Respectfully submitted,

??7

Richard N. Berry
Senate Chairman

£C"

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((9'('7/)

Georgette G. Berube
House Chairman
enclosures
JH/sym

, ;\

 REPORT OF THE JOINT STANDING
COMMITTEE ON PERFORMANCE AUDIT

STUDY ON THE STATE
LOTTERY COMMISSION
H.P.

2173

Senate

House

Richard N. Berry,Chairman
Theodore S. Curtis, Jr.
Alton E. Cianchette

Georgette B. Berube,Chairman
Anne J. Bachrach
Richard J. Carey
Charles G. Dow
Leighton Cooney
Thomas R. LaPointe
John M. Norris, II
Michael E. Carpenter
Walter A. Birt
Samuel A. Hinds

Legislative Assistant - Jonathan C. Hull

 INTHODUCTION
The l07th Legislature, durings its First Special Session ordered the Joint Standing Committee on Performance Audit to study
the State Lottery Commission, and in particular, to study the revenue expectations, actual revenues, methods for increasing revenues
and the current policies of the Commission.

(A copy of the Study

Order is attached as Appendix A.)
The Committee, through its Chairman, requested the assistance
of the Division of Program Review and Evaluation of the Department
of Audit on May 25, 1976, and established a Sub-Committee to undertake this study and report back to the Committee.

The Department of

Audit submitted a written report to the Sub-Committee on October
19th, and a public hearing was held on that report on October 26th.
(A copy of the Audit Report and the Lottery Commissioner's Reply
are attached as

Appendix B.)

The Sub-CoIT@ittee reported to the

Committee on November 22, and submitted a draft final report, with
its recommendations, to the Committee on December 14th.
The Committee reviewed the draft final report and the accompanying draft legislation at its meeting on December 14, 1976, and
after discussion, unanimously voted to submit the draft legislation,
and this report, for legislative action during the l08th First Regular Session.
REPORT
This study was the first experience this Committee has had in
utilizing the Department of Audit in its statutorily defined role
as a legislative staff agency.

(Sec. 5 MRSA §§ 242-B & 243, sub-§6.)

From this experience and from the resulting Audit Report, the Committee makes two sets of recommendations.

The first set relates to

 -2-

the Lottery Commisison and its operations; and the second relates
to the Department of Audit in its capacity as a legislative staff
agency.
Lottery Commission
The Study Order, H.P. 2173, identified three major questions
for study:
1.

Why are actual lottery revenues below the projected and

expected revenues?
2.

What methods would increase the Lottery's revenue to

the general fund?
3.

How effective are Lottery policies in carrying out the

intent of the Legislature?
The Audit Report basically answers these questions, and proposes
several recommendations for Committee adoption.

(See Audit Report

pp.3-ll on projected revenues, pp.12-l4 on increasing revenues and
pp. 15-18 on Lottery policies.)

After careful study of the Report

and a public hearing at which both the Department of Audit and the
Lottery Commission expressed their views, the Committee has decided
to limit its recommendations to areas requiring legislative actions.
The numerous recommendations of the Department of Audit relating to
the management and operation of the Lottery are not included in the
Committee's recommendations because such detailed regulation is not
appropriate for legisla-tive action.

The Committee relies on the

Lottery Commission and the persuasive arguments of the Audit Report
for implementation of the many administrative changes recommended
by the Report (see Lottery Reply, pp.2-3).

 'l'he Cormnittee makps the foLLowing recommendations .for legislative action (draft legislation is attached as Appendix C) :
1.

Lottery tickets that are awarded as prizes should be in-

cluded at their full retail value in calculating the 45% to be disbursed as prizes.
2.

The Lottery Cormnission should not expand into other gam-

ing operations unless such expansion is approved by the Legislature.
3.

The fee to sales agents should not be increased beyond 8%

unless the increase is approved by the Legislature.
4.

The advertising of the Lottery Cormnission should be re-

viewed by the Attorney General to insure its accuracy and completeness, prior to its release.
In making these recommendations the Commi·ttee intends to increase the General Fund revenues generated by the Lottery while not
impairing the prize structure of the Lottery.
As the Audit Report noted, the General Fund revenues are directly proportionate to the gross sales of Lottery tickets, and
gross sales are directly related to the attitudes of potential
buyers (see Audit Report, pp.3-6).

The initial projections of Gen-

eral Fund revenues were much too high because of incorrect projections of sales, which were, in turn, based on faulty assessments
of the basic attitudes of potential buyers (see Audit Report pp.
4-9; Lottery Reply, pp.1-2).

The simplest method of increasing

General Fund revenues (i.e., reducing the statutory percentage of
sales that must be awarded in prizes) could result in lower revenues,
because of the probability that fewer and smaller prizes would reduce sales (see Lottery Reply, p.2).

However, ·the Lottery Commis-

sion presently does not include the value of Lottery tickets given

 -4as prizes in calculating the required prize percentage.

As tickets

are in fact "prizes",! the Committee recommends that their value be
included in calculating the "prize percentage".

And, as the value

to the game player of a "free" ticket is the retail price, the
value to be used in calculating the "prize percentage"
retail price.

(See Audit Report,

pp.12~13.)

should be the

Essentially, this recom-

mendation is that Lottery tickets that are used as prizes be treated
as any other merchandise that is awarded.

If the value of such "free"

tickets as prizes were included in the total amount of "prize money",
the actual amount of cash required to meet the statutory 45% of sales
for prizes would be reduced by $100,000 to $500,000 (see Audit Report,p.13).

This amount would then be paid into the General Fund,

increasing the actual revenues received from the Lottery.

As there

would be no reduction in the value of the prizes awarded, the Commi ttee forsees no substan-tial impact on sales.
The other factor affecting revenue is the cost
Lottery.

of running the

Though the percent of gross sales required to operate the

Lottery is very high (24%)

in comparison to many other states, there

appears to be ample justification for this high operation cost
Audit Report, pp.9-11, 25 & 31).

(see

However, there is one "cost"

that has increased recently, the increase in the
agents commission from 5% to 8 9-o.

The Committee does no-t find a com-

pelling reason to override the Lottery Conmlission's decision to increase the agent's commission (see Audit Report, p.ll and Lottery
Reply, p.2); however, the Committee does forsee possible dangers in
future increases.

At 8%, Maine's agent conunission is the highest

in the country (see Audit Report,Attachment 6-A).

Thus, the Com-

 \

mittee proposes that legislative

approval be required for any in-

crease beyond 8% in Lottery agents comnlissions.

Though this ceil-

ing will not increase General Fund revenues, it will prevent decreases
resulting from higher commissions"
The Audit Report suggested that one method of increasing sales,
and thus increasing General Fund revenue,was to expand the area of
Lottery operations into other games of chance.

Thus, it recommended

investigation of other States' experiences in numbers games, sports
betting and Lucky Seven Games.

(See Audit Report,p. 18.)

rrhe Com-

mittee has no objection to investigating other States' experiences
nor to monitoring their activities in other State operated games of
chance.

However, there does appear to be strong controversy over

the question of this State undertaking a broader role in gambling.
In view of this controversy and the fact that the Lottery was enactc:Jd by tr.'!fercndum,

l:hu Commit:l:c() firmLy believus l:.htlt any expnn-

sion in the Lottery's activities should be a legislative decision.
As the present statutory authorization is vague as to the actual
scope of Lottery operations (see 8 MRSA ch.B) the Committee proposes
that legislation be enacted to prohibit extension of Lottery operations without legislative approval.

By requiring legislative ap-

proval for any expansion, a full and open debate on the merits of
any proposal will be insured.
The final recommendation of the committee relates to the Lottery's public image and past experiences.

The public image of the

Lottery is its crucial operational attribute, and it has been
slightly tarnished in the last year.

The experiences of the Lot-

tery Commission 1n the "Incredible Instant Game" and the "Antique
Auto Game"

(see Audit Report, pp.19-24;Lottery Reply,p.3) resulted

in adverse publicity and potentially serious damage to the Lottery.

 Part of the problem was generated by the Lottery Commission's own
advertising, and the possibility that it might mislead the general
public.

No such intention was apparent, but the possibility was

detrimental to Lottery operations.

To avoid this situation i.n the

future, the Commission recormnends that all advertising be reviewed
by the Attorney General's Office.

This will insure the absolute

accuracy and completeness of Lottery advertising r and avoid any adverse implications.
The Commi-ttee believes that these proposals will increase the
General Fund revenues and correct some minor weaknesses in Lottery
operations.

The numerous recommendations of the Department of Audit

that relate to the management and operation of the Lottery will also,
obviously, be carefully considered and weighed on their merits by
the Lottery Commission.

Beyond this, the best proposal for increas-

ing revenues and correcting the management and operation is further
experience.
Department of Audit
'l'his study has been the first use, by t.his Committee, of the
Department of Audit as a legislative staff agency_

From this ex-

perience the Committee has several recommendations.

Though such

recommendations are not strictly within the lirnits of the Study Order, the Committee believes they are sufficiently important to be
included in this report.
The Department of Audit undertook this study at the request of
the Committee (Audit Reportpp.l) and carried it out in a thorough
and professional manner.

However, controversy arose between the De-

partment and the Lottery Commission during the study.

Because of

the personal nature of certain allegations, and their possible relation to job performance and internal personal problems the Sub-

 -7Committee held an executive session during its hearing on October
26, 1976 to review the charges and rebuttals.

The executive ses-

sion was opened to the public when it became clear that there was
no material to be offered that warranted excluding the press and
public.

The misunderstandings that apparently were the source of

the controversy were then discussed in public, along with the findings of the Audit Report.
As a result of this hearing and the study by the Department
of Audit, the Committee believes several changes are necessary in
the present statute governing the Department of Audit.

While the

general role of t.he Department when undertaking committee studies
is stated to be that of a legislative staff agency; the specifics
of that role are unclear (5 MRSA ch. IIp §§ 241-245).

Three parti-

cular areas proved sensitive: the authorization required to undertake studies; the distribution of Audit reports; and the authority
to make recommendations.
The central problem is that the Department of Audit has dual
roles.

It is an EXGcutive branch agency that has large discretion-

ary powers in initiating audits and program reviews on its own authority.

But it may also serve as a legislative branch agency, that

undertakes studies for the Legislature, the Legislative Councilor
legislative cOIDnlittees.

In its legislative staff agency role it

is acting as an agency of the Legislature, and may not have the
same :powers as it has when ac·ting as an Executive agency.

However,

the distinction between these roles is not clearly stated in the
statutes.

The confusion of roles led to some disagreemen·t and con-

 -8-

troversy in the course of this studYJ and an Attorney General's
opinion was sought.
ed as Appendix D.)

(See the request and resulting opinion attachThe opinion did not substantially clarify the

matter.
In order to clarify the role of the Department when undertaking
studies for legislative committees, the Cormnittee makes the following recommendations (draft legislation is at-tached as Appendix E) :
1.

The Department should review and analyze government pro-

grams, finances and activities for legislative committees when authorized in writing to do so.

The written au"thorization should

specify the scope of the review and analysis, the manner in which
it is to be undertaken and the authority of the Department to make
recommendations or reports or to release documents to the public.
2.

Any reports or documents prepared as part of a legislatively

authorized study should be deemed to be working papers of the Committee authorizing the study, and ShOl1ld not be publicly released
except at the Committee's direction.
3.

Any recommendations of the Depart.ment should be transmi t-

ted directly to the Committee for their review.

rrhe Department should

not make recommendations directly to the agency or department under
study without prior approval from the Cornmittee.
4.

When undertaking a study under authority of the Legislature

or its committees, the Departmen"t should exercise only those powers
authorized in the written authorization, and should be deemed to be
solely a legislative staff agencyo
The purpose of these recommendations is not only to clarify the
status of the Department when it is undertaking legislative studies,
but to insure its responsiveness to the Committee directing the study.
Under the present statute, the Department may be simultaneously un-

 -9dertaking a legislative study and acting as an Executive branch
investigator.

This can result in confusion and

controve~sYr

as

well as failing to gather the information required by the Committee.
Though that did not occur during this study, the possibility was
raised that it could occur.

If the Department is to prove its

usefulness as a legislative staff agency, it must respond to Committees as any other agency of the legislative staff.

That response

is seriously hampered by an assertion of independent authority to
publicly disclose findings or to make direct recommendations.
These proposals are not intended to reduce the authority of
the Department when it is acting in its Executive branch role in
conducting independent audits or investigations. Rather, they seek
to define its legislative role clearly, and thus to avoid confusion
and misunderstanding.
These proposals should not be viewed as a reflection on the Department's study or Report to this Committee.
a professionalism anp thoroughness that are
port is excellent.

The Department has

admirable~

and its Re-

The Committee merely makes these recommendations

to insure the increased use of the Department as a legislative staff
agency_

 STATE OF MAINE
In House

APPENDIX A

March 9, 1976

VJhereas, chapter 570 of the publ ic laws of 1973, enacted by the
l06th legislature and approved by the voters, created The Maine State
Lottery Commission; and
Whereas, among the purposes of this commission are the regulation of
State Lotteries and the depositinq of receipts from State Lotteries
into the State Lottery Fund for the payment of prizes to the holders

of winninq lottery tickets, for the pnyment of lottery operating
CXp8rlSE.~S

and for pr.tymcnt. into the General Fund; uno

Whereas, there is some question as to whether the current statutory
pay-out percentages from the State Lottery Fund to wi.nning tickets,
t.~

lottery operations

and to the jeneral jund are' the correct p(::rc:entages

'for maximum revenue yield from Stute Lotteries; ~nd
Whereas, the revenue expectations of the state Lottery have recently
been far below revenues projected by the State Lottery Commission; and
Whereas, these problems

indicate the need for a careful scrutiny

of l.ottery operations by this session of the Legislature; now, thereforc, be it
ORDERED, the Senate concurring, that the Joint Standing Committee on
60'"0'~' ....

,-",","', • -r _ .. _

.......;...

......_ ............ '..

•

.~'

•. _,

....

~_

Performance Audit shall conduct a study of tile operations of the Maine

"",0,(,'

I .. ,

State

....

>.",,1 .... , .

Lo~tery

COlnmi ssion, with emphasis on determininq the reasons for

recent actual lottery revenues falling below revenue expectations) til(:! best
methods for increasing the proper yield of the Maine State Lottery
and < ..

--;-'>

the effectiveness of current. policies of the StiJ.te Lotte.ry

Commission in caccying out the .leqisliJ.tive int.ent embodied in PL 1973,
C. :·)70,
l\l~m'H!';

28

amended; and be it furtllC:'i"

 ORDERED, the Senate concurring, that the commi'

~

shall complete

this study no later than 90 days prior to the next regular session of
·~.::·\8

Legi.slature, and submit to the Legislative Council within the

same time period its findings and recommendation~ including copies
of any recommended legislation in final draft form; and be it further
ORDERED, that upon passage of this Order in concurrence, the
Clerk of the House shall forwarti a suitable copy of this Irder to
the Senate and House chairmen of the committee.

TOWN:

Waterville

IN SENATE CHAMBER
"

~

H.P2173
HOUSE

or

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OF

MM( 10

1l[I'HES!::N"f f\ TlVES

HEN) AND PASSED

MAR

TABLED OY
0'F

9 1976

SENT UP FOR CONCURRENCE

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CLF.R~

KENNE.~

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PENDING
HMIlY. It. S.TARDlIANGH6 S.QIOIII.w:c

P

 EVALUATION

MAINE STATE LOTTERY COMMISSION

PREPARED

BY:

MAINE STATE DEPARTMENT OF AUDIT

DIVISION OF PROGRAM REVIEW AND EVALUATION
COMPLETED - OCTOBER 1976

STATE DEPARTMENT OF AUDIT

--.A~9~

 EVALUATION
MAINE STATE LOTTERY COMMISS ION

PREPARED BY: MAINE STATE DEPARTMENT OF AUDIT
DIVISION OF PROGHAM REVIEW AND EVALUATION
COMPLETED - OC TOBEH 1 g-r6

 STATE

OF'

MAINE

DEPARTMENT
AUGUSTA,

OF

MAINE

AUDIT

04330

AREA CODE 207
TEL.

