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RHODE ISLAND LOTTERY
RHODE ISLAND LOTTERY
A COMPONENT UNIT OF THE STATE OF RHODE ISLAND
AND PROVIDENCE PLANTATIONS
COMPREHENSIVE ANNUAL FINANCIAL REPORT
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
RHODE ISLAND LOTTERY
A COMPONENT UNIT OF THE STATE OF RHODE ISLAND
AND PROVIDENCE PLANTATIONSFOR THE FISCAL YEAR ENDED JUNE 30, 1998
PREPARED BY THE FINANCE DEPARTMENT
TABLE OF CONTENTS
COMPREHENSIVE ANNUAL FINANCIAL REPORTFOR THE FISCAL YEAR ENDED JUNE 30, 1998
INTRODUCTORY SECTIONLetter of Transmittal
Certificate of Achievement for Excellence in Financial Reporting
FINANCIAL SECTIONIndependent Auditor's Report
Financial Statements Balance Sheets
Statements of Revenue, Expenses and Retained Earnings
Statements of Cash Flows
Notes to Financial Statements
Supplementary Information Sales, Commissions and Prize Awards Expense
STATISTICAL SECTIONRhode Island Statistics Revenues - Fiscal Years 1989 Through 1998
Sales by Product - Fiscal Years 1989 Through 1998
Expenses and Transfers to State's General Fund – Fiscal Years 1989 Through 1998
Sales by Game - Fiscal Years 1989 Through 1998
Rhode Island State Demographics
National Statistics Lottery Statement of Operations
Per Capita Statement of Operations
COMPLIANCE SECTIONIndependent Auditor's Report on Compliance and on Internal Control Over Financial Reporting
THE RHODE ISLAND LOTTERY
December 18, 1998 The Honorable Lincoln C. Almond, Governor Representative Robert E. Flaherty, Chairman We are pleased to present to you the COMPREHENSIVE ANNUAL FINANCIAL REPORT of the Rhode Island Lottery (Lottery) for the Fiscal Year ended June 30, 1998. This report has been prepared by the Finance Department of the Lottery. The Lottery is responsible for the accuracy of the financial data and the completeness and fairness of the presentation, including all disclosures.
The Lottery is a component unit of the State of Rhode Island, and its financial statements are included in the State's Comprehensive Annual Financial Report. This report presents Lottery activity in a single enterprise fund. Only the activity of the Lottery, and no other data or information related to any other State agency or fund, is included in this report.
This report is presented in four sections - Introductory, Financial, Statistical, and Compliance. The Introductory Section, which is unaudited, includes the transmittal letter, a list of principal officials, and the Lottery's organizational chart. The Financial Section contains the Independent Auditor's Report, financial statements, notes to the financial statements, and supplementary information. The Statistical Section, which is also unaudited, contains selected financial, economic, and demographic data, including current and trend data specific to the national lottery industry. The Compliance Section contains the Independent Auditor's Report on Compliance and on Internal Control over Financial Reporting.
The Lottery was created by Constitutional Amendment passed on November 6, 1973. The Legislation to create the Lottery was passed in March of 1974, and the Lottery began in May of 1974. The Lottery is operated as a business within the framework of State laws and regulations. Like any business, the Lottery's goal is to maximize income. As a State agency, however, the challenge lies in accomplishing this while maintaining the trust and best interest of the citizens of the State of Rhode Island. It is our goal to achieve both.
1 THE LOT 1425 Pontiac Avenue Cranston, Rhode Island 02920 401-463-6500
HISTORY OF THE LOTTERY INDUSTRYState run lotteries have long represented to governments an attractive alternative to other taxation methods, since their profits were returned to the public through community works, cultural activities, or financing of various projects. Two examples are the Vatican Museums and the Rialto Bridge in Venice.
To fully understand the history of lotteries in America, one must recognize the fact that the American colonies, at the time of their founding, lacked the capital, both in the public and private sector, needed to start the process of economic and cultural development.
As the English settled in America, they were motivated by the model of development that stressed private rather than public investment. Royalty in England were simply unwilling to spend their own money or tax their subjects to subsidize the development of the colonies, and lotteries became an important method of raising capital for public and private initiatives. In fact, the "Great Standing Lottery" held in London in 1612, was staged to help bail the Virginian Company, the corporation in charge of the settlement of Virginia, out of debt.
Perhaps one of the most poignant lottery stories is that of the abortive attempts to bail Thomas Jefferson out of debt by holding a lottery on his behalf on the 50th anniversary of the adoption of the Declaration of Independence, an anniversary that coincided with the precise day of his death.
The period from 1740 to 1820 witnessed an explosion of public works construction, such as roads, bridges, and canals, much of which was financed by lottery proceeds.
Many of America's elite, private universities, Yale, Princeton, Harvard, University of Pennsylvania, and Columbia, have classroom buildings funded through the proceeds of lotteries. The fact of the matter was, that lacking the endowments built up over centuries and centuries by places like Oxford and Cambridge, American higher education had no choice but to resort to lotteries.
Many of the principal religious denominations of America (ironically, many of those which would, in the middle part of the 19th Century, lead the fight against lotteries) actually depended heavily on lotteries to get their start.
While very few people in America would have denied there was a need to raise money to build colleges, bridges, roads, or churches, then, as now, America differed over whether lotteries were the appropriate way to raise those funds. The arguments for and against lotteries have not changed significantly over -the course of two hundred years, from the 17th Century Puritan and Quaker denunciations of all games of chance, to those similarly voiced by fundamentalist Protestant religious groups in the 19 th and 20th Centuries.
