Thai junta seeks to reduce lottery prices, analysts say overhaul needed

Thailand's military chiefs have taken aim at the popular state lottery, saying they are seeking to reduce street prices for the tickets, which are often as much as 40 percent above the official rate of 80 baht ($2.58).

The move is seen by analysts as a further populist step by the junta, the National Council for Peace and Order (NCPO), which took power in May ending months of political conflict.

The lottery is overseen by the Government Lottery Office (GLO) and permits two lottery draws a month. It’s one of the few legal means of gambling in the Kingdom, where legislation on the industry dates back to 1935.

It has been a significant cash cow for successive Thai governments, though has been criticized for issues of transparency, and allegations the draw may be fixed. Analysts said the system may need a much larger overhaul than bringing down street ticket prices to solve the problems and to help reduce the attraction of the booming illegal gambling market.

NCPO chief, General Prayuth Chan-ocha, has threatened to refuse the renewal of lottery ticket distributor contracts in a bid to cap the prices at the official rate. In July, Prayuth in a weekly televised address, admitted the NCPO was unable to force a reduction in street prices to the official rate, but called for cooperation from vendors to "avoid selling tickets for more than 92 baht ($2.97)."

A people's network for lottery reform in July urged authorities to investigate GLO lottery spending. The network said GLO expenditures appeared to benefit certain politicians and raised concerns over issues of disclosure, especially regarding who received funds and how they were spent.  

Currently the GLO issues 72 million tickets for each draw, which is scheduled on the first and 16th day of each month. Of that amount 50 million are sold , with the remainder allocated for "charity purposes."

The distribution of tickets is carried out by powerful underwriters who buy directly from the GLO through a quota system. According to local reports, ticket distribution has been controlled by influential groups, known as the “Three Tigers” for some time.

Out of the 50 million tickets the "three tigers" initially receive three million, with the remaining quotas going to various traders, including individuals, the disabled, and provincial governors, who allocate tickets to retail traders in the region as well as charity foundations.

Based on the pricing scale, tickets are sold at a discount to individual traders and juristic persons at a rate of 74.40 baht each. The tigers pay 72.80 baht. But, reportedly some 80 percent of tickets allocated to individual and retail traders, as well as foundations, are then sold to networks controlled by the tigers' distributors and other large traders at between 81 and 86 baht.

In turn, the tigers "resell the tickets to wholesale traders, who do not get quotas from the GLO," with a 5 baht (16 U.S. cents) markup. Those wholesale traders, largely in Bangkok, in turn sell the tickets to retail traders and vendors with a further 5 baht mark up. As a result final ticket prices are up to 110 baht ($3.55), allowing for transport and other expenses.                                     

Prizes in the state run lottery are largely based on the six digit tickets, but smaller payouts occur on tickets based on the last two and three digits. The lottery has also led to a booming underground lottery based on the final digits of the actual state winning lottery. The underground lottery enables people to play for as little as 20 baht.

A 2011 survey by Chulalongkorn University's Social Research Institute found the underground lottery was the most popular form of gambling with as many as 19.9 million regular participants. The survey said the official government lottery attracted 19.2 million players, casino-style gambling (3.1 million), and gambling on football (1.1 million).

The Chulalongkorn University's Centre for Gambling Studies survey estimated 102 billion baht ($3.29 billion) was spent on the underground lottery, 76.7 billion baht ($2.47 billion) on the government lottery, 46.3 billion baht on casinos, and 38 billion baht on football betting.

Former finance Minister, Korn Chatikavanij told AGB in an interview that the army appears to be seeking to please the population.

Korn, a member of the Democrat Party, and finance minister from 2008 to 2011, criticized previous governments for failing to address the issue of lottery ticket prices.

"It is a bad reflection on Thai governments - and I mean every government; and when I was in office we made a move to correct this and came out with a plan to do so but we were not able to execute it for legal reasons at the time," he said without clarification.

He blames the way tickets are allocated. "The structural problem is this. The way the system works is that the GLO requires takers of each series of lotteries (they) don't allow takers to re-sell them back to the GLO."

"That of course doesn't make sense for economic reasons because everybody knows in each tranche not all lotteries are sold, not all of them can be passed on to the consumer,"  he said.

Part of the problem,  Korn said is "there needs to be an underwriter - somebody who is willing to take on the risk of the whole tranche and that underwriter invariably has to be someone with very deep pockets. Technically, once there is an underwriting there is a fee, there's a risk."

The Tigers' distributors "basically provide a firm guarantee to GLO and in practise they are the only people able to do so, and that's why they get the quota."

To ensure the lotteries are sold at the right price the end customer needs to be able to buy directly from the government without there being any middlemen, he said.

Such reforms would see customers purchasing lottery tickets electronically, such as through ATM machines, essentially directly from the government. Individual traders could use hand-held devices to provide print outs of tickets.  

But politicians have been reluctant to make changes to Thailand's Gambling Act to allow technological advances.

GLO officials had been reported saying the issue of overpriced lottery tickets would only be resolved if the GLO Act was amended to allow ticket sellers "a fair share of the profit" and reform strict requirements over the allocation of ticket revenues.

Korn says there appears to be a reluctance "to do what is necessary" and has led to concerns of possible suspicions that the military now in power "don't want to give up the honey pot.".

He says the military is using tough methods in a bid to force distributors to reduce the prices threatening to "change the quota".  "They have got to be careful," he said.