R.

M.

RIDEOUT,

289-2201

.JR.

LESLIE

oJ.

HANN

DEPUTY STATE AUDITOR
STATE AUDITOR

ROBERT

D.

REDMAN

DIRECTOR OF MUNICIPAL AUDITS

.JOHN

L.

PARRISH

FRAUD INVESTIBATION DIVISION

October 18, 1976

Senator Hichard N. Berry, Senate Chairman

l~epresentative Georgette B. Berube, House Chairman

Legislative Committee on Performance Audit
state House
Augusta, Maine 04333
Dear Senator Berry and Representative Berube:
I am forwarding herewith for your review and consideration a report on
an evaluation of the Maine f)tate Lottery which addressee the following
qucotiOllG and areaR of intereot:

1.

Why has revenue been far below early projections?

2.

Wh~t

is the propriety of the percentages of payout?

3. What is the best method for increasing the yield?
l~.

The Incredible Instant Game - July 14 to August 27, 1976.

5. The Auto Game - Beginning September 15, 1976.
Other copies are being distributed as listed in the report on the page
entitled Report Distribution.
Respectfully submitted,

'~,I\~IUdeout,
Ii, ,-t)"

1>//

H. M.
;; Late

!,!vlIUr: nv

.II'. ,

Auditor

 MAINE STATE LOTTERY COMMISSION
REPORT DISTRIBUTION

4 - [,egislative Performance Audit Committee
(1) Chairman
(3) Members of Gubconnnittee

3 - Legislative Council

(1) Chairman
(1) President of the Senate
(1) Speaker of the House
1 - Governor
1 -

Legislative

F~nance

Officer

10 - Maine State Lottery Commission

(5) Commission Members

(1) Director
(1) Marketing Manager
(1) Financial Manager

(1.) AdJninistrn.tive Manager

(1) Production Manager
.1 -.

Lel~iGlat:L vo

.1 -

MainE.: state Library

Performance Audit

~;cct:lon

- Clearinghouse

1 - Maine State Law Library

3 - Department of Audit

(1)

state Auditor

(2) File

4-

News

Media

1 - Treasurer
1 - Budget Officer
1 - Commissioner of Finance and Administration
1 - Attorney General

33

 EVA1,UATION
MAINE S'l'A'l'E LOT"l'l':HY

COMMn.\~nON

INDEX

J

Bb/; y.{~rr~und

Evaluation f>1ethodolue:Y
Histor~y of the Lottery in Maine
Findings and Evaluation Conunentary
Why has revenue been far bclovr projectiolls'?
General
Projected Sales
Actual Gross Sales
Projected Revenues
Actual Revenue
Evaluation Commentary
General
other Observations
Costs Affecting Revenues
Verify the propriety of the percentages of the distribution of funds.
General
Heserve For Prizes
EvaluatIon Commentary
Free Tickets In the Prize structure
Unclaimed Prizec
Uretermine the best method for increas.Lng revenue to l.hc General It'und
Evaluation Commentary
General
The Incred1ble Instant Game - .July 14 to Au[';ust 27, 19'76
Evaluation Commentary
The Grone
The ;~ystem
Result of the System
The Contract
i>urrrrnary

The Auto Game - Beginning September 15, 1976
Evaluation Commentary
Sales Agent Advantage
Policy Inconsistency
Auto Game contract
General Observations
;~ummary and Conclusions
Attachments:
1. Organizational Structure
2. Money Flow In the Lottery
3. Graph of Wee~ly Sales
4. Annualized Per Capita Sales By District - Weekly Game
5. Comparison ~ Sales Three Instant Games
6. a. Sales Agent Commissions in Other Lottery States As of October 1, 1976
b. Bank Commissions In Other Lottery Statec As of October 1 ,
7. Initial Lottery Commission Response to Nature of study
8. Agency Response to Evaluation Report

J
.)
L

5
6
6
9
10
1;:

12
1;:>
I:?
l;~

13

]5
l~
l~

19

19
19
19
20
20

21
22
22
22

23
211

lcrr6
,

 EVALUATION
MAINE STATE LOTTERY COMMISSION

BACKG ROUN1J
The Division of Program Review and Evaluation of the Maine state Department
of Audit was contacted May 25, 1976 by the Chairman of the Performance Audit
Committee with a request to assist that Connnittec in it::: examination of the
operations of the Lottery Commission in pursuance of a Lcp;ir..Ln.tive Order
dater] ~ljar(~h 9, 19'(6. After an in:3pection of' the Order, the ;~tute I\uditor
:in:::tructed the Division Dire:ctor to design ltn evaluation plan, gather and
analyze appropriate data, formulate opiniom; and recommelldations and repod,
the findingo to the Committee at the earliest practica.L date. Certain
aspects of the two most recent instant e;ames required resolution to assure the
completeness of the report.
Little time could be devoted to the project in the month of June due to other
connnitments. With some amount of unavoidable interruptions, detailed planning
and initial data gathering began in ,July and concluded in thi8 completed report
scheduled for general release in the month of October lS176.
The Legislative Order suggests five basic topics which are paraphrased as
follows:
1.

Why has revenue been far below prOjections?

2.

Verify the propriety of the percentages of the distribution of f\mds.
a. Winning Tickets
b. Operations
c. General F'und

')

)

.

l)(jt,(!rrn:ln(~

the beGt method for' Increu:::lng y':LcldLo tlll:

r~(HW

ral J'ulld.

Determine the effectiveness of COlnmirwion policies in carry:Lng Ollt
legiclative intent embodied in the Public LaWG of 19'73, Chltpt,cl' 1/70.

5.

Scrutinize operations.
EVALUATION METHODOLOGY

The sponsor of the Legislative Order was contacted for the purpose of gaining
clarification of, and additional insight into, the specific interests of the
legislature. It became apparent that in pursuing a satisfactory response to
the above mentioned concerns it would be necessary to examine the effectiveness,
efficiency, and economy of program performance implicit in items #4 and #5.
The annual financial audit of the Lottery Connnission will provide additional
scrutiny to lottery operations.

 - 2 -

After ,.lome amount of initial library research into the nature of goverrunentoperated lotteries, a work plan was formulated that would best meet the time
framr.;! JmposecJ by the order. A series of sub- questions 'were developed to
guide the general progress of the cvalu8,tion. The answers to the sub- questions
appear lM~ (:omrncntary and exhibi to under the sect1 on ent.i tled, "Findings."
lnput to the study wan received from cu.rrent and former members of the Connnission
and its staff, other state lottery commissions, the company contracted to
establish the lottery system, the Lottery C~nrnission's contracted advertiser,
the supplier of ga:mes utilized, Liquor Commission store employees selling tickets,
the state Law Library, a published study on the impact of legalized gambling in
other states, contracts of the Commission, the state Budget Officer and state
Treasurer and the records of the Commission and the state Controller.
The findings from these sources were subjected to review and analysis and provided the basis for the content of this report.

Gl~J,ture after r:unsiderabl(~ di DC\WGlon and controversy enacted Chapter 5'(0
of the Public LavT13 of' lfj73 vThich eGtablishe<l a, state Lo·aery Commiooion, Gubject
to vot(~r /J,pprovD,1.. The approvO,l of the voters waG received :In November 1973 by
a ~~-l mar(jln

'f'fw lCl!,i

0

The first mcmber;~ of the Commission wore appointed by Governor Kenneth M. Curtis
in }o'cbruary 1.971, and included:
Peter J Gorman of '\1aterville, Chairman
,John Mcf-;VlOOJ1(:y of' Old Orchard Beach, Member
WU1:i.am Gove, .Jr. of Wiscasset, Member
Donna '[,ibbets of Brewer, Mem.ber
Peter Sang of Portland, Member
0

Christo Anton of Biddeford was named the first director of' the Lottery at the
meeting in February 19'71.~. George Orestis of Lew'iston replaced MY. Anton in
.January 1975"
Three con:~1JJ_ting firms "rere intervievTcd in March 1974 for the purpose of determining . . .Thich vrould rcce:i.ve the contract for the design of the lottery system
to be ut.ilized. 'l'.he firm of Mathematica, Inc. was selected over Arthur Young, Co.
and Analytics, Inc. after a review of t.he proposals.
In April 1974, Dlmn aIid Theobold, Inc. of Bangor was contracted to be the Lottery's
advertising agent. 'l11e Commission changed agents in November 1974 to Chellis,
Conwell, Gale and Poole, Inc. of Portland.
Managers . . .rere employed to direct the operations of the marketing, financial and
adrrrlnistration divisions in Ma.y 19'74, The first sales of Lottery tickets began
the "Teek of June 2'7, 1 9'7 Lf "

 - 3 -

FINDINGS AND EVALUA'I'ION COMMENTARY
Why bas revenue been far beloy, proj ections?
GENERAL • • • • Three factors determine the amount of revenue credited to the
General F'uu(1 by the Lottery Commission; namely, ticket sales, costs and the
amount (45% of sales) set aside for prizes. Costs are relatively fixed, there~
fore, the key ingredient to tbe amount of General Fund revenue produced is tbe
amount of gross sales generated.
PROJECTED SALES
• The first forecasts of lottery sales appear in transcripts of legislative work sessions. Many figures were discussed at various
timec prior to the enactment of the enabling statute. Some proved later to be
far in excesn of wbat was actually realized, while at least one proved to be
r'cn.;.onn.bly correct. Tbe detail to tbe initial forecasts is now dj.fficul t to
locate, but, we corresponded with Mathematica, Inc. of Princeton, New Jersey,
the company that was selected to establish the state's lottery system, to learn
morr~ of thetr projection, one of the larger returnn predicted.
Mathemv,tica dated that they had eGi;imatcd groGs sales amounting to ~12 to $20
eap:i ta (Jl' ~1;l2 to ~1;20 m:LlUon per year aornuning Q, population of 1,000,000.
Uning the name per capita ent:tmate fwd correcting for the adjusted Maine census
figure at .July J., 1775, the f'orecf.wL by Mathematica becomes $13 to *21 million
annuf),lly.

~

'l'he responses to a questionnaire prepared as a part of this study and mailed to
several lottery states revealed the following related data in addition to other
usefUl information:
Total
Population

state
Michigan
New Hampshire
Massachusetts
Rhode Island
Maryland
Connecticut

(1976)
(1976)
(1976 )
(1975)
(1976 )
(1976)

I"or Comparative Purposes:
I'/falne·
(1976)
Note:

(1)

Gross
Sales

9,108,000
808,000
5,828,000
919,000
4,01+8,000
3,032,000

$225,000,000 (1)
14,500,000 (1)
103,213,5 24
15,054,676
59,700,000
29,493,864

1,059,000

8,281,180

Tncludes investment income (rounded by Commission)

Annualized
Per Capita
Sales

$24.70
17.95
17.71
16.38
14.75
9.73
7.82

 ACTUAL GnO[;;j 0ALES • • • • An in- depth review was made of the sales records
for s(Jlec ted periods in the first two years of the lottery's operation.
'L'lw~;e perlodr: "Tere: rJelected to reflect trends in sales which could be used
for comparlnun with the annualized pcr capita Galen of ~j12 to *~~O estimated
by Mathelrlfltiea, Inc. Oelected period oales figures converted to an annualized
pCI' capito. Gales rate are as followG:
Annualized
Per Capita
Sales Rate

t

8.48
5.76
4.92
5.20
14.72

7. B2

1st week of lottery sales 6/27/74
1st 6 months fiscal year 1974-75
2nd 5~ months fiscal year 1974-75 (excludes 2 weeks of sales in
6/75 of 1st instant-type game)
1st year 1974-75
1st 8 weeks of period containing the .lst instant game (6/19/758/7/75)
2nd year 1975-76

'1'111.: J'j nd, ynl1r annual i.zed per capJ ttt salen figure was barled on gross nalctJ in
L'J(JI-'('J 0:(' :1:'),JSJI~,V))

which war; :1:'(,(501,605 or 60 percent below the lowest ee:Umatc

by Math(.!mnttclJ., Inc. '1110 r;r.;cond year annualized per capita sales figure wan
baGed on f~rOSG [jales in 1975-76 of :~f3,28l,180 which was :P~,718,820 or 36 percent beof

[Jr.,,].f;,:

low the lowest eGtimate of sales by Mathematica, Inc.
PROJECTED REVENUES • • • • The amount of revenue actually credited to the General
Fund is entirely dependent upon the amount of sales and the costs necessary to
produce those sales. As a statutory requirement, at least 45 percent of sales
must be set aside to establish a reserve for prizes.
Revenue projected for the General Fund is as follows:
(Stated in
Source
Mathematica, Inc., Princeton, New Jersey
F,SCO Research, Inc., Portland
Lottery Commission
Bureau of the Budget

$ Million)

1974-75

FJ75-76

$5. 2 - 9.3

$5. 2 - 9.3

1.9

1.9

3.1

11.6
4.1

3.1

Mathematica's high projection of sales $20,000,000 minus 45% for prizes of
$9,000,000 and estimated costs of $1,700,000 was the basis for the $9.3 million
figure. The estimate by the Lottery Commission for 1974-75 was arrived at
through a joint effort with the Bureau of the Budget. The $11.6 million
projection for FJ75-76 appeared on a budget form signed by the former Director,
Mr. Anton as ..Tell as the Financial Manager and submit ted to the Bureau of the
Budget by the Lottery Commission. It was subsequently revised downward by the
state Bud[:ct Officer to 1;4.1 million. Contact vTith the former Lottery Director
shed little Ught on the specifics of the high estimate for FJ75-7G. His report.
for calcndar 177)[ reflected high hopes for the financial success of the lottery,
but, contained no detailed calculation of his projection.

 - 5ACTUAL In:vENUE • • • • Sales, prize reserves required by statute, and costs in
the 1975-76 fiscal. year are sunnnarized as follows:
Gales

$8,281,180

L(:[~r; :

rrdzcr:: - (At Least 1~5% of Sales by statute) $3,728,823
(;OGte - (2J.CY/u of Sales)
1,978,295

5,7 07,118
2,574,062
PlUG:
Other Income - Investment Earnings, etc.
Net Revenue to General Fund - (31.5% of Sales)

35,561
$2,609,623

f'1r.:.:t revenue to thc.! General Fund i n 1971~ 75, the first year of lottery operations,
:~1.2 mHllon which ".TaS 61~) below the amount estinuitedby the Bureau of the
Bud[r,d foY.' l(j()j- Tj. Net revenue to the General Fund in 1975-76 totaled $2.6
million ".,hich fell ob~rt of the Budget Office estimate for that year by 36%.

vms

'1'l1e vendors' commission on ticket sales is normally a cost of doing business,
however, in the case of sales made by state liquor stores the vendors' commission
is deposited and credited to the Liquor Fund. Since Liquor Fund earnings are
transferred to the General. Fund, as is the case with the Lottery Fund, there is
an additional financial. benefit to the General. Flmd from the lottery that does
not appear on the surface of state financial reporting. The amount credited to
the General FUnd in this manner in fiscal year 1975-76 w;as $59,21~9 and is not reflE.:cted in the above data.

EVALUATION COMMENTARY
GENERAL • • • • With the exception of ESCO Research, Inc. of Portland, estimates

of revenue to the General Fund from lottery operations· have substantially
(:x(~eeded the l1Ctual revenue realized.
Several obvious questions flow natu:ral1y
from thJ [~ olinc!rvation, narrw ly:
1.

What was the basis of revenue estimates?

2.

Was the basis reasonable?

3.