The concern about gambling, however, was often overwhelmed by the recognition that the lottery was a means that enabled the accomplishment of useful public projects. William Ames, a Cambridge teacher of many of the leaders of the Massachusetts Bay colony, denounced the playing of the lottery solely for the purpose of gain, but defended lotteries as long as they were intended for some “pious” end. The settlers of New England would find many "pious" purposes toward which to direct lottery proceeds.
During the colonial period, the New England colonies authorized more lotteries than any other region of the country, which benefited colleges, churches, charities, and every manner of public works construction one could think of.
By the time of the Revolution, most every American colony joined the New England colonies in using lotteries as a primary method for financing both public works and private economic development. This reliance on lotteries was the result of the coming together of two powerful forces, a desperate need for capital to fight the war against Great Britain and the reluctance to impose taxes. It is during this time in history that some of America's most respected statesmen publicly campaigned for lotteries as a means of raising revenues. The two most well known for this were Thomas Jefferson and Alexander Hamilton.
Thomas Jefferson described a lottery as a "salutary instrument... where men run small risks for the chance of obtaining a high prize." It was, he said, a "tax laid only on the willing," and was therefore more accepted than any other form of direct taxation.
Alexander Hamilton described lotteries as a means by which an ordinary man could "hazard a trifling sum for the chance of considerable gain." Hamilton offered advice, which has been relevant to every lottery organizer since that time. He said there were two cardinal rules for a successful lottery: keep it simple, so that everyone understands the rules, and keep the tickets cheap, so that everyone could afford to participate.
2 The period of time from 1800 to the Civil War was the most active time for lotteries. There was an incredible number of lotteries in America during this period, some held for public purposes, some for a mixture of public and private purposes, and some for private purposes as entrepreneurs attempted to raise money for their own projects. It was at this time in history that charges of fraud and deception, which coincided with a resurgence of religious opposition to lotteries as being sinful, began.
By the 1820s, there was a vast array of lotteries being conducted, sometimes at the same time on the same day, and although the lottery ticket sellers became more clever in their efforts (P.T. Barnum was a lottery agent), the market was overwhelmed.
Because of that, there were many instances where the proceeds from the lottery were not sufficient to pay the prizes, a problem which often resulted in lottery organizers leaving town with the money in hand before the drawing could be held.
Charges of fraud and deception surrounded lotteries of the 19th Century, and the two most commonly believed reasons for these were dishonest lottery promoters and increasing religious opposition. There were, however, many other factors, including the growth of the banking institution, which offered an alternative means for entrepreneurs to raise money; an economic boom in the 1 9th Century which created sources of excess capital that could be used for investment in public works; and lastly, the willingness of state governments to step in and raise taxes to finance worthwhile public projects.
The full history of the decline of the lottery in America lasted from the Civil War until the resumption of the lottery in 1964 when New Hampshire established a state-run lottery for the purpose of raising money for education. New York followed New Hampshire into the lottery business in 1967. In 1971, the State of New Jersey started their lottery and introduced a computer-based weekly game, which offered inexpensive tickets (50 cents), convenience of sale, and a weekly prize of $50,000.
In its first year of operation, the New Jersey Lottery grossed $142.5 million and set the trend for the lottery industry. New York and New Hampshire revamped their systems, and other states introduced lotteries utilizing New Jersey's operation as a model.
Lotteries, through the years, have become more diversified. The vast array of lottery games in existence today caters to a variety of consumer tastes. These changes are largely attributable to the work of marketing experts. With greater selections, come increased sales. Considerable changes and new possibilities were introduced in lotteries through major technological innovations such as centralized on-line computer systems (1971) and magnetic strip tickets (1992).
By developing and tailoring products to the needs of clientele, the lottery has established itself as an everyday element in today's society.
HISTORY OF THE RHODE ISLAND LOTTERYIn 1744, Rhode Island's first lottery raised money for a bridge at Weybosset Street in Providence. Tickets cost about $12 each and raised approximately $6,500 for the bridge. Several other lotteries were conducted throughout the 1700s including a lottery used to partially finance the building of a brick Colony House, which became Rhode Island's first State House following the Declaration of Independence. One of the most successful lotteries in Rhode Island was the one authorized to build Thames Street in Newport. It paid over $1 million in prizes and was so popular that the people of Newport were able to build, pave and extend streets throughout the city.
On November 6, 1973, a Constitutional Amendment was passed in Rhode Island by more than a three to one margin to create a lottery. The amendment mandated that the General Assembly proscribes and regulates all future lotteries in Rhode Island.
Legislation was passed to start the Lottery in March 1974, and it began in May of 1974. The original purpose of the Rhode Island Lottery was to make up for the revenue lost from allowing the value of a trade-in automobile toward the sales tax liability on a new automobile.
The Lottery's first drawing was held at the State House on May 30, 1974. This weekly 50-cent game had a top prize of $50,000. The Numbers Game began on February 13, 1976 and continues today. The first instant ticket game, Play Ball, was introduced on May 11, 1976. There have been 172 instant ticket games since 1976. On-line games started in February of 1978, and Lottery sales doubled with this new addition. Rhode Island was the first State to televise a live lottery drawing in January of 1975, at no expense to the Lottery, which is still the case today. That same year Rhode Island became the first State to have a weekly lottery television program.