5-year plan advised for lottery

The governor, the Legislature and the Arkansas Lottery Commission need to work together on a five-year business plan to try to reverse the two-year slide in Arkansas Scholarship Lottery ticket sales and net proceeds for college scholarships, a lottery consultant said Friday.

The majority of the nine-member lottery commission should be appointed by the governor because "the governor then has some skin in the game," said Sam DePhillippo, senior vice president of Camelot Global Services, which has offices in Philadelphia and the United Kingdom.

With the House speaker, Senate president pro tempore and governor each appointing three commissioners under the current state law, "it actually gives the executive an excuse to say, 'I won't get involved,'" DePhillippo told the Legislature's lottery oversight committee.

"This is a state agency that is producing $80 million to $90 million to $100 million a year for a terrific cause like scholarships and it needs the political support to prop it up," he said. "You take any successful lottery, and they have the support of the governor."

Afterward, Republican Gov.-elect Asa Hutchinson said he would "have to look at that and debate" whether he would want the Republican-controlled Legislature to change state law to require him to appoint the majority of the commission.

"It's not something I'm advocating right now," he said.

Departing Democratic Gov. Mike Beebe would have welcomed appointing a majority of the lottery commissioners, but he never advocated for that authority, said Beebe spokesman Matt DeCample.

At times, Beebe has been a critic of the lottery, particularly of former Director Ernie Passailaigue, who was hired with a starting salary of $324,000 in June 2009 to guide the development of Arkansas' lottery, after leading South Carolina's program.

Former Democratic Lt. Gov. Bill Halter of North Little Rock, who briefly challenged Beebe for governor in 2006 before changing races, led the successful campaign to persuade voters to pass a constitutional amendment authorizing the Legislature to create a state lottery to raise money for college scholarships.

The lottery has helped finance more than 30,000 Arkansas Academic Challenge Scholarships each year during the past four fiscal years. The Legislature has twice cut the size of the scholarships for future recipients during this period because of declining revenue.

Among other things, DePhillippo said Arkansas' lottery needs to become more consumer-oriented and focused on implementing a five-year business plan.

"It would be much better if the Legislature and a new governor's office was instead holding the lottery director's feet to the fire for a business plan that you all agreed on," he told lawmakers. "That would be so much more productive than having the lottery director [on] an independent course."

State Sen. Missy Irvin, R-Mountain View, likened the lottery to a baby that's born.

"No matter what people's views and opinions of how the baby got here, we've got to take care of the baby, and we have to operate this as a business," she said.

"It's just clear communication, clear targeting of who the people are that are going to purchase the product," Irvin said.

"There are people that will play [the lottery], but they are not just very excited about it because it doesn't taste very good," she said. "I think there are so many easy fixes that I see in this [report from Camelot Global Services]."

But DePhillippo said Arkansas' lottery faces "tremendous challenges because ... from the start, players have been trained in a certain way and have expectations now of price points and prize levels and no interest in what is the mainstay of 80 percent of lotteries, something called Pick 3 and Pick 4 [which is called Cash 3 and Cash 4 in Arkansas]."

Lottery Director Bishop Woosley told lawmakers that the lottery has implemented $4.25 million in cost savings since he was hired as director in February 2012 at a salary of $165,000.

The savings include adjustments in the lottery's scratch-off ticket vendor contract with Georgia-based Scientific Games, a $2 million fee paid by Scientific Games, $600,000 in savings from closing the lottery's regional claim centers and $554,000 in salary savings by keeping certain positions vacant.

Woosley said that many of the recommendations and issues identified by Camelot Global Services have been discussed by the lottery commission during the past few years and that some recommendations have been implemented.

He said he was pleased to see that Camelot Global Services supports allowing the use of debit cards for lottery players to purchase tickets from lottery retailers in Arkansas. The use of debit cards to purchase lottery tickets would require a change in state law.

But DePhillippo said Camelot doesn't have a position on the use of debit cards to purchase lottery tickets in Arkansas, adding that research needs to be conducted to figure out how Arkansas lottery retailers and players feel about it.

Some lottery retailers favor allowing the use of debit cards to purchase lottery tickets, and others oppose it, Woosley said. He said he wants the Legislature to change state law to give lottery retailers the option of accepting debit cards from customers to purchase lottery tickets.

Woosley told legislators that lottery officials "have about $5.2 million sitting on the table that would be a savings" in a proposed three-year contract extension with Athens, Greece-based lottery vendor Intralot Inc. He's estimated that Intralot is paid about $11 million per year by the lottery.

Officials for Camelot Global Services "were critical of our vendor fees. I don't disagree. I want them to be lower," Woosley told lawmakers.

"I would like to hear from them to a figure as to what they think our vendor fees should be. That would be very helpful because we get a lot of criticism, but nobody tells me exactly what they should be," Woosley said.

DePhillippo said it's unusual for a lottery vendor to propose lower fees, but he declined to specify a particular rate for the lottery.

Under its current seven-year contract, Intralot is paid 2.45 percent of lottery ticket sales.

Under Intralot's offer made on Wednesday, Intralot would continue to be paid 2.45 percent of ticket sales until July 1, 2015, after which it would be paid 2.165 percent of ticket sales until Aug. 14, 2019, when the three-year contract extension would expire. Intralot also would provide a one-time marketing allowance of $100,000 to the lottery, $25,000 per year system audit fees and $25,000 per year for charitable contributions supported by the lottery.

Last September, the Legislative Council voted to hire, without taking bids, Camelot Global Services and pay a consulting fee of $149,500, plus reimbursement for travel expenses up to $20,000, at the request of lottery critic Sen. Jimmy Hickey, R-Texarkana.

Metro on 12/06/2014