If the basis is unreasonable or not clearly identifiable, are there
other indicators of the degree to which Maine's lottery system has
reached its full potential for revenue?

4.

If the full potential for revenue has not been reached, what are the
causes't

5. What might be done to improve revenue?

 - 6 -

Revenue estimates for the lottery were based largely upon the experience of
the few states with lotteries at the time the estimates were made. Some
people possibly consider New Hampshire as a suitable vehtcle for that purpose
clue to its relative proximity to Maine and its population makeup. 'rhe basis
was reasonable, but, should have included a scientific attitudinal survey of
the citizens ancl visitors of the state to strengthen the foundation for the basic
assumption that Maine's situation was similar to other states. Lottery revenue
is clirectly dependent upon the volume of sales generated and the latter depends,
for the most part, upon the attitudes and financial resources of the people
conc~rnecl.
As a separate point, but equally as important is the accessibility
of buyers of lottery chances to sales locations.
r'~stimates assumed that interesting' games would be conducted and that sound, yet
imaginative, lottery practices would be exercised in progrannning and operating
gaxnes. We refer to what have become more or less standardized techniques such
as periodically "overlaying" the regular weekly game with a sub-game played with
the same ticket, utilizing the instant game concept, and changing games at the
earliest indication of a loss of public interest.

In short, projections of lottery revenue were necessarily based upon expertence
and practices elsewhere, but should have included the skillful integration of
well-docmnented pertinent data applicable to the state of Maine. We have carefu.lly scrutin:Lzed certain data and list those matters that we believe have, to
some extent, negatively affected revenue produced for the General Fund by the
lottery. A discussion of what might be done to improve revenue appears later in
the report.
Lml'l'ING FACTORS • • . • Various factors have limited or inhibited the sales of
lottery tickets. A number of sources were consulted in the acquisition of
opiniorw f),nr] documentation. The following constitutes a compilation of responses
tJw,l, y[(~ b()L.i(~ve I..1ccurately portray the G.ituation.
fn addition, we :lnclude certa.in
obr:c.Y'vuti()(II': and corrrrnents ban cd upon our research.

1.

Maine is a geographically large and isolated state with a population
distributed in such a manner as to make difficult the provision of the easy
public acceGS to ticket purchases that is extremely critical in the marketing
Qf an "impulec" item. 'rhe number, quality and location of lottery ticket
Galee agents is vitally important in achieving the maximum quantity of ticket
sales. It iG desirable to have Gales agents plentifully and strategically
locatecl in every populated area of the state. A consideration in the
implementation of this policy, however, is that more agents increase the demands upon the Commission for logistical support and create additional costs
to provide the support.

2.

In the period of time immediately preceding and subsequent to the initiation
of sales there was a considerable amount of poor publicity concerning moral
and legal issues thereby creating an unfavorable atmosphere in which to conr11.lct the lottery.

3.

'11'1Ore W't.l,S early and, in some instances, continuing reluctance by certain
banks with ;~trateg:Lcally located branch offices to participate in the distribution and accQuntability of tickets and cash receipts. This reluctance has
reducecl the Commission's capacity to acquire and service potentially valuable
sales agents. Such reluctance aG that described can be attributed, at least
in part, to the early opposition of Maine's United f3tates Attorney on the
basis of the legal issues referred to in 2., above.

 - 7 -

4. Only a relatively complex weekly ticket game was made available in the first
year of operation thereby failing to take advantage of the popularity of
overlay and instant games. Instant games were proposed to the Commission
in August 1974 by Scientific Games, Inc. a~ter a reported earlier financial
success with the concept by the Commonwealth of Massachusetts.

5.

WIlen the inotant game concept was added in ,June 1975, i t was not changed for
)15 wu~ks even though evaluator estimates of week to week sales (utilizing
data not []pecifically designed for this purpose) reflected declining interest.
'I'he reason given vlas the large number of tickets purchased at the advice of
;,cientific Games, Inc. We were unable to learn, however, of any cost-benefit
study designed to determine the advisability of continuing the game to use the
unsold tickets on hand or accepting that loss and beginning a new game,
expecting to produce sufficient profits to more than compensate for the loss.

G.

The Commission lacks current and accurate instant game sales information upon
which to base appropriate and timely sales decisions. Sales agents and banks
perform a weekly cashup and accounting of weekly game ticket sales while
instant game Gales run a number of weeks between cashups. The latter is due
to the fact that instant tickets are not numbered and would reportedly require
bank employees to verify the unused tickets by means of a physical count.
Danks have objected to this rather time-consmning practice. In any case, the
Commi[;::lion lacks [lolid evidence on the volume of instant game ticket sales in
the period of time between cashups.

7.

A lar'{\ely unanticipated lack of lottery appeal to tourists was evidenced by a
Northeast Mark(~ts, Inc. survey. 'l'he survey indicated that although 70 percent
of' Maine's adult tourists were aware of the Maine State Lottery, only 15 percent
actually made lottery purchases.

8.

Limited enthusiasm and support by state liquor store employees selling tickets
has been evidenced. Our analysis of a questionnaire completed by 178 liquor
store employees as a part of this study revealed the following attitudes tovmrd selling tickets; 15.2 percent positive, 33.7 percent neutral and 51.1
negative. 40.9 percent of store managers report they never encourage their
clerks to sell tickets and 32.1 percent of the clerks report that they never
do ask customers if they wish to buy lottery tickets. 38.4 percent of the
clerks report they ask less than one-half of their customers. The two most
frequently cited reasons were that they were too busy and there was no
monetary incentive on their part to sell tickets.

9.

'l'here has been little evidence of indorsement and support by the news media.
The Commission reports that with few exceptions the media does not treat
lottery happenings as news and, rather, prefers to require paid advertising.
Editorials rarely appear to be supportive of the lottery. On the other hand,
vTe have learned that New Hampshire's leading newspaper with a state-wide
circulation, the Manchester Union Leader, enthusiastically supports that
state's revenuc-produdng lottery with front page editorials thereby prov:l.ding
a major acsist in acquiring wider;pread public acceptance.

10.

'l'elevis:lon and radio advertising was legally limited until January 1975 to
dravlings conducted as a part of some larger, unrelated event. Normal paid
advertising was permitted beginning in January 1975.

 - 8 -

11. 'I'elephonc eommunication with the U. S. Department of Commerce revealed
the fo] lowing arnounts of disposable income per capita for certain of tlw
lottery states:

:~tate

j'j(fYT ,Jersey
Connccttcut
Maryland
ManGachuuct t:;
Rhode Island

Disposable
Income
Per Capita

(Available)
Sales
Per_Capita

$5,491
5,481+
4,(\47
I~, 799
1).,596

$ N/A
9.73
llL75
17 :71
16.38

l~ichigan

1~,476

21~.70

New Hampshire
Maine

4,430
3,953

17.95
7.82

k, evidenced prima,rily by Connecticut and Michigan, there is no direct

causal relationship between disposable income and sales, however, it is
still conceivable that some relationship may exist.
12. There is a reluctance on the part of the Commission to employ more than the
bare minimum number of staff members necessary to maintain day today
operations and it is believed this creates a heavy workload on the ten field
representatives whose job it is to circulate among existing and potential
sales agents and banks to establish and maintain sales operations. A
continuous heavy workload hinders field representatives from seeking out
fj,(ldttion8.l potent:i.ally valuable :.:ales agents in desirable locations.
I·~.

;;lliCl.: lvlIJ..tnr:'r: [/(:r' (;IJ,piLtL IllJ.ir-:: at'!: n:i.ff,rt.l.l':lcnnU,y lo'WC't' t.hnn uLllt'y' ·loLt.(~I''y

L.he l'ull.ow:lng twu mutually exclus:Lvo altornatJvl.'l; an a
pocdble logical explanation balwd upoii-the(:;'Faervation Umt individuals
either do or do not have the inclination to buy lottery tickets. That is to
oay, some people exhibit a basic openness to the gambling concept and some do
not:
(1.) By and large, Maine people do not have the inclination to buy lottery
tickets (at least at a rate comparable to people in other lottery states),
r:Ln.t.ci:,~/(: ()[,f()Y'

or
(2.)

a potentially larger lottery market exists in Maine, but, advertising
techniques and management practices have failed to arouse and provide
easy accessibility to many potential consumers.

If (1.) obtains, then perhaps more realistic projections of net revenue are in
order based on available sales and per capita data. If (2.) obtains, then a
thorough analysis of lottery operations to elate may reveal areas of possible
imvroverncnt.

 - 9-

O'J.'JIJo:H OB8EHVNrIONS • • • • At our requect, the

l~x(~cutive

Director 01' the

NIJvl IIrunpnhire Sweepstakos Connnission offered several obnorvatioTlG as possible

cxplanat:i.onc for the apparent d:i.sparity between the relative results of the
two lotterier;. A fJummarized veroion of hin answer follovrs:
J.

Ney, Hampshire':; demography

;~.

!'arge New Hrunpshire border on heavily populated Massachusetts areas.

3.

New Hampshire lottery has complete support from the state's leading
newspaper.

4.

Maine's lottery was adversely affected by initial opposition of Maine's
V. S. Attorney.

5.

New Hampshire has twelve years experience.

6.

The attitude and actions of New Hampshire's Governor and Attorney General
inspired citizens to support the lottery.

J.fj

more amenable to lottery operations.

The Neyl Hampnhire l';xecutive Director concluded his letter by stating, "Your
lott(~ry i,; nt:i1J very young und needs the chance to mature through experience,
lmlovatton aIII) (~()vernmental nUfJport. You are fortunate that when you started,
'yOU hud ttJO opportuni toY to learn from the rmcce::wos and fa:Uuren of other states.
In nw opinion, thore ic nothing wrong with the Maine Dta:te Lottery that a few
more ,Y(:t1n: 01' 'weathering will not cure. II
An additional important factor for New Hampshire's financial success that. might

be cited, although it was not by the Sweepstakes Director, is that state's use
of out-of-state subscription plans. Maine Lottery Commission officials infonn
us that ]\fevi Hampshire mak~s extensive use of that technique while Maine does not
pending resolution of the subject in the courts.
CmTG AFFECTING REVENUES • • • • We have discussed some' of the limiting factors
on achieving high Gales, but net revenue ie the bottom line on the operating
ntatcmcnt and the real purpose for the lottery. 'rhe amount of costs directly
aff'edr; the Dmount of revenue, therefore, it is appropriate to include the
following obnervatlons with regard to costs:

FJ75-76
fjales
Less - Reserved for Prizes Less - Cost of Operation -

45.0%

23.9%

I\~;

1 297 8 ,292

2,574,065
35,558

Plus - Other Income
Net Revenue to General Fund-

$8,281,180
32728,823
4,55 2 ,357

31.5%

$2,609,6 23

can be seell from the above, it cost 23.9 percent of sales to operate the
lottcr,Y after "etting anide 4:; percent for prizeo.

 - 10 -

A closer look at costs discloses the following:

)(-

HofLects one day per week of field representatives (sales) time spent distributing
tJclwt:: to dirJt:dbutor banlw.

 - 11 The only substantive places to look for possible savings are salaries, advertising
and agent fees. The Commission already works at a staff level below that
originally designed and appears hard pressed to meet current work demands. The
importance of advertising to lottery operations can not be overstated and a
correlational study of advertising to resulting sales serves to substantiate this
assertion. BeCause of Maine's relatively low lottery sales, Maino's advertising
budget was equal to 6.5 percent of sales in 1975-'76 while several other lottery
states reflected percentages of 1.0, 1.'75, 2.2, 2.5, 2.8 and 3.0 percent. As
another factor, Maine's media system for distribution of advertising is composed
of numerous daily newspapers, radio and television stations; none of which provide
statewide circulation or coverage thereby adding to the cost of advertising.
Gales agents must be paid for the.service they perform and to do so requires a
sizable portion of the sales dollar. In March 1976 the Commission voted to increase
the agents' commission from 5 percent to 8 percent. To the best of our knowledge,
based upon the data we have acquired, Maine was the first state lottery to
authorize an increase from the usual 5 percent fee.
'1'he minutes of the Commission's meetings shed little real light on the matter
except Lhat thn Corrnnission accepted the recommendation of the Manager of the
MaY'JwtJ.ng Division who, in turn, baucd his ,judgment on all appeal from Hannaford
BrOfJ., Inc., the largest wholesale supplier of groceries in the state. A letter
from Hannaford to the Marketing Manager referred to the displeasure of their
retailers with the 5 percent fee and that 10 percent was the fee desired. The
company officer writing the letter stated that he felt retailers would be more
aggressive toward selling tickets if the fee were increased thereby prodUCing
better overall results for the Commission.
We have seen no documented evidence stating that retail grocers actually intended
to terminate their status as sales agents if the fee were not increased. The
Hannaford chain can not be faulted for attempting to raise the profit margin for
its retailers, but we are not convinced that there was a clear and compelling
reason to grant the increase. The Commission, under its statutory authority, made
the decision it believed to be proper.
An analysis of the impact of the increased sales commission on weekly game sales
revealed no eVidence to support the cost-effectiveness of the decision. Three
week periode immediately before and after the conversion to 8 percent were selected
for analysis since they afforded an evaluation time frame during which few, if any,
biasing factors were present. In the three week period subsequent to the
commiGsion increase statewide weekly game sales decreased by 14.5 percent from the
preceding three week period. This decrease in weekly ganle sales was accompanied
by an increase of 3'7 percent in agent sales commissions. Since increased sales
aggressivenes,s was not evidenced by agents, the policy change will result in a
reduction in the amount available to the General Fund. Using 1975-76 sales as a
base for calculations, the projected reduction will approximate $250,000 in 1976-77.
A very recent telephone survey of eleven lottery states conducted by the evaluators
(Attachment 6a) revealed that Maine is the only state to pay sales agents
commissions of 8 percent for the sale of lottery tickets. We have l.earned of no
reason why Maine had any more compelling reason than qther states to go to the
h:Ll3her percentage. The state nearest to Maine in percentage paid on lottery ticket
[lulr~G is New York with 6 percent.

 - 12 Verify the propriety of the percentages of the distribution of funds.
a.

Winning Tickets

b.

Operations

c.

General Fund

GEN1~HAL • • • • Title 8, Section 366, M.R.S .A. requires; "The moneys in said
state Lottery Fund shall be appropriated only:

A.

For the payment of prizes to the holders of winning lottery tickets
or shares;

B.

For the expense of the division in its operation of the lottery; and

C.

For payment to the General Fund.

The moneys in said state Lottery Fund shall be apportioned so that not less than
Jf5o/c) of the total ticket sales received in the lottery will be disbursed as prizes

to holders of winning tickets. All other moneys, less reasonable costs for the
proper administration of the state Lottery, will be the state's share."
RESERVE FOR PRIZES • • • . Sales and reserves for prizes in the first two years
of lottery operations are as follows:

Sales
Reserved for Prizes
Percentage

1974-75

1975-76

$5,198 ,394
2,357,897
45%

$8,281,180
3,7 28, 823
45%

Total

$13,479,57 4
6,086,720
45%

EVALUATION COMMENTARY
FREE TICKETS IN THE PRIZE STRUCTURE • . • • On the surface, there appears to be little
to question concerning the propriety of the percentages of the distribution of funds
since the only statutory requirement is to dIsburse not less than 45 percent of
total ticket sales as prizes. A closer look, however, reveals a point worthy of
:further discussion.
It is common practice to award free tickets as prizes on a certain number of
tickets purchased that do not turn out to be winners of cash or merchandise. A
question then arises as to what value should be assigned to such free tickets
when calculating the attainment of the statutory requirement to disburse 45 percent
of sales as prizes.
One line of thought is that free tickets should be valued at actual cost;
specifically, printing and handling costs, agent and bank commissions, etc. Another
line of thought is to value free tickets at the normal $1.00 sales price. At the
present time the Commission does not place any value on free tickets disbursed as
prbl~s when calculating the ful.fillment of the 45 percent of sales requirement.

