Budget & Tax

Lottery tickets provide better return than film subsidies

May 11, 2021

Ray Carter

Advocates of supersizing Oklahoma’s film-subsidy program to as much as $50 million annually say the program will provide significant economic benefit to Oklahoma.

But independent analysis has shown the average person buying scratch-off lottery tickets can often generate a much better return on investment than what has been produced for state government by film subsidies—despite lottery tickets still being a net drain on most buyers’ finances.

Even skeptics of the film-subsidy program are surprised by that fact.

“That’s pretty interesting—lower than a lottery ticket,” said Sen. Mark Allen, R-Spiro. “I didn’t think anything got lower than that.”

“That’s really sad,” said Rep. Jim Olsen, R-Roland.

However, Michael Thom, a professor at the University of Southern California who has done research on state film-subsidy programs, said he is not shocked.

“That number does not surprise me,” Thom wrote in an email. “Twenty-three states have conducted cost-benefit analyses of film and TV incentives, and all 23 determined that they lost money. Academic studies come to the same conclusion. At this point, no one should think that film and TV incentives are a good use of taxpayer money. All the evidence says otherwise.”

A 2020 review of Oklahoma’s film-subsidy program, conducted by the state Incentive Evaluation Commission, found that the state government has never reaped a return on investment of more than 13 cents for every $1 in state subsidies provided in any year for which data was available. The state return on investment was as low as three cents in 2013.

Put another way, for every $1 in state film subsidies provided, the state government lost at least 87 cents in revenue and as much as 97 cents.

In comparison, independent experiments have repeatedly shown that individuals buying large sums of scratch-off lottery tickets get a better return on their investment—much better.

In 2017, a writer for finance website LendEDU bought $1,000 in scratch-off lottery tickets to determine potential return on investment. For the experiment, a variety of scratch-off lottery tickets were purchased, including $1 tickets, $5 tickets, $10 tickets, $20 tickets, and $30 tickets. Of the 314 scratch-off tickets purchased, the experiment produced 68 winning tickets that generated $974 in prize money. Of that total, $500 came from just one $20-ticket winner.

In 2016, a writer at Sora News 24 tried a similar experiment, spending 1 million yen (approximately $8,300 in U.S. dollars) on 5,000 Japan National Lottery scratch-off tickets. The author reported that at the “end of this grand, stupid experiment, we were still 634,800 yen in the hole.”

Ariel Hulse, writing for the Investing Education website, examined the return on investment from lottery tickets by purchasing $100 worth of scratch-off tickets in New York in 2012. Hulse recouped $41, a net loss of $59.

In 2005, Texas entrepreneur Neville Medhora reported a similar experiment on his finance-focused blog. Medhora purchased 100 Texas lottery scratch-off tickets valued at $1 apiece. He had 22 winning tickets that produced $102 in winnings, although he noted that a single ticket accounted for $60 of that total.

In each case, the financial sites stressed that lottery tickets, despite occasional winnings, are not a sound investment strategy.

“Anyone who invests their money in the lottery for purposes other than mild thrills and entertainment is (according to the odds) just dreaming,” Medhora wrote. “The odds prove that if you play long enough, you will lose 75% or more of your money. Of course you can also win a lot of money, but it’s highly doubtful. I just happened to buy the right tickets at the right time for this particular experiment, but if I repeated the experiment again, I would most likely not make a profit or break even.”

Yet in each case scratch-off lottery tickets produced far-higher returns than Oklahoma’s film-subsidy program with lottery buyers recouping at least 37 cents for every $1 spent on lottery tickets, compared to Oklahoma government’s recouping just 13 cents for every $1 in film subsidies provided. Even the typical lottery loss of 75 percent cited by Medhora would prove a better return than what Oklahoma’s film-subsidy program has produced.

Jon Sanders, a senior fellow at the John Locke Foundation in North Carolina who has examined state film-subsidy programs, said there’s a reason scratch-off lottery tickets prove to be a better investment than film subsidies.

“Lotteries are known money losers on a personal basis, but you’ve got to have enough chance of winning that you keep people coming back,” Sanders said.

In contrast, politicians often prove willing to dump more money into film-subsidy programs, even at return-on-investment levels that might cause players to walk away from lottery games.

Rep. Tom Gann, R-Inola, said that’s a problem he has observed for many government-incentive programs in his prior work as an auditor in local government.

“There’s never really any follow-up to see if it’s really produced what everybody claimed that it would in the beginning,” Gann said.

Sanders said most third-party studies, as well as government-mandated reviews, find that government film-subsidy programs lose money.

“They return cents on the dollar,” he said.

Oklahoma’s 13-cent return is lower than in most states, he said, but the average state return is not stellar.

“The median-range is 22 cents,” Sanders said.

He noted that film-subsidy programs are unlike almost any other government incentive program, and the factors that make the entertainment industry different from other businesses are also factors that reduce the ability of states to get a good return on a film-subsidy investment.

“Most business incentives, it’s for something that’s going to be built and be here or be in the state for a long time—then there are claw-back opportunities for going back,” Sanders said. “A particular motion picture is a gig, and once it’s over the jobs are gone, and then you’ve got to hope there’s another gig. If you get a TV show, depending on how well the show does, it could be around for a number of years, but for the most part they’re here and they’re gone. So even evaluated against other types of incentives, they’re not convincing as far as building the entire state’s economy.”

So why do politicians continue to promote film-subsidy programs in the face of extremely poor returns? Gann said the motive is often tied to factors other than financial reality.

“People are still enamored with Hollywood for some reason,” Gann said.