An Arkansas legislative panel Thursday narrowly endorsed giving Camelot Global Services a contract to develop a business plan for the Arkansas Scholarship Lottery.
Camelot Global Services would be paid up to $750,000 a year in base compensation and expenses to prepare the plan and help implement it.
The firm would also receive between 12.5 percent and 15 percent of any annual "adjusted operating income" above $72.28 million through at least June 30, 2020.
The Legislature's lottery oversight committee also recommended approval of a proposed 10-year contract extension with lottery vendor Scientific Games International that would lower the percentage of revenue that the Georgia-based company receives from scratch-off