 - 13 Arguments can be made in favor of the first two procedures. Consultation with
the Assistant Attorney General assigned to Lottery Commission matters,
Mr. Robert Stolt, included his verbal informal opinion to be, that under the
wording of the present statute the Connnission should utilize the actual cost
amount in attaining the 45 percent prize requirement. Not including an
estimation for administrative handling cost, the recent Incredible Game would
ha,ve resulted in an additional $21,865 for the General Fund and the new Auto Game
another $15,553 utilizing this procedure. Assuming four such games were conducted
in a fiscal year at the same rate of free tickets, an additional $74,836 would have
been transferred to the General Fund. Again, the latter amount does not include
an estimation for administrative handling costs which would serve to further increase ,the amount to the General F,und.
The other alternative of valuing free tickets at the full $1.00 normal sales price
of a lottery ticket is substantially beneficial in terms of the amount of money
transferred to the General Fund. The Incredible Game was programmed for 164,000
free tickets and the new Auto Game for 108,011 or a two game average of 136,205
free tickets. Assuming four such games were conducted in a fiscal year at the
same rate of free tickets, the result would be 544,820 free prize tickets or
$544,820 that would be counted in attaining the 45 percent of sales prize requirement.
It is our opinion that a free instant game ticket does represent a $1.00 prize
value to the game player, but, we agree with Mr. Stolt in his view that under
existing law, free tickets should only be valued at cost in meeting the 45 percent
of sales prize requirement. Therefore, any change to recognize free tickets at
retail value in the prize structure would require amending legislation. We do not
suggest which course the legislature might choose to pursue, except to note for
consideration that Scientific Games assigned a retail value of $1.00 to free tickets
in calculating what might be referred to as the "deductible" portion of the
contracted insurance coverage of the Incredible Game.
In summary, the only required percentage of funds to be distributed relates to
prizes and that is basically handled properly with the exception that the
Commission does not include the cost of free tickets in prize structures designed
to meet the statutory 45 percent-or-sales requirement. Furthermore, we suggest
that the legislature exercise its option to pass judgment on the desirabiltity of
legislation that would permit the recognition of free tickets at the normal retail
price of the game in determining prize structures designed to meet the requirement
to disburse prizes of at least 45 percent of sales.
UNCLAIMED PRIZES • • • • The amounts earmarked for the payment of prizes are
placed in a suspense account for disbursement to winners presenting valid claims.
Amounts remaining'lmclaimed for more than one year are available for use as prizes
in overlays to the regular weekly ticket game. An overlay game provides an
opportunity to the weekly game ticket buyer to win overlay money with the regular
$0.50 ticket. Weekly game sales, charted as a part of this study, reflect a
marked improvement during overlay periods.
J<'rom a business poi.nt of view, it is important for the Commission to closely
monitor unclaimed prizes so that ac soon as a sufficient amount of prizes have
remained unclaimed more than one year, an overlay can be instituted at the earliest
practical date in order to boost weekly ticket sales. Each passing week is likely
to result in the creation of some additional amount of one year old unclaimed
prize money from the weekly game alone.

 - 14 -

The Financial Manager was questioned as to whether or not he could identify
and substantiate the amount of one year old unclaimed prize money in the suspense
account at any recent point in time and he replied at first that he could not and
then, that he could develop the amount utilizing certain computer printouts.
The Financial Manager initially declined to work with the evaluators for what he
esti.mat.ed would only be a one hour or so task and the evaluators declined, in turn,
his offer of the computer printouts for the computation. An admitted gap in the
computer data and the Financial Manager's general reluctance to participate was
interpreted as indicating little likelihood of reliable success.
In any event, the question was not whether the evaluators could calculate the unclaimed prize money available for overlays, but whether or not there is reason to
believe that the Commission routinely has at its disposal accurate data upon
which to base sound and timely overlay judgments. It should be noted that the
weekly game is the chief difficulty in the calculation'since instant game prizes
are controlled in specific activities of the suspense accounts and the age of those
unclaimed monies are readily apparent. In this case, however, the suspense account
at August 31, 1976 reflected the greatest portion of its money in the weekly game
category; more than $200,000 in the basic game and $20,000 in the subscription
game, offset in part by negative balances attributed to instant games, creating
a net suspense account balance of $148,751.15.
'
The aforementioned negative balances are not seen as indicative of another problem,
since it is possible that a game might payout more than the amount reserved for
it, as long as there is one year old prize money available in,the overall account to
make up the difference. The only legal requirement is to pay at least 45 percent of
sales in prizes.
In our opinion, the performance of the weekly game can be enhanced through the
use of overlays. The lack of readily available and accurate data as to the
specific amounts available for this purpose denies the Commission the opportunity
to make sound and timely decisions concerning the use of overlay games to
stimulate weekly game sales. Further, without accurate data on t.he age of unclaimed prizes, circumstances are created whereby it would be possible to commit
monies for other purposes prior to the attainment of the necessary one year period.
At this writing, the Financial Manager has acknowledged the implications of the
situation and is reportedly beginning corrective action on this and certain other
associated conditions brought to his atterrLion in the pursuance of the central
issue.

 - 15 -

Determine the best method for increasing revenue to the General Fund.

EVALUATION COMMENTARY
GENERAL . • • • We have learned of no certain way to·substantially increase
lottery revenue to the General Fund, short of a possibility outlined in the
section concerning the propriety of the distribution of funds or the addition
of major new wagering systems, some of which might be legal under existing
legislation. With regard to the latter, it is Connnission policy to explore
techniques utilized by other states.
The following represents a series of comments that might be of some value
when working toward producing increased revenue to the General Ii'und •. The
comments and GuggoGtions are not noceGGarily new and uniquo ideas for the
Commission and staff, but, nevortholess, are included here for consideration:
1.

Accumulate and translate market and sales information into businesseffective actions, methods and procedures:
a.

Identify major towns whose residents do not purchase lottery tickets
in an acceptable proportion to the population as the first step in
determining a course of corrective action, if deemed appropriate.

b.

Identify major towns whose agents do not sell lottery tickets to an
acceptable proportion of the population as the first step in determining
a course of corrective action, if deemed appropriate.

As a part of this study, we prepared analyses similar to that described in
b., above and, as a result, observed several interesting conditions that
might be of some use to the Commission in improving market areas. We were
informed by the manager of Region I that a color coded civil divisions map
of the state prepared by us and reflecting sales levels by town was of same
value in identifying sales conditions to be improved.
A technique that might be utilized in pursuing a., above, is to analyze the
addresses of winners of lottery prizes in order to determine the rates by
town of per capita purchases of tickets. Towns reflecting lower rates of
per capita purchases with no readily apparent reason m..i..ght then be designated
to receive extra attention for market development.
As a matter of note; it will be necessary to analyze the addresses of a substantial number of winners in order for the conclusions to be valid.

 - 16 2.

Based upon the premise that lottery tickets are an "impulse" purchase item,
the Commission should, as a matter of policy, engage as many productive
sales agents as possible consistent with the staff's capability to meet
increased work loads. In this regard, cost-effectiveness studies may reveal
the desirability of increased staffing.
It is believed that this suggestion relates closely to 1., above.
In the same line, sales agents with very low productivity might be invited
to drop from the sales system, provided there is no resulting serious inconvenience to the public, in order to create increased staff time in which
to cultivate sales agents with a greater potential for sales productivity.

3.

The Bureau of Alcoholic Beverages should include lottery ticket sales in the
job descriptions of liquor store employees so that the duty might be taken
into consideration when establishing salaries under the new "Hay System."
We have contacted the Director of the Bureau of Alcoholic Beverages with
favorable results. Implementation should mean the achievement of more willing
cooperation by liquor store employees.

4.

Approach desirable distributor banks not participating in the sales system on
a specific and personalized basis in order to gain their participation, thereby, increasing the potential for additional sales agents. The Marketing
Manager is already taking action in this matter by supplying banks with
specific information as to the identity of potential agents to utilize the
bar~.
The banks will then be in an improved position to evaluate the business
implications for the bank itself.

5.

Expand the use of adequate private establishments to substitute as distributor
banks where it is difficult to acquire Gales agents due to the unavailability
of conventional banks participating in the salce system. The Marlwting
Manae;er is reportedly exploring such a possibility.

6.

Permit a certain number of prospective high-return sales agents, who do not
actually become sales agents due to difficulties caused by the necessity to
cash-up the weekly game each Wednesday morning at a distributor bank, to
carry only instant game tickets which are currently cashed at the convenience
of the seller.

7.

To Lhe extent possible and practical, acquire accurate weekly instant game
sales information upon which to base appropriate and timely sales decisions.
This recommendation need not seriously conflict with the preceding
recommendation in that those agents need only be encouraged to cash-up as
frequently as possible. The agents in this recommendation would provide the
basis for lottery officials to make timely business decisions as to appropriate
dates at which to end a game or even continue it if the situation permits.
Advertising decisions might also receive direct benefit from such information.

 - 17 8.

Maximize the use of overlay games to the regular weekly game. It might be
desirable to utilize not only unclaimed prize money, but, money specially
earmarked for this purpose from regular sales. The following data indicates
that overlays serve as an impetus to weekly game sales:
Downeast
•'•••••• Weekly Game Sales •••••••
Prior to
During
Start
OVerlay
Increase

Name of OVer lay
Lucky Losers

1/15- 2/5/7 6

Grand Slam

3/11-4/1/76
Son of Lucky Losers

5/ 27- 6/30/7 6

9.

(4

w'eeks)

$156,005

(4

% of
Increase

weeks)

$288,601

$132,596

85.0

(4 weeks)
173,132

(4

260,788

87,656

50.6

(6 weeks~
212,1 6

(6 weeks)
318,964

106,838

50.4

$541,263

$868~353

$3 21 2 090

60.4%

weeks)

Continue the use of probability games such as the Incredible Game. This
assumes the perfection of techniques to prevent purchaser systems designed
to reduce the odds of a game. We know of no reason that would preclude the
perfection of such techniques, therefore, there is no reason why this popular
concept can not be made available to lottery patrons.

10. Explore the possibility of including a provision in the contracts with
suppliers of future probability games which guarantees ticket purchasers an
advertised minimum return on payoffs resulting from a pari-mutuel pool. In
our opinion, when payoffs in a pari-mutu~l pool drop consistently below a certain point there is sufficient indication of a defect in game or ticket design.
A game supplier should be expected to possess sufficient confidence in the
performance of the game to protect the state against the unfavorable and
potentially damaging publicity that result in situations such as the recently
concluded Incredible Game.

11. Explore the possibility of designing an instant game featuring elements
attractive and important to tourists and create billboard and radio advertising
to emphasize tbe point. There are many reasons why state lotteries have
evidenced little appeal to tourists, but, it might be possible to overcome at
least some of those reasons through careful planning. It is important to a
tourist to have quick knowledge of and access to winnings. Drawings
necessitating a return to the state are an obvious negative factor.
The foregoing is not presented as a subject thoroughly researched by the
evaluators, but we offer tbe suegestion only as an idea worthy of further
consideration. If a game should eventually be adopted with a goal of reaching
tourists, it is recorrrrnended that a technique be devised to analyze the
addresses of winners in order to determine the actual success of achieving the
participation in the lottery by out-of-state tourists.

 - 18 -

12. Improve the attractiveness of the regular weekly game.

Contact with
cormnission officials indicates awareness that the weekly game requires
some amount of change to improve sales. A revievT of weekly game sales
discloses a steady decline in popularity with the public.

13.• Include in advertising the statutory exemption of vTinnings from the state
income tax.
14. Carefully monitor, analyze and document sales reactions to advertising
campaigns, techniques, etc. as an aid in best determining future courses
of action with regard to advertising.
15. Determine the marginal utility of employing additional field representatives
to improve sales. At the present time, the ten field representatives have
large geographical areas and numbers of sales agents and banks to service.
16. Determine the desirability, feasibility and legality of adding a daily or
weekly numbers game. Information available to this study was inadequate
to form a conclusive opinion in this regard. Conversation with the Director
of the Rhode leland Lottery indicated a numbers game might be best limited
to several of the state's larger cities. He also suggested that a system
of "runners" rather than a telephone system could prove to be worthwhile
advice. The Director believes that the numbers game has been a financially
valuable addition to the Rhode Island Lottery.
17. Acquire, for future reference, data concerning the state of Delaware's experience with sports betting as the situation continues to develop in that
state.
18. Determine the desirability and feasibility of legislation to permit the
Maine State Lottery Commission to act as the control for all Lucky Seven
Games entering the state. Under this system social clubs and organizations
currently using this game would be required to acquire the game through the
state with a commission being paid to the state. It is noted, hOVTever, that
Rhode Island has not experienced much revenue from Lucky Seven and handles
the game basically to provide state control.
The preceding are offered as possibly fruitful suggestions worthy of further
investigation by lottery staff in their pursuit of increased revenues. They are
by no means intended as definitive solutions, nor should the listing be assumed
to be complete or all-inclusive.
In general, lottery enterprises require sensitivity and responsiveness to constantly changing public gambling fancies. Although each of the aforementioned
suggestions clearly represent direct attempts to increase revenue, the long range
importance of good public relations should not be underestimated as an indirect
revenue ~roducer. In the final analysis, we believe that a positive public image
of lottery operations is indispcnsible toward fostering the broad public
acceptance and support necessary in the creation of a prosperous and popular
lottery system.

 - 19THE INCREDIBLE INSTANT GAME - July 14, to August 27, 1976
EVALUATION COMMENTARY
THE GAME • • • • The Maine State Lottery's Ineredible Game received wide adverse
publicity due to the fact that it was a probalJility game whose published odds
for winning were systematically reduced by many players. In a probability game
all tickets are potential winners since winning depends entirely upon the success
of the player in revealing a winning combinat:Lon. Ticket purchasers were invited
to clear exactly 3 of 12 covered numbers. If the 3 cleared numbers totaled
7, 11 or 21, then the following prize structw~e was offered:
Total
7
11
21

Prize
"wins free ticket and entry into $50,000 Drawing"
"wins $2.00 and entry into $50~000 Drawing"
"wins your equal share in a Jackpot Drawing (generally $25)"

In addition to the probability portion of the game, a conventional randomly seeded
ticket feature offered the ticket purchaser chances to win $50, $1,000, and
$10,000. Since these prizes were limited in number by game design, there vTaS
little risk of over-redemption in this portion of the game.
THE SYSTEM • • • • Audit Department staff discovered that some players were paid
for an unusually large number of winning tickets during the early weeks of the
game. An inspection of the Controller's records confirmed that several individuals
had apparently succeeded in significantly reducing the odds of winning.
Following a purchase of only three consecutive tickets from a single pack, a
possible relationship was observed between the placement of covered numbers
integral to the "probability" portion of the game and a numeric code appearing
on the stub part of the ticket with another portion of. the game. It was then
hypothesized that if many or all tickets were purchased from a given pack, it
might be possible to classify those tickets with reference to similar code
numbers thereby permitting a systematic approach to the game. Subsequent
experimentation confirmed that once the relationship was detected between the
code number, actually intended for identification purposes, and the patterns of
covered numbers on the tickets, it was not difficult to routinely "beat the game"
by virtue of having significantly reduced the published odds for winning.
According to an official published explanation offered by the lottery, "the one
thing that Scientific Games and the Maine State Lottery Commission did not count
on, or even dream of, was that anyone would consider buying literally hillldreds
of tickets all at once and then spreading them out on a floor in an attempt to
'see' a pattern." As previously stated, it was not necessary to purchase hundreds
of tickets. In any event, however, we believe it is unrealistic to assume that
playen, vTOuld not usc their imaginations to this limited extent for personal gain.
One vTOuld not expect naivete of thtG sort to be exhibited by a designer/producer
or administrator of public lottertes. Considerable criticism has emerged from
resulting adverse publicity that mifSht ultimately be damaging to the lottery and
affect its capacity to produce revenue.

