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In Nashville, Tennessee, the state’s Education Lottery Fund is experiencing a decline as scholarship demands rise and lottery ticket sales dwindle, prompting state lawmakers to explore alternative funding sources.
For years, the Tennessee Education Lottery has been a crucial supporter of state scholarships, such as the HOPE Scholarship and Tennessee Promise.
The state reports that in the 2024-2025 fiscal year, revenue from the Tennessee Education Lottery saw an 18% drop, equating to nearly $90 million less compared to the previous year. At the same time, spending related to the lottery increased by 7%.
Dr. Don Bruce, a Boyd Distinguished Professor at the Haslam College of Business at the University of Tennessee and director of the Boyd Center for Business and Economic Research, noted, “We’ve broadened enrollment and scholarship amounts and coverage. Meanwhile, lottery earnings have been unpredictable, or to put it bluntly, they’ve declined.”
According to economists who briefed lawmakers on Tuesday, a decrease in lottery ticket purchases is evident, partly due to the competition from legalized online sports betting. This shift has resulted in an $80 million shortfall between scholarship expenses and lottery revenues.
The state has been using some of the sports wagering revenue to fill the scholarship funding gap, however, that revenue stream is also at risk due to the emergence of a new online market.
“This is the number that we expect it to grow to: $544 million. The lottery is only growing to $465 million,” Sen. Bo Watson (R-Hixson) said.
“We refer to that as a structural deficit of some $80 million, and it’s been fortunate that we’ve been able to fill that gap with sports wagering revenues, but those are under threat as well,” Bruce replied.
Bruce told lawmakers the increasing popularity of prediction markets, where people can bet on the outcomes of future events, has created more competition for sports wagering. Since prediction markets are primarily regulated by the federal government, the state isn’t able to make any tax revenue from the industry.
In addition, lawmakers have promised some sports betting revenue for other projects, including building and maintaining public schools.
“With the bigger and bigger shortfall from the traditional lottery, you can’t do those things because the gap has become so big, having to make up scholarship funding,” Jason Mumpower, Tennessee Comptroller of the Treasury, said. “When you think back to the founding of the lottery, and I happened to be in the legislature at that time, and the promises made to scholarship funding back in that day — I don’t think we could’ve seen how that demand for scholarship funding was going to grow; how we might see the natural wane of traditional lottery funds coming in.”
Economists recommended lawmakers consider diversifying revenues to continue funding programs paid for through lottery and sports wagering revenues to ensure they can keep the programs running.
“It’s not an easy problem to solve, but we know it’s there,” Bruce said. “The iceberg is visible.”
“I think within the next couple of years we’re going to have to have a real conversation about the lottery and what we’re funding out of the lottery,” Watson added.
No action was taken during the committee hearing. Officials affiliated with the Tennessee Education Lottery and the Sports Wagering Council will present additional information to lawmakers next week.