Saban steps in it

Nick Saban inadvertently stepped on a land mine this week by advocating a statewide education lottery. In doing so, he provided everyone with a cautionary tale illustrating why public figures who are new to an area should avoid getting involved in local political issues. Local sports talk radio has been littered all week with discussions of whether the lottery is a good idea or not.

In Alabama, the lottery is a lot more controversial than it is in many other states. The politics of lotteries are strange, with the very conservative and the very liberal aligned with one another opposing it, and the middle usually in favor. The conservatives, particularly the religious conservative, don't like the lottery because it is a form of legalized gambling. The liberals don't like the lottery because of its negative impact on the poor and working class.

The problem is that Alabama has a lot more poor people and a lot more religious conservatives than many other states. Alabama has never been able to get a lottery passed, despite a couple of proposals making their way to voters. The last time this came to a vote, it was narrowly rejected.

Saban's comments that a lottery could help college athletics, in addition to showing his own single-mindedness, shows a certain clumsy side to him. The smart action would have been to not say anything at all on this subject. He just doesn't know enough about the political landscape in Alabama to start getting involved in local politics without making missteps like this one. Instead, he perhaps gave up a little of his prestige by coming out publicly in favor of a proposal that many of his constituents (for lack of a better word) oppose.

Personally, I'm against a lottery. I agree with the liberals that they damage the poor and working class, and I have as evidence my own observations from living in two states that have used lotteries. I saw who lined up at the convenience stores and the supermarkets to buy lottery tickets when the jackpots got big. But there's more to it.

I simply think it's bad economics for a state to use a lottery as a revenue generator. States that have lotteries hire outside companies to run them, meaning that a big part of the money spent on a lottery by the people of the state actually leaves the state. Some of the rest returns to the people in the form of winnings, but and the remainder goes to the state. I don't have any statistics, but if I remember correctly it is something like $0.40 of every dollar goes to the state. The rest goes to out-of-state corporations running the lottery.

It's like if the state decided to raise revenue with a sales tax, and then paid an out of state accounting firm most of the money spent on it to monitor it. It just doesn't make any sense from a revenue standpoint. It makes a lot more economic sense just to tax people. Then, for every dollar spent on the tax, the state raises one dollar in revenue. Using my estimate of lotteries making the state $0.40 on the dollar, a tax (whatever the form) is a 150% more economically more efficient method of generating revenue.

My other philosophical problem with lotteries is the fact that they are state-granted monopolies on a form of entertainment. I have no idea why the libertarians aren't out in force against lotteries on this ground, but they aren't, and they should be. Lotteries put the state in the entertainment business, and they grant one company a monopoly on that business in partnership with themselves. This is the sort of thing they normally rail against.

If we're going to have lotteries, we should just legalize lotteries and open up the state to competition. Tax and regulate it heavily, but treat it just like you'd treat movie theaters. Let anyone who wants to do so start up their own lottery and simply tax the proceeds. Let the best-run lottery, with the highest payouts and best marketing win. It's the capitalistic way of legalizing lotteries.

That won't happen, not because we're not capitalists, but because people seem to instinctively know lotteries can't survive competition. Lotteries exist in an economic feedback loop. They are viable because people buy a lot of tickets. When people buy a lot of tickets, the jackpots go up. When the jackpots go up, people buy more tickets, raising the jackpot even higher, leading to even more tickets being bought.

If there was more than one lottery in an area, neither can get all the business and the jackpots go down. With lower jackpots, fewer overall people will buy tickets, lowering the jackpots further. Eventually, people pretty much stop buying all-together. This is why, I believe, competition destroys lotteries. Two lotteries can't co-exist in one market. Both will die. I think people instinctively understand this and this is why no one even suggests this model of running a lottery, even though no one would even dream of running, say, a movie theater the way they run a lottery.

Plus, I get the impression, perhaps a naive one, that people aren't really interested in lotteries so much anymore. You rarely hear about lottery jackpots getting enormous anymore, and everyone seems to have finally gotten their heads around the fact that it is extremely unlikely you'll strike it rich. So no one really seems to care. Except the naive poor and the mentally deficient of course. But maybe I'm wrong.

Sorry this one is only tangentially about sports. I promise more light-heartedness in the future.