 - 20 RESULT OF THE SYSTEM • • • • Although the state could not lose money in the
"21" portion of the Incredible Game due to its pari-mutuel aspect, it did
payout more winnings than anticipated in the "11" ($2) portion of the game.
Whereas the prize structure approved by the Lottery Commission called for an
anticipated $163,300 in "11" prizes, the actual payout for that portion of the
game was $373,637, for a difference of $210,337. The total approved prize
structtITe projected a prize fund of $481,300 (46.5% of sales.) However, actual
cash disbursements as of September 20, 1976 have totaled $682,046 (66% of sales.)
We assume that there is little intention on the part·of the Lottery Commission to
payout as prizes much more than the 45 percent of sales required as a minimum
under the enabling legislation. Therefore, we looked to the insurance clause of
the contract to determine how much of the unanticipated payouts could be recovered
from the game supplier.
THE CONTRACT • • • • When it became evident that several players had successfully
"broken the odds," it was publicly reported that lottery officials maintained the
contracted supplier of the game guaranteed, through an insurance policy, that the
state would receive 55 ce~ts on the dollar regardless of how much was paid out in
winnings. Our review of the contract revealed that lottery officials, and in
particular the Financial Manager whose delineated responsibilities include,
"handling of contracts and follow through with them," .had a limited and confused
understanding of the terms of the contract.
In fact, if the insuring clause of the contract is taken at face value and
additional negotiations are not possible with the contractor, it appears that the
Lottery Commission will have both a substantial over-redemption subject to a claim
against Scientific Games, Inc. and a sizable over-redemption not subject to a
claim. (Over-redemption, in this case, refers to unanticipated prize payments
resulting in a reduction in the amount that would presumably, have become revenue
to the General Fund.)
There is some question at this time as to whether or not free ticket prizes can
be calculated as prize payments subject to insurance coverage. If they can not
be so calculated there would appear to be no claim possible. It is our belief,
however, that free tickets should be counted as prize payments subject to insurance
since they were included in the calculation of the insurance "deductible" portion
of the contract.
Pending resolution of this rr,atter and possible litigation, it is inappropriate to
comment further' at this time and.we defer from assigning unofficial figures as
upper and lower limits as to the amount due from the game supplier. We have
brought this matter to the attention of the Lottery Director, Financial Manager
and Assistant Attorney General assigned to Lottery Commission matters and who had
approved the contract as to form. JLll were admittedly unsure of the specifics of
the clause in question.
A sentence in the contract reads; "The liability of Scientific Games is limited
to the amount paid to Scientific Garnes by the above insurance." It was learned
that the Lottery Commission did not possess a copy of the insurance policy
through which Scientific Games, Inc. indemnified the Maine State Lottery. Instead,
trlo Commicsion possessed a certificate of insurance stating the maximum amount
payable by the insurance company to Scientific Games and no reference to specific
conditional terms.

 - 21 Some question has arisen as to the termination date of the present contract.
Although the present contract clearly authorizes the Lottery Commission to
purchase two additional games at its option, the contract apparently terminates on
September 27, 1976: "In any event, this contract shall terminate 30 days after
the announced completion of the Maine State Lottery Incredible Instant Game." We
question whether the insurance and other protective features of the present contract can be properly extended beyond the apparent expiration date without an
additional rider. This matter is presently pending resolution through the
I\ttorney General's Office.
SUMMARY • • • • It is our belief that the experience of the Incredible Game and
its enabling contract have clearly emphasized the importance and necessity of
carefully planned game implementation procedures. Contract language, insurance
levels, and other protective features mandate objective scrutiny by qualified
personnel. The importance of allowing adequate time for game "debugging" by
individuals with a non- assumi.ng approach can not be over- emphasized.
Lottery staff rightly concedes that they are "still learning the trade." There
are several lessons to learn from the Incredible Instant Game. Although the
State of Maine will benefit financially as a result of this game, it remains to
be seen exactly how much will be "lost" from the State's share of sales. To date,
$682,046 or 66% of sales has been disbursed in cash prizes to the public, as
compared to $466,515, the minimum payout of 45% mandated by law.
The financial outcome of the Incredible Game could be. viewed as resulting in
"unrealized revenue" to the General Fund due to an excess of anticipated prize
payments. It should be understood, however, that the Lottery Commission may, if
it so chooses, transfer "unclaimed prizes" to the General Fund and/or modify the
prize structure of a future game to realize this potential revenue to the General
lrund without violating the statutory requirement for the mnount of prize
disbursements. Use of unclaimed prizes precludes its availability for overlays.
Conversation with the Financial Manager indicates a reluctance to aCYJ1ow1edge the
financial implications. To place the matter in perspective and take into conS'ideration the· subtleties of accOlmting; if more cash is paid out on an element of
the game than was intended and not all of that cash is recovered in the form of
insurance, then the result is less cash for the Lottery Fund than originally
anticipated. Therefore, less cash -:rsavailable for whatever purpose, including
transfers to the General Fund.
----It was unfortunate that the Maine State Lottery experienced PUb.llC controversy
with its first probabiiity game. Probability games of this type offer much by
way of attractiveness and appeal to the public. Unlike conventional lottery
tickets, they are a true game in so far as each tich:et is a potential winner.
This contributes toward maintaining high interest levels with lottery players.

As heretofore mentioned, much negative publicity accompanied the Incredible Game.
Since program performance, the primary interest of program evaluation, is the
product of the planning function, it was deemed appropriate in this case to
eX8.mine the causes of any 8i tuation which might prove detrimental to the
credibility and hence public acceptance of the lottery and thereby affecting its
revenue producing capability, We do not believe the actual effect of the adverse
publicity on lottery revenue will ever be conclusively determined. However,
early indications from the Lottery Marketing Manager reflect optimism that the
Auto Game sales have not been negatively affected by the publicity of the
Incredible Ga~me.

 - 22 -

AUTO GAME - Beginning September 15, 1976
EVALUATION COMMENTARY
SALES AGENT ADVANTAGE • • • • On Wednesday Sep-cember l, 1976, the Director of
the Lottery Commission was informed of the State Auditor's concern relating
to an aspect of the instant Auto Game scheduled to begin September 15, 19r(6.
Under the rules for the game, ticket purchasers could collect five losing
tickets bearing the prominently displayed picture of the same antique auto
and, by so doing, qualify for one of six bonus drawings (five winners each
drawing of $1,000 each for a total of thirty winners and $30,000.)
It was our contention that sales agents would have a distinct unfair advantage
over the ordinary ticket purchaser in acquiring five such matching tickets from
the twenty different antique autos to appear on lottery tickets. ffilereas a
sales agent could always be assured of at least qualifying for the drawings when
purchasing five $1.00 tickets for his own use, the ordinary purchaser buying
tickets on an at-random basis would be subject to odds of 1:160,000 of acquiring
five matching tickets with only $5.00. Under such random conditions for the
ordinary purchaser, it might become necessary to expend as much as $81.00 to be
assured of five matching tickets.
The Director's response was that the best solution, under the circumstances, was
to require agents to sell tickets in strict sequence, theoretically, preventing
agents from selecting matching tickets when making personal purchases from within
their assigned packs. We believed this to be no real solution since enforcement
would be difficult, if not impossible, and there was no reason why an agent could
not simply purchase pre-selected tickets as they appeared in the pack during the
normal course of sales.
The Director immediately informed the Chairman of the Commission of our concern
and we were requested to join a meeting that had been previously scheduled on
that same day for another purpose. Present at the meeting were Robert Cott and
Jo Dondis of the contracted advertising agency; John Koza, President of Scientific
Games, Inc. (supplier of the game); Assistant Attorney General, Robert Stolt;
Marketing Manager, Robert Beaudoin; Financial Manager, Martin Cloutier; Lottery
Director, George Orestis and Chairman of the Lottery Commission, Peter Gorman.
After stating the nature of our concern, we were told, following some amount of
discussion, that all purchasers of tickets would now be permitted to specify which
antique auto should appear on tickets purchased. The Marketing Manager observed
that serious complaints would likely be registered by certain large and busy
agents, such as supermarkets, who would be forced to spend considerable time either
sorting or searching for specific tickets prior to making a sale. We agree with
the Marketing Manager and currently view the situation as a very real problem in
maintaining good relations with sales agents. The solution did, however, at least
allow all ticket buyers to have the same opportunity to qualify for the drawings.
Our next concern was that the public be adequately advised prior to the start of
and during the course of the game of their prerogative to request specific tickets.
At the Chairman's request, the advertising agency representative indicated that
notice could still be inserted into certain of the advertising already prepared for
the media. Later inquiry and observation revealed the requested public notice was
something less than ideal.

 - 23 -

The President of Scientific Games left the room at one point in the discussion
and returned with a statement addressed to Mr. Gorman that he did not believe
the technique would work and that what the Commission should do is simply
announce during the second week of the game that any five losing tickets would
qualify for the. drawings. We found the suggestion contrary to our awn sense of
propriety since it would be clearly misleading to the public to begin a game with
full knowledge that the rules were to change sometime during or after the second
week of the game. Mr. Gorman did not accept the suggestion.
It was apparent that those present at the meeting did not agree with our position
and it was stated that somewhat similar conditions had existed on occasion in
previous games with few known resulting problems. In our opinion, the Commission
would likely be unaware of the us!= of :this type of advantage by agents and,
further,·the existence of the condition in previous· games did not serve to resolve
the question of propriety for the Auto Game.
In any event, the solution dictated by Mr. Gorman was acceptable to establish the
propriety of this phase of the Auto Game. It is our opinion that future games
should be carefully screened for general propriety and other important matters,
such as those encountered in the Incredible Game, prior to purchase from game
suppliers. Sensitivity to such points should serve to assist in maintaining a
high-quality image for the lottery thereby improving the climate for calee.
Although we believe the well-publicized flaw in the Incredible Game was clearly
the responsibility of Scientific Games, Inc., we also feel that the Commission and
staff should be cautious and alert to the possibility of intricate negative factors
in proposed games. We recommend that, instead of being excessively reliant upon
the expertise of game suppliers, the Commission and staff add their awn expertise
as a supplementary procedure in the attempt to avoid potential problem areas
through careful scrutiny of proposed games.
There has been the suggestion by some that lottery sales agents should be
restricted from purchasing·lottery tickets. We do not endorse this solution for
eliminating possible advantages to sales agents in purchasing tickets. This would
create additional problems of enforcement, reduce sales, cast implicit suspicion
on sales agents who serve voluntarily, and possibly result in the general
estrangement of agents from the lottery sales system. As an alternative, it is
recommended that games include in their design careful consideration and
elimination, to the maximum extent pOSSible, of potential advantages to sales
agents purchasing tickets.
POLICY INCONSISTENCY • • • • It is interesting to note an apparent inconsistency
in Commission philosophy. Recent paid advertising contained the statement; "we
unequivocally discourage anyone from buying more than one or two lottery tickets
a week." The next sentence indicates "two .50 cent weekly tickets a week" as
producing a satisfactory result for the state. It is assumed that this
philosophy would also permit an additional $1.00 for an instant game ticket for
a total of $2.00 per week.
The inconsistency lies in the fact that the design of the Auto Game encourages the
collection of five matching losing tickets for participation in anyone of the six
bonus drawings. Drawings are to occur as soon as 200,000 tickets are sold in each
of three pools of l.WO,OOO tickets. When questioned, Lottery officials said they
were hopeful that drawings could occur every two weeks. In fact, one week elapsed
between the first and second drawing; the first ocourring October 5, 1976 and the
second October 12, 1976.

 - 24Under the system originally planned,that would not have permitted lottery players
to specify which auto ticket was desired, many tickets would necessarily have to
be purchased in the attempt to accumulate five matching losing tickets. This
situation was described as the "treadmill effect" in the meeting referred to in
previous commentary. The "treadmill effect" is a basic technique of lotteries in
that a reason is created for individuals to buy a n~ber of tickets in the
pursuance of a specific element of the game.
In our opinion, the use of the "treadmill effect" is contrary to the Commission's
avovTed concern that some persons might purchase too many tickets. Such a
contradiction between advertised policy and actual practice exposes the Lottery
to the type of editorial criticism that has been cited 'as damaging in the past
to lottery revenue performance.
AUTO GAME CONTRACT • • • • The contract for the Incredible Game gave the
Commission the option of entering into two additional games for a stipulated
price. The second game selected after the Incredible Game was the Auto Game.
Our review of the aforementioned contract indicates that, although the Commission
had the authority to enter into the Auto Game, it does not possess an adequate
contract specifying all conditional terms of the Auto Game. All aspects of the
contract, except the option clause, appear to be directed toward the Incredible
Game including the subject of insurance. We have discussed the matter with the
Director, Financial Manager and three Assistants Attorney General and our concern
has not yet been dispelled nor have we been able to learn of any move to acquire
a contract or a rider to the aforementioned contract, adequately detailed as to
the specifics of the Auto Game and the game to follow.
As an additional matter, the contract for the Incredible Game includes a statement
as follows: "In any event, this contract shall terminate 30 days after the
announced completion of the Maine State Lottery Incredible Instant Game." The
Incredible Game ended August 27, 1976, therefore, it is difficult to believe that
this contract was ever intended to cover subsequent games, although that theory
has been suggested. Only the option clause appears to be applicable. The
chairman of the Contract Review Committee was consulted for any additional insight
that he might contribute to the matter.
If any conflict or disagreement should arise during the course of the Auto Game
and the subsequent game, it can not be expected that the terms of the contract
would settle the, matter, sInce there does not appear to be an applicable contract.
If the dispute involved an insurance claim, we believe the state would be without
protection. Certainly the occurrence would receive a certain amount of public
notice, thereby, detracting from the Lottery I s overall image. As indicated
elsewhere in this report, a public lottery's image is indeed a valuable commodity
and is not easily restored if once tarnished.

 - 25 -

GENERAL OBSERVATIONS
The following observations are offered with a consideration toward broadening
the perspective with which one views the Maine State Lottery. Although these
observations are not directly related to what has preceded, or even to each
other, we perceive their significance to be worthy of inclusion in this report.
1.

Sales activity immediately subsequent to televised drawings db not reflect
any promotional advantage to the cost so incurred. There is, howeve; the
possibility that the somewhat regular appearance of the drawings on television fosters, at the very least, psychological acceptance of the lottery
as a societal institution. Additionally, the public drawing of winners in
this manner undoubtedly serves to verify the openness and credibility of
the techniques for determining winners. Therefore the cost-effectiveness of
televised drawings remains unknO"Wl1 if one wishes to consider the positive
intangible effects of this practice.

2.

It is interesting to note that in other lottery states, television stations
reportedly compete and pay for the privilege of broadcasting jackpot
drawings. In Maine, however, the commission must pay the television stations
to carry the drawings since none of the seven major TV stations has expressed
serious interest in purchasing lottery shows. A survey of television stations
serves to verify that they do not consider lottery super-drawings (as presently
constituted) to have a wide enough audience appeal to warrant purchasing the show.

3.

The attractiveness of the lottery game lies in the chance to win a large sum
for a small wager and it is doubtful that the published odds influence the
lottery player. Prize structures, more than payout percentages, influence
the popularity of lotteries. A large number of small prizes maintain interest
and rekindle hope of winning grand prizes. Research indicates that cash prizes
are preferred over merchandise and that the basic concept or theme of a game
plays an important role in the appeal of the game.

Lt.

The most apparent financial observation about the lottery is that it contributes a small percentage to state revenues. In 1975-76, the amount of money
transferred to the General Fund by the Maine State Lottery was equivalent to
that produced by a sales tax rate of less than one tenth of one percent. The
lottery's contribution to the Genera..L Fund accounted for approximately onehalf of one percent of General Fund expenditures for fiscal 1976.

5.

Chapter 39 of the Private and Special Laws of 1975 states; "In order to provide the necessary expenses for operation and administration of the State
Lottery Commission, the following amounts, or as much as may be necessary,
are allocated from the revenue derived from operations of the fund:"
(emphasis added). The phrase underlined renders meaningless the exact
amounts that the law goes on to specify, except that it may be assumed the
amounts constitute a "target 11 for the cost of operations. Some states require a 15 percent of sale s limi ta tion on spending.. Maine expended 23.9
percent of sales to meet operating costs in 1975-76. It is recommended that
a percentage limitation not be imposed until the policies and operations of
the commission have stabilized into a more detailed and time-tested
operational strategy.

 - 26 -

6.

It will most likely require several years for the lottery to establish a
consistent revenue-producing record whereby the legislature can anticipate
the amount of money to be transferred to the General Fund. To date, the
Commission has moved slowly and carefully in accordance with what they
perceive to be the best interests of the people. In our opinion this is a
proper approach and will achieve favorable results for all concerned.

7.

A major concern of those who oppose or reluctantly favor the lottery operation
is the extent to which promotional activities should be exercised -- especially
by public officials. The lottery business requires constant promotion and
innovation in order to maintain desired sales levels. If lottery officials
and the legislature come to r~ly on lottery revenue as a growing, predictable
source of income, then concern has been expressed'in some of our research that
government may lose or find difficult to maintain its ability to restrain its
own promotional activities. The conservative approach of the Connnission to
date should serve to make less likely this possibility in Maine.

8.

l~e contracted advertising agency has assumed a prominent role in the daily
operations of the Maine state Lottery. Minutes of an August 12, 1976
Commission meeting contain the following paragraph which is taken from the
advertiser's report:

"Mr. Cott (the advertising representative) further informed the
Commission that television advertising for the regular weekly game,
Downeast Sweepstakes, has been stepped up and that the advertising
firm'is working on a format and prize structure for a new weekly
game and will make a formal presentation to the Commission upon
completion of same." (emphasis added)

An August 31, 1976 memorandum issued by the Lottery Director to all personnel
instructed that:
"Notice is hereby given that beginning today and henceforth no information of any kind concerning the Lottery (policy, Statistics,
Plans, Past Performance -- INFORMATION OF,ANY KIND) will be offered
except through the authorized spokespersons for the Lottery,
Mr. Robert Cott, who is the Account Executive for the Lottery at
Chellis, Conwell & Gale or Ms, Jo Dondis, who is the P.R. person
at the Ad Agency.
Your reply will be, "All Lottery information will be extended by
Ms. Jo Dondis at 774-6361".

Mr. Robert Cott or

There will be no excuse for any deviation from the above policy.
Dondis will be the only spokespersons for the
Lottery henceforth." (emphasis added-Y--

Mr. Cott and Ms.

We do not challenge the ability of the advertiser to conduct such nonadvertising ventures. Indeed, the advertising firm has performed creditably.
However, we do question the appropriateness of having the advertiser engage
in the formulization of prize structures, which, in our opinion, falls within
the direct domain of internal lottery management. We recognize the importance
and value of a team-approach to lottery management, but would caution against
excessive reliance upon the advertiser for skills and expertise which are
incumbent upon lottery personnel.

 - 27 It is our understanding that the August 31, 1976 memorandum was recently
canceled, however, taken at face value, it indicates that the Lottery
staff does not include an individual or an alternate who is capable of
acting as the single spokesperson for lottery matters. If true, such
would be an unfortunate and undesirable circumstance.
The relationship of the foregoing to lottery performance is in the lack
of self-confidence that is exhibited when the advertiser is utilized to
design prize structures and act as the spokesperson for the Lottery, at
least under such rigid rules. If the Lottery does not possess the
capability to deal with such matters internally, appropriate corrective
action is in order. The referenced memo was later canceled.

9.

It was observed that the Lottery Commission pays an 8 percent sales agent
commission on free ticket prizes won by lottery p~ayers a~d awarded by
sales agents in the instant games. Using a standard developed elsewhere in
this report of approximately 500,000 free tickets that might be issued as
prizes in a year's time, the cost approximates $40,000 in commissions.
The minutes of the April 11, 1974 Commission meeting read: "The Commission
voted and approved the motion that 5 percent of the sales be compensated to
agents and 1 percent of the sale be compensated to the banks." (emphasis added)
The minutes of the March 24, 1976 meeting read: "A motion was made by
Commissioner Dostie, seconded by Commissioner McSweeney and carried to increase Lottery Ticket Sales Agents' commission to 8 percent effective as
soon as practical.It is unclear from a reading of the minutes whether or not the Commission
actually made a decision to pay a sales agent fee for free ticket prizes
awarded by sales agents.

10.

In other states, unclaimed prizes more than one year old are usually
distributed as part of the state's net share of lottery revenues. Based
upon data published in 1974, the following states have adopted the policy·
of retaining unclaimed prize monies for one year and then allocating these
monies to the statutory beneficiaries of lottery revenues: New Hampshire,
New Jersey,Massachusetts, Pennsylvania, Michigan and Maryland.

11.

Although several practices to which we have taken exception in this report
have beenpropcrly attributed to the Financial Manager in view of the primary
responsibilities of that position, we note that ultimate responsibility
·certainly lies with the Lottery Director and the Lottery Commission.

 - 28 SUMMARY AND CONCLUSIONS
Why has revenue been far below projections?
The Maine State Lottery was created by the legislature for the purpose of providing
additional revenue for the General Fund. Original estimates ranged from $1.9 to
$9.3 million for the General Fund annually. The second and most recent year of
lottery operations resulted in $2.6 million for the General Fund. The higher
amount of estimated revenue was based upon the projections of Mathematica, Inc.
of Princeton, New Jersey and is the most frequently recalled revenue estimate in
discussions of the lottery's performance. It is noteworthy that a Ma~ne firm,
ESCO Research, Inc. of Portland estimated General Fund revenue of $1.9 million in
the first year of 1974-75 and the actual amount was $1.2 million, thereby achieving
a very accurate estimate.
.
Mathematica, .Inc. based their estimate of revenue to the General Fund on the higher
amount of $13 to $21 million in estimated annual sales, which in turn, is based
upon an annualized sales rate of $12 to $20 per capita. Research indicates that
annualized sales rates of $12 to $20 per capita are not at all unconnnon in the
lottery states with Michigan reflecting an unusually high mark of $24.70 and
Connecticut a low of $9.73, next to Maine's $7.82. Rhode Island, Massachusetts
and New Hampshire were all in excess of $16.00. The highest rate Maine has ever
achieved during a particular period of time was $14.72 in annualized per capita
sales in the first eight weeks of the first instant game.
It is because sales are law and not because of high costs that the General Fund
has failed to reach the higher estimates. Little evidence was observed of costs
being in excess of what one might prudently expect in an operation of the type
under study. One major area of exception is that of agent commissions to be
discussed later. The problem has simply been one of low sales.
A number of limiting factors are advanced in the detailed portion of the report
as likely explanations of Maine's comparative low sales. Among these factors are:
demographics of the state; initial unfavorable publicity concerning moral and legal
issues; reluctance by some banks to act as distributor banks for tickets, thereby,
making more difficult the acquisition of sales agents; regular weekly game reflecting low popularity; failure to institute an instant game until June 1975 while it
was initially suggested in August 1974 after demonstrating popularity in
Massachusetts; failure to change the first instant game for 45 weeks even after
interest markedly declined; low popularity with tourists; limited enthusiasm
evidenced by liquor store employees selling tickets; little evidence of endorsement
and support by the news media; legally limited television and radio advertising
until January 1975; lowest disposable per capita income of eight lottery states
sampled; and heavy workloads placed on field representatives whose job it is to
stimulate the market for ticket sales by working with sales agents and developing
additional sales agents.
Possible explanations were offered in the detailed portion of the report for New
Hampshire's superior lottery results when compared with Maine. The Executive
Director of the Sweepstakes Commission was consulted in this regard. One of the
more prominent reasons for New Hampshire's superiority is its twelve years of
experience. Another factor is that state's extensive use of out-Of-state subscription plans although the practice is pending resolution in the courts.

 - 29 Maine's costs of operation are 23.9 percent of sales while a typical lottery
state's percentage is 15 percent. There is a logical explanation, however, in
that the percentage is largely due to the low volume of sales. An arbitrary
maximum percentage should not be imposed until it is believed that annual sales
levels have stabilized.
The central matter of note under costs of operation was the Comrrd.ssion's decision
to change the sales agent connnission from five percent to eight percent. Maine
is the only state to have adopted this higher percentage of connnission among eleven
lottery states sampled at a very recent date. utilizing 1975-76 sales as a base
for calculation, the increased cost will amount to at least $250,000 in 1976-77.
The general conclusion reached in seeking to answer why revenue has been far below
projections is that sales were greatly over-estimated mainly as a result of the
incorrect assumption that Maine citizens would buy lottery tickets at the same rate
as citizens of other states. Additional factors were listed in the basic report
and again here in. the summary.
Verify the propriety of the percentages of the distribution of funds.
The statutes require that the money in the Lottery Fund be used for payment of
prizes (not less than 45 percent of sales), operational expenses and payment to
the General Fund. (profits).
The question was raised and referred to the legislature for resolution as to
whether or not free tickets awarded as prizes should be counted at the regular
$1.00 game price when determining the attainment of the statutory 45 percent of
sales requirement. Pending the judgment of the legislature in this regard, the
Commission should take steps to value free tickets at cost in the prize structure.
An estimate of the increase in return to the General Fund from this action is
approximately $75,000 in a fiscal year and does not include additional amounts that
would result from the inclusion of estimated administrative handling costs of such
free tickets.
It was disclosed that the Financial Manager of the Commission could not satisfactorily
age the unclaimed prizes in the suspense account. When unclaimed prizes are more
than one year old such monies become available for use as overlays to the regular
weel~y game.
OVerlays are periodically used to spark the sales of the weekly game
and constitute a valuable technique for inc:reasing sales. Reportedly, action is
currently being taken to age unclaimed prizes.

Determine the best method for increasing revenue to the General Fund,
The evaluation disclosed no certain way to substantially increase revenue to the
General Fund short of the possibility previously outlined related to recognizing
free tickets in the prize structure at the normal game sales price. A number of
connnents were offered aimed at assisting in the overall effort. Many of the points
are not necessarily new to the Comrnission and staff.

 - 30 Prominent among the 18 points was a suggestion that the Commission take steps to:
a.

Identif'y major towns whose residents do not pur'chase lottery tickets in
an acceptable proportion to the population.

b.

Identif'y major towns whose agents do not sell lottery tickets to
an acceptable proportion of the population.

Both actions would be preliminary to making a determination as to an appropriate
course of corrective action.
Another suggestion was to maximize. the use of overlay games aimed at improving the
sale of weekly game tickets. Additionally, it is believed effort should be expended
to increase the attractiveness of the basic weekly game, based upon an analysis of
the history of sales.
The Incredible Instant Game - July

14 to August 27, 1976

The well publicized events surrounding the Incredible Game were examined and note
taken of the actual insurance protection provided by the contract with the game
supplier as opposed to what Lottery officials apparently believed the insurance to
be. Insurance became an important issue when a weakness in ticket design resulted
in cash prize claims substantially beyond those anticipated. Also discussed was the
termination date of the contract specified in that document, which may prove to have
a bearing on the two subsequent games selected by the Commission under the option
clause.
Auto Game - Beginning September

15, 1976

The circumstances surrounding the State Auditor's concern with the presence of an
unfair advantage to sales agents in the Auto Game and the Commission's handling
of that concern was outlined in this section. The suggestion of the game supplier
to change the rules of the game after the game had started as a proposed remedy
to the situation was found to be offensive to our own sense of propriety and,
fortunately, the suggestion was rejected by the Commission Chairman. The
recommendation was made that sales agents not be barred from purchasing tickets
in an effort to prevent sales agent advantages, rather, it was recommended that
games be thoroughly "debugged."
Note was taken of the contradiction between the Commission's publicized concern
for individuals buying too many tickets and the Conmdssion's inclusion in the
Auto Game of a teChnique designed to produce a "treadmill effect. 11 It is believed
that such a contradiction exposes the Commission to the type of editorial criticism
considered as damaging to sales in the past. As a final matter, it was observed
that the Commission does not, in the opinion of the evaluators, possess a contract
specifically for the Auto Game. Therefore, protective features for both parties
are not specified in a binding document. Concern was expressed for the public
image of the Lottery as it pertains to future sales, should problems develop in
the execution of games without an adequate contract.

 - 31 -

General Observations
A number of general observations were offered to provide additional perspective
to one's view of the Lottery. The observations neither related directly to foregoing material or even to each other, but were deemed to be noteworthy in the
overall view of.lottery operations.
It was observed that proportionately, the Lottery contributes a small percentage
to state revenues and finances a small percentage of General Fund expenditures.
This has been found to be true in all lottery states.

In conclusion, the Maine state Lottery Commission was proposed as a method for
adding substantial revenue to the General Fund without a tax increase. Based
upon per capita sales rates in other states, it appeared that the General Fund
would realize fairly substantial sums ranging from $5.2 to $9.3 million. As it
turned out, Maine has not achieved a per capita sales rate comparable to those of
other states. This appears to be due to a number of circumstances rather than
anyone single and clearly identifiable reason.
To this point in time, Maine citizens have simply not "warmly embraced" the
lottery in overwhelming numbers. There does appear to be some evidence of
growth however, and we are led to believe that sales have not yet reached a
maximum in annual return. In our opinion, now is the appropriate time for the
Commission to reappraise the situation and form adefinitive plan of action and
pre-determine what results those actions should produce so that effectiveness
can later be measured.
Early returns from the current Auto Game reflect a good rate of sales. Perhaps
what was considered as adverse publicity resulting from the Incredible Game has,
surprisingly, created a reverse effect on sales by calling attention to the
lottery. It might even be that the considerable editorial comment appearing in
the media has helped the Lottery Commission turn the corner toward new found
financial benefits to the state's General Fund.
The first draft of this report was reviewed for accuracy with the Lottery Director
and his staff as well as the Lottery Commission. This, the final draft, has been
revised in consideration of certain objections which were appropriately raised by
the Lottery Commission and staff. Attachment 8 provides the written response of
the Lottery to this report.
We wish to thank the Commission and staff for the cooperation and assistance provided during the course of the study.

 "

ATTACHMENT 1

COMJ.!I.SSION

5

1::1

ORGANIZATIONAL CF.ART

~

!-2Y3ERS

!.lA.D.'E

STATE :c.:Jl'TERY CCM1ISSION

;"S 2Y ;"uGUST,

SECRETARY

SECRESA.'i.Y

ISY'nATIVE
MANAGE!'.

MANAGER

iREG1C;,

l

P.ECEPTIONIST

D3ECTOF.

PFODUCTION

Y.A:.KE:n;c;
;·:AKAGEE

~~

~~:AGER

~

STORES

CLERK
I

STGRElCEEPER
I

1976

J:ICKET

ACCOONTING
Sl'PERVISOR

FINANCIAL
YANAGER

DATA
COh'TROl

31.'SINESS
MANAGER

SECRETARY

ACCOUNTANT
I

CLERF.:
II

'----T----'

:\

~
...... T'C ~... 'fnItlO'T Of" AUtHT

 ATTACHMENT 2

---

MONEY FLOW IN THE LOTTERY

-LOTTERY PLA YTNG PUBLIC

*

SMA L
CLA MS
PAY! ~NTS

~

~

1-- -

--,

I

I

I
I

ISMALf.;
ICLAI ks
IPAYM ~NTS
I

I

I

I
T

PRIVATE
AGENTS

I

LIQ,UOR L:::-:..
STORES I - REVENUE LESS 8 0
COMMISSION AND
SMALL CLAIMS

- - - - ---I
I
I

I
I
I
I
I

80

PU1H Te
r:1Jl.l Ms
Pit Y!V [i;N'I':;

COMIvlI SSION
AND. I ~CENTlVE
PAYME ~TS
IBRANCH

I I

BRANCH

I

IBRANCH

LA~F;

1

CLA MS
I

I
I
AGEN~

.-.

I

INCE~ TIVl~

PAOO NTG
ON IJ HGE
PRIZI S

I
I
CENTRAL BANK
(USE OF FLOAT 6-8 DAYS)

I

I

I

REVENUE ~ LESS '2!J/a
BANK CO kMlssioN

I
I

I
STATE
./"'

/LOT'!
OPERAT ~G

\F'UN

I
I

TREASUHY

fj---

!

-- -

EXP bNSES

PAY
CLAIM I
LIST I
-----l I
I I

1

I

I

I It
L....!

LOTTERY
ADMINISTRATION

01 ITS IDE
CONTRACTORS
GENEHAL \
FUND

 "

_:,.'::":'p',~"!MIll':'

..::------::

- :r.

~()("x,:

57~,

:.%

I

',,-:'~~=--

"};..: ::

~

"-;0'3)..'::

~-_-~:.".)?S"

o

350,OOC

::7.=::...£'1

.3;.=-'=-:::
:=;s:;....:::-=

~[2':A!.;:

'l.t..::~

};.:.~

-~:':I
, 1
2:75,000
250,000

225 ,COO ~

,oo,=j
1

1'7"
( j, )00 J
I

150,oool

I

12'5,0001

I

:'..oC,JVJ~

'Apr.

,o:E':

2~:es

$:'-:';
~0t.

of

i::s-::3.::-_~

a.r:.d at

~i~~etE

1~ay

. .Tune

are !"e:po:rte.i :>nly when fUll packages are

enG.. of -:he gaJ:l€. :he!"efore, this bar graph sl:ould.
be ·:':'on..:;i:iEre5 to e..cc;,rra.te~~ portray weekly sales, rathe!', it

:re:"lect~

:":'1.E

ticke: '::'Jooks co::rr;:letec. and

It

cashed up .. It

-:.:..ly

Aug ..

0c~.

!\OY.
n~ucky

1'Sro.::1":

Losers"

31"-"'''

:Nerlay

Ne:-ca;;

Losers"

Overlay

::'!.'

-3
wZ:~:.=

l?7E

 Nl''l'ACHMENT

l~

1
$1.17

J

$1.90

$1.57

4
$1.60

--

MAINE STA'rF. LOTTERY REGIONS AND
DISTRICTS: ANNUALIZED PER CAPITA
SALES OF BASIC GAME BY DISTRICT
(BASED ON A 5-WEEK SAMPLE FOR THE
PERIOD MAY 20 TO JUNE 17, 1976)

====~===========" -=~--==~.=
..~=.==========~.=-=~=-========================~~====
STATE DEPARTMENT OF AUDIT

 UJ

II;

~

'.>

~

(

,

k:

,)

n

1:1

~

~~

r:!

(~)

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"

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~

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i,::i

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m

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II

80
8
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tJ>

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11\

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'

,

~~'" i

'

)

 ATTACHMENT 68,
SALES AGENT COMMISSIONS IN arHER
LOTTERY STATES AS OF OCTOBER 1, 1;rr6,
COMMISSION
PAID TO
STATE

BONUSES
PAID TO
AGENTS

AGEN'I'S

OTHER

AGENT
INCENTIVES

Cormecticut (1)

5% - All Games Plus
$2.00 per Book of
Instant Tickets

2%

on Prizes to
$5,000. Mo on
Larger Prizes

None

Delaware (2)

5% - All Game s

2% on Prizes of
$100 and OVer

None

Maine

8% -

All Game s

1% on Prizes of
$1,000 and Over

Not Regularly

Maryland (2)

5% - All Games

1% on Prizes of
$1,000 and OVer

Mo of Gross Set
Aside for Agent
Incentives

Massachusetts (1)

5% - All Game s

1% of All Prizes

Every 5th Ticket
Allows Agent to
Enter a Special
Drawing

Ohio (1)

5% - All Game s

Mo

on Prizes of
$1,000 and OVer

None

Pennsylvania (3)

5% - All Game s

1% on Prizes of
$1,000 and OVer

Each 101st Ticket
Allows Agent to
Enter a Special
Drawing.

New Hampshire (1)

5% - All Game s

2% to 2/10% on
Prizes $1,000
and OVer

None

New Jersey (1)

1% on Prizes of
5% - Weekly Game
And $18.00 Per Book
$1,000 and cryer
of Instant Tickets(3.6%)

None

6% - All Games

1% on Prizes of
$1,000 and OVer

None

5% - All Games
Numbers

1% on Prizes of
$1,000 and OVer

Every 8th Ticket
Allows Agent to
Enter a Special
Drawing

New York

(4)

Rhode Island (5)

8%-

STATE AGENCY COMMENTS:
(1) No particular pressure to change rates.
(2) No particular pressure to change rates. Legislature sets cammission rate.
(3) No particular pressure to change rates. "If 5% is not enough 8% or 10% won't be
either." Lottery tickets require no shelf space. Only marginal agents gave up
selling tickets.
(4) Per: Deputy Director: Under no conditions will agent rates be changed. Lottery
commissions are pure profit for agents.
(5) Per Director: Agents will "always" want more.

 ATTACHMENT

6b

BANK COMMISSIONS IN OTHER LOTTERY
STATES AS OF OCTOBER 1, 1976
COMMISSIONS PAID TO
STATE

BANK

TIME OF
FLOAT *

Connecticut

.75%

of Gross Sales

Normal

Delaware (1)

$3.00 per Agent per week
or 1.25% of Gross Sales
Whichever is Higher

Normal

Maine

2%

Normal

Maryland

.50% of Amount Deposited
Plus $140.00 per Year per
Branch Bank

28 Days

Massachusetts

None

5 Weeks

Ohio (2)

1.1% of Gross Sales

Pennsylvania

$3.00 per Agent per week
or 1.25% of Actual Deposit.
This election made in Advance
by Agent

Normal

New Hampshire

1% of Gross Sales

Normal

New Jersey (3)

.5Cf1/o on Weekly Game and
1% on Instant Game, both
on Actual Deposit

Normal

New York (2)

.75%

of Gross Sales

Normal

Rhode Island

$2.00 per Agent per week
plus $1.00 per pack on
Instant Games

Normal

*

of GrosS Sales

. Normal

Normal indicates that banks have use of funds during the period that funds
normally flaw through the system.

(1)

Banks not involved in sports betting.

(2)

Bank commission structure presently being studied.

(3)

Ban..ks will receJve 1% of actual deposit on all games before the end of the year.

 ATTACHMENT 7

MAINE STATE LOTTERY COMMISSION

III

11 PARKWOOD DRIVE

III

AUGUSTA, MAINE 04330 • (207).289-2081

George Orestis, Director

August 20, 1976

Stanley R. Sumner, Director
Program Review and Evaluation
State of Maine Department of Audit
Augusta, ME 04330
Dear Mr. Sumner:
The pages which follow are our response to your recent request that we provide
our views with regard to certain questions which arise from your interpretation
of the legislative Order of March 9, 1976.
We would like to preface our remarks to your questions concerning the Lottery with
this observation. The lottery is altogether different from other state agencies,
and should be so regarded in that light. It is a business enterprise and a profit
center. It does not operate on taxpayers money as do other agencies, but rather
is completely self supporting. Furthermore, it provides a consumer product rather
than a consumer or taxpayer service. Any profit, no matter how much below projected
figures, that is turned over to the state's general fund must be recognized as free
and clear revenue.
.
In compliance with your letter dated July 29, 1976, we are pleased to offer the
following response to your three basic questions.
I.

Why has revenue been far below early projections?

A. Game consultants initial revenue estimates based on
results of other lottery states (excessively high)
B.

Demographic characteristics of Maine
1. lowest per capita income in New England
2. Lowest population density in New England
3. Geographically larger than rest of New England

C.

Damaged image resulting from criticism of lottery
operation by the United States attorney of Maine

D.

Critical press reports alluding to corruption

 Stanley R. Sumner
Page 2
August 20, 1976

E.
II.

III.

Fragmented banking distribution network due to items C &D above
(still unresolved).

What is the propriety of the percentages of the payout?
A.

The 45% payout is the statutory requirement of the state and is
the traditional amount most lottery states assign to prize pools.

B.

A reduction in the percentage would generate adverse sales results.

C.

An increase in the percentage would obviosly depress revenues to
the General Fund.

What is the best method for increasing the yield?
A.

Constant improvement of game products (i.e. the Incredible Instant
Game)

B.

Increase frequency of new games
1. Public interest levels wane after six weeks (sales data analysis)

C.

Vary the prize structures (merchandise or cash)
1. Seasonal appeals
a. Christmas, vacations, etc. (based on on-going marketing
surveys)

D.

Concentrate promotional advertising toward the high yield market areas
1. Bangor, Portland, Lewiston, Waterville, Augusta

E.

Ticket agent incentive programs
1. Purpose: Ask the public to buy

F.

Liquor store incentive programs
1. Purpose: Eliminate passive participation

G.

Fully develop the banking network
1. Purpose: One-stop banking for agents

H.

Improve tourist s~les
1. Billboard promotion (sales analysis)
2. Expand ticket outlet concentration in vacation areas
a. Sales booths (Old Orchard Beach, Ski areas, etc.)
b. Ticket availability in motels and restaurants
c. Special agents

I.

Administrative cost control programs (ever mindful that a budget
trim may appear to be a cost saving but in actuality may impair
operations)
1. Cost savings instituted during the past year
a. Telephone lines reduced by two
b. The closing of the regional office in Augusta
c. Maximum of 14 state automobiles available for staff use

 Stanley R. Sumner
Page 3
August 20, 1976
d.
e.
f.
g.
h.

t.
J.

Maximum staff of 38 as opposed to the authorized 57
Use of Purolator delivery system
Future move to lower rent, more efficient, headquarters
Future elimination of weekly field drawings throughout
the state
Lottery and state Central Computer Services plan the
creation of a new weekly game
Production of superdraw;ng equipment in-state at
enormous savings

Contracted advertising agency offers most economical service
1. Full time P-R person
2. Organized and staffed to handle advertising related functions,
state is not
3. Buys all advertising space and time and rebates commission

K. Ticket prices should not be increased

1. Too regressive--last resort when all else fails

L.

We have no research data to make an evaluation of the 'Numbers'
and 'Lucky 7' games.
Ve~trulY

i'/

yours,

A.

C/~~~ ,Vu~

Peter
Gorman, Chainnan
Maine tate Lottery Commission

PJG/cah

 STATE

OF'

MAINE

DEPARTMENT
AUGUSTA,

OF'

MAINE

AUDIT

04331:1

AREA CODE 207
TEL. 299-2201

fl.

M.

RIDEOUT,

LESLIE

JR.

.I.

HANN

OEPUTY STATE AUDITOR
STATE AUDITOR

ROBERT

13.

REDMAN

DIRECTOR OF MUNIOIPAL AUDITS

JOHN

L.

PARRISH

FRAUD INV£STIIlIATION DIVISION

october 18, 1976

Note Re:

Attacbment 8

Attacbment 8 was intended to be a copy of the Commission's
response to this report which was discussed at length on
October 13, 1976 with the Commission and division heads.
Due to the reported decision of the Commission and staff to
answer in detail, it was not possible for the Commission to
complete that response for inclusion in this report within
the time frame available.
The available time frame was determined by an earlier decision
to make the report available to the Legislative Performance
Audit Connnittee at the earliest practical~~date.~~~. __ .:.~ ~:~'\

2:32~~~ei/
Director, Division of Program
Review and Evaluation

 APPENDIX B

r
MAINE STATE LOTTERY COMMISSION 0151 CAPITAL STREET It AUGUSTA,MAINE 04330 III (207) 289.2081

George Orestis, Director

October 29 p 1976

Representative Richard J. Carey
27 Sterling Street
Waterville, Maine 04901
Dear Sir:

In view of the fact that our conference with your conmi. ttee and the State
Audit Department has already taken place our view of our response to the
published Audit Report has been considerably altered. As a result we
have condensed our reply from a rather canprehensive and detailed, itanby-i tern reaction to the few pages you hold in your hand. The questions
and replies are as follows:

1.

Why has revenue fallen far below early projections?
A.

Mathematica Inc. f the original game consultant, based its
original revenue estimates on the experience and results
of other lottery states. Obviously the estimates were
excessively high.

B.

The demographics charateristics of the State of Maine
contributed to the disappointing returns of revenue. The
State of Maine has the lowest per capita of incaoo of all
the New England states i the population density of the State
of Maine offers an insight. as to the low revenues generated
by the Lottery (Le. Maine has a per capita density of
32 per square mile while Rhode Island has a per capita
density of 900 per square mile). Geographically, the
dimen.siol1s of the state tend to minimize Lottery ticket
sales and to create very formidable obstacles in the
operation of the lottery. Advertising costs are necessarily
higher: to reach every citizen of the state of Maine only
once requires the use of 7 major daily newspapers, 5 TV
stations and 20 radio stations.

 Representative Richard J. Carey

October 29, 1976

-2C.

The Lottery suffered damages to its image fran several sources
fran its very inception. Advertising in all the media was
limited; United States Attorney Peter Mills was very critical;
the members of the clergy were very anti-lottery.

D.

The press has been far fran friendly throughout the Lottery's
existence and much effort has been expended by the Lottery
staff in repairing the .image of the Lottery when criti~ism
was very strident.

E.

The banking net'WOrk is still incanplete to this day because
sane of the major banks have refused to cane forward and

offer the banking resources which 'WOuld carnplete the network.
Until all the banks participate, it could be truly said that
the Lottery is not a fully functional department.
2.

What is the propriety of the percentages of the payout?
A.

The 45% payout is the statutory requirement of the state and is
the tradi-tional arrount most lottery states assign to prize pools.

B.

A reduction in the percentage would generage adverse sales results.

C.

An increase in the percentage would obviously depress revenues to
the General Fund.

3.

What is the best method of increasing the yield?
A.

It is the opinion of the Lottery Corrmission that the best way to
increase the yield is to offer better and better games. Examples
of better games are: the probability games called "The Incredible
Instant game"; the "Antique Auto game"; the"Lucky Losers" game,
etc. etc.

B.

We have improved our buying procedures:
a.

inventory purchased for any particular game will probably be
lbnited to 1,600,000 tickets.

b.

we have shortened the cycle to six weeks since public interest
diminishes after that time.

c.

We will vmy the prize structures and broaden the number of
prize winners.
1.

We will react to the publics demands for different kinds
of prizes: Cash, Automohiles, weekend vacations and
merchandise such as campers.

2.

We will offer seasonal prizes such as flowers at Christmas
or groceries at Thanksgiving.

 October 29, 1976

Representative Richard J. Carey

-3D.

We have based our advertising purchases on the findings of a
market survey by Northeast Markets. The media mix strategy
was based on the survey. We have concentrated on prCll'Otional
material in the high yield market areas such as Portland,
Lewiston, Augusta, Waterville and Bangor.

E.

We have instituted incentive programs with our point-of-sales
people, both the Mama - Papa stores and also the chain stores
and we have asked the Liquor store personnel to augment our
sales efforts.

Several points of discussion, as you know, surfaced and were considered
at length. They were:
1.

Paying 8% to all points of sale. In our judgment" it was necessary
to pay 8% -- not as an inducement to increase sales, but to stop
imminent losses of sales outlets.

2.

Free tickets as prizes.
We believe that a free ticket does not produce a dollar of
revenue. We payout, as required by statue, 45% of every
gross dollar collected. The Audit group asks the Legislature
to establish the costs of free tickets and the use of free
tickets as prizes. An upcaning instant game will not use free
tickets in the prize structure.

3.

The Incredible Instant Game.
Because of possible litigation full discussion on the liability of
Scientific Games Inc. was not possible.

4.

The Contract.
The Attorney General i s Department through Mr. Robert Stolt and
Mr. Phil Kilmister assured us we do have a contract with Scientific
Games. Discussion developed that the contracting procedure by all
Maine departments might be scrutinized and improved.

5.

The Auto Game.
The advertising for the Antique Auto Instant game was changed to
accCll'Odate the reservations which the Audit Unit had concerning
our advertising promotion. The problems they envisioned and the
complications they feared never did develop.
The question
arose:
Does the Audit Unit have the authority to change or to
control any phase of not only the lDttery but of any
department in the course of the Audit' .?

 Representative Richard J. Carey

October 29, 1976

-46•

Gambling.
The Audit group reoammended that consideration could be given
to other types of gaming and made several recarrnendations
which the Lottery Carmission will honor.

7.

Same differences of opinions were voiced by the Lottery canmission as to the verbiage of the report and a strong opinion
offered as to the proper use of authority by the Audit unit
in'criticizing a specific person in a specific division of a
department.

It is the belief of the Lottery Carmi s sion , the Director and the staff
that the Audit Report will be a very valuable tool in operating the
Lottery and expresses its appreciation for the expertise and courtesy
exte.nded to us personally by State Auditor Rayrrond Rideout. On behalf
of the cOITIDussion and the staff I express my thanks and appreciation
to you and to your COITIDrittee for the exElTlplary manner in which you
conducted the hearing and the kind spirit which you all showed in discussing with us various ways of improving the Lottery operation. We
are always at your service should the need arise.

Very truly yours,

H~~t~
George orestis
Director
GO/dIp

 Appendix C
Draft Legislation
AN ACT To Improve The Performance Of the State Lottery.
Be it enacted by the People of the State of Maine, as follows:
Sec. 1.

8 MRSA § 353, sub-§ 1,

~A,

is amended to read as

follows:
A.

Types of lotteries to be conducted, except types

of lotteries not conducted prior to January 1, 1977
shall not be authorized without the approval of the
Legislature;
Sec. 2.

8 MRSA § 353, sub-§ 1, '1 K, is amended to read as

follows:
K.

The manner and amount of compensation to be paid

licensed sales agents necessary to provide for the adequate availability of tickets or shares to prospective
buyers and for the convenience of the general publicTL
except the amount of compensation shall not exceed a
commission of 8% of sales unless approved by the Legislature;
Sec. 3.

8 MRS A § 354, sub-§ 1,

~

J, is enacted to read as

follows:
J.

Submit all promotional material and advertising to

the Attorney General for review and approval of its accuracy and completeness, prior to its public release or
use.
Sec. 4.

8 MRSA § 366, sub-§ 2, new sentence at end, is enact-

ed to read as follows:
Lottery tickets or shares that are awarded to certain
ticket holders at no cost shall be included as prizes at

 -2-

their retail price, in meeting the requirement of 45%
of total ticket sales be disbursed as prizes.
Sec. 5.
§

368.

8 MRSA § 368, is enacted to read as follows:

Promotion and advertising

All promotional material and advertising of the Lottery shall
be submitted to the Attorney General prior to its public release
or use.

The Attorney General shall review this material and approve

it for release or use if it is accurate and compete.

No promotional

material or advertising shall be publicly released or used by the
Lottery without this aeproval.
Statement of Fact
The purpose of this bill is to enact the recommendations of
the Performance Audit Committee's study of the State Lottery, H.P.
2173. A detailed statement of the intentions, purposes and provisions of this bill is contained in the Committee's narrative report. Generally, this bill does the following:
1.
The Lottery Commission is not allowed to expand into other
types of lotteries without legislative approval.
2.
The Lottery Commission is not allowed to raise the agent's
commission above 8% without legislative approval.
3.
Lottery tickets awarded as prizes are to be valued at
retail price and included in the caluclation of the 45% of sales
requirement to be prizes.
4.
All Lottery advertising is to be reviewed by the Attorney
General prior to its public release or use.

 APPENDIX D
I!Ie:NATIl:

HOUBE

"'OHARD N. gERRY, DISTRIOT 8. CHAIRMAN
THtrOOOAIr Q. CURTIS. ,JR., DIBTRICT 26
ALTON 1:. CIANCHETT8:, OISTRICl 23

DEORQETTE 8. BERUSE, LCwtBTON, CHAIRM ... N
ANN£ J. eACHRACH, BRUNDWICK. BI[CRETARY
RICHARD tJ, CAREY, WATCRVILLIt
CHARLES O. DOW. Wr.:ST OAROINER
L!:IDHTON COONEY, SAIliJATTU.
THOMAS R. L,.a.POINTE. PORTL .... ND

.JOHN M. NDRIHS. II. BnlW£R
HAROLD L. SILVERMAN, CALAIQ

WALTER A. BIRT.

EAST MILLINocKl':r

SAMUEL A. HINDS. SOUTH POATLAND

BTATE
ONE

HUNDRED

AND

OF"

MAINE

SEVENTH

LEGISLATURE

COMMITTEE ON PERFORMANCE AUDIT

October 29, 1976
Honorable Joseph E. Brennan
Attorney General
State House
Augusta, Maine 04333

~he

Dear Mr. Brennan,
As a result of a recent report of the Department of Audit
to the Lottery Sub-Committee of the Performance Audit Committee,
four questions have been raised t~at require answers. The
sub-committee would appreciate your responses to the following
questions:
1.

Does the Department of Audit, while conducting an investigation and evaluation of financial records, policies and operations of an agency at the request of a
legislative committee, have the authority, without
prior committee approval, to make direct recommendations to the agency for changes in its procedures or
methods of operations, when the legislative request
contained neither express authority nor express prohibition of such actions?

2.

If such authority exists, does it derive from the
legislative request for an investigation and evaluation, or does it derive from the general statutory
authority of the Department of Audit?

3.

Does the Department of Audit have the authority, to
release to the public and press, or to the Governor,
a report prepared at the direction and request of a
legislative committee, prior to express approval of
such release by the Committee?

4.

Is the Department required to release to the public
and press, or to the Governor, such a report at the
time it is released to the sub-committee or committee,
under the ilRight-to-Know ii law?

I

I

I"

 ./

To aid you in responding to these questions, the following
facts are presented. The Joint Standing Committee on Performance
Audit was ordered, under H.P. 2173 to study the Lottery Commission (Study Order attached). At the request of the Committee,
the Senate Chairman was directed to request the assistance of
the Department of Audit, under 5 MRSA §24l, sub-§6, which was
done verbally on May 25, 1976. During the course of the investigation, the Department made several suggestions to the
Lottery Commission concerning its procedures and operations.
The Department completed a written report on October 16, 1976,
immediately sent it to the Sub-Committee, and, with the consent
of the sub-committee, released it to the Governor and public on
October 20-21, 1976. The sub-committee held a public hearing
on the report on October 26, 1976.
The sub-committee would also emphasize that there is no
question being raised about any impropriety in the recommendations or suggestions made directly to the Lottery Commission,
nor in the public release of this report.
The questions are
being raised to allow future clarification of the authority of
the Department of Audit when it is conducting a study at the
request of a legislative committee.
If you havd any need for further information, please feel
free to contact me or the Committee's LegiBlative Assistant,
Jonathan Hull.
Sincerely,

R~a~~;fc~

Sub-Committee Chairman
Performance Audit Committee

 ,JOSEI'II

S. COHEN
M. H. PATERSON
DONALD G. ALExANDIm
RICHARD

E. BRENNAN

.JOHN

ATTORNEY GENERAL

DEPUTY ATTORNEYS GENERAL

APPENDIX D

STATE Ol? MAINE
DEPAHTMENT OF THE ATTOHNEY GENEHAL

AUGUSTA, MAINE OL1333

December 23, 1976

'rhe Honorable Richard J. Carey
27 Sterling Street
Waterville, Maine 04901
Dear Representative Carey:
Your letter addressed to the Attorney General in which you
inquire as to the authority of the Department of Audit to make
recommendations concerning the modus operandi of a state agency,
specifically the State Lottery commission, when an investigatory
and evaluation repor·t of said agency is ordered by a Legislative
commit·tee, the derivation of such authority, if it in fact exists,
and -the authority of the D~partment of Audit to release its report
or fact findings, has been referred to me for an an·swer.
Answering the questions in their order of presentment, it is my
opinion that:
1. The Department of Audit, while conducting an investigation
and evaluation of the records, policies and operations of a state
agency at the request of a legislative committee, may offer recommendations directly to the agency subject to investigation, absent express
legislative direction to the contrary.
2. The derivation of authority for the Department of Audit to
make direct recommenda·tions to a state agency whose operati ons it
has been ordered to analyze and evaluate, emanates not only from
the terms of a legislative order which formulates the basis -.. for
said evaluation, but is also distinctly statutory.
3. The Department of Audit acts in a capacity of "legislative
s·taff" when it prepares an evaluation report at the request of a
legislative committee or sub-committee, but if the Department is not
expressly prohibited by legislative order, or otherwise, from
releasing the contents of such a report prior to its final submission

 The Honorable Richard J. Carey
Page 2
December 23, 1976

to any given committee or sub-committee, the Department is not precluded from releasing the contents of its report to the public.
4. The report of the Department of Audit under review is not the
report of the Joint standing committee on Performance Audit, until said
report is accepted in part or in toto by said Committee, and there is
no sta tutory prohibit:ion which would prevent the Department from
releasing the contents of its report to the public, after the report
has been submitted to the Sub-Committee or committee.
The comprehensive report of the state Department of Audit prepared
by the Division of Program'Review and Evaluation of said Department
under date of october 1976, represents not the report of the Joint
Standing Committee on Performance Audit, the sole agency entrusted
with the duty of conducting a study of the Maine State Lottery
Commission, but represents merely the condui t through which information flows to the Committee, which mayor may not formulate the basis
for the Committee's report. The contents of said Audit report may
be accepted or rejected in whole or in part by the Committee.
The legislative order under date of March 9, 1976, which authorized
the study of the Maine sta te Lottery Commission by the Joint standing
Committee on Performance Audit provides only that the committee shall
submit to the Legislative council "its findings and recommendations."
Based solely upon this particular legislative order, neither the
Commit'tee nor the state Department of Audi t is authorized to act in
the status of interim ombudsmen and make recommendations directly to
the Lot'tery Commission.
In the absence of restrictive language in
any given legislative order prohibiting the Department of Audit from
rendering recommendations directly to a state agency, however, there
is ample statutory authority for the Department to do so.
chapter 591 of the Public Laws of 1975 (now 5 M.R.S.A. § 242-B)
provides that the State Auditor may create a program Review and
Evaluation Division within the Department of Audit, subsections (2)
and (3) of said statute read as follows:
II (2)
Purpose.
It shall be the purpose of
the Program Review and Evaluation Division to
examine state Government Programs and their
administration to ascertain whether such prograhls
are effective, continue to serve their intended
purpose, are conducted in an effective and
efficien t manner, or require modification or
elimination, and gen8rally to assist the
Legislature in providing greater control over
receipt, disbursement and application of public
funds.

 The Honorab Ie Richard J. Carey
Page 3
D~cember 23, 1976

"(3) Assistance to the Legislature. The
S·tate Auditor, tlli-ough the Program Review and
Evaluation Division, shall review and analyze
the results of government programs and
activities carried on under existing law,
including the making of cost benefit studies,
when ordered by both Houses of the Legislature,
or upon his own initiative, or by order of the
Legislative Council, or when requested by the
Joint standing committee on Performance Audit."

.

The above-quoted statutory language reveals the power of review
and analysis which the Legislature has posited in the Department of
Audit, and it seems clear that the above-delineated powers of examina·tion and review include the authority to render recommendations directly
to state agencies subject to said review.
Lastly, once the Department of Audit submits a report to a legislative committee or sub-committee, the Department ceases to function
in the capaci ty of l~gis lative staff, and the contents of its report
are not immune or exempt from dissemination as public information under
·the terms of our "right-to-knavv II law.
The terms of 1 M.R.S.A. § 402(3) define public records and certain
exceptions thereto, including, but not limited to, the following:
"Records, working papers and interoffice
and intraoffice memoranda used or maintained
by any Legislator, legislative agency or
legislative employee to prepare proposed senate
or House papers or reports for consideration by
the Legislature or any of its committees during
the biennium In which the proposal or report is
prepared. "
The above-quoted statutory language cannot reasonably be construed
to include evaluation reports compiled by the Department of Audit
aft.er their submission to a legislative committee or sub--committee.
In order to insure that such reports remain confidential unless
released by the legislative commit.t.ee or sub-committee for whom they
are prepared, amendment of the above--ci ted language would appear to
be necessary.
very truly yours;

PHILLI P M. KILMISTER
Assistant Attorney General
PMK:mfe

 Appendix E
Draft Legislation
AN ACT To Clarify The Powers Of The Department Of Audit
When It Is Acting As A Legislative Staff Agency.
Be it enacted by the People of the State of Maine, as followsf
Sec. 1.

5 MRS A § 242-B, sub-§ 3, is amended by adding a new

sentence at the end to read as follows:
When acting under the order of the Legislative Councilor
request of the Joint Standing Committee on Performance Auait,

'"':-

the State Auditor shall exercise only those powers

auth~zed

under section 243-A.
Sec. 2.

5 MRS A § 243, sub-§ 6, is amended by adding a new

sentence at the end to read:
When serving as a staff agency to the Legislature or any of
its Committees, the Department of Audit shall exercise only
those powers authorized under section 243-A.
Sec. 3.
§ 243-A.

5 MRSA § 243-A,1 is enacted to read as follows:

Legislative staff powers.

The State Auditor or Department of Audit shall provide assistance
as authorized under section 242-B, sub-§3, or serve as a legislative
staff agency under section 243,sub-§ 6, only when authorized to do
so in writing by the Legislature, Legislative Councilor a legislative committee.

The written authorization shall specify the scope

of the review and analysis, the manner in which it is to be undertaken, and the authority of the Department of Audit or State Auditor
to make recommendations or reports, or to release documents to the
public.

No reports or documents prepared under the authority of

 -2this section shall be released to anyone other than the body authorizing the Department's study, without the permission of the authorizing
body_

No member of the Department shall make recommendati?ns or

suggestions to the agency or department under study without prior
approval from the authorizing body.
When undertaking a study, review or analysis under this section, section 242-B, sub-§ 3, or section 243, sub-§ 6, the Department shall exercise only those powers authorized by this section
or the written authorization; and the Department, when so acting,
shall be deemed to be a

~18gislative

agency"

under Title 1, section

402, sub-section 3.
Statement of Fact
The purpose of this bill is to enact the recommendations of
the Performance Audit Committee's study of the State Lottery, H.P.
2173. A detailed statement of the intensions, purposes and provisions of this bill is contained in the Committee's narrative report. Generally, this bill does the following:
1.
Requires the Department of Audit to act as a legislative
staff agency only on the written authorization of the Legislature,
Legislative Councilor leg,islative committees.
2.
Prohibits the release of reports or documents prepared
as part of a legislative study, unless the authorizing body approves
the release.
3.
Prohibits the Department from making recommendations to
the agency or department being studied, without the prior approval
of the authorizing body.
4.
Makes the Department a legislative agency under the
" r ight-to-Know" law, when undertaking a legislative study, and
limits its powers to those granted in the written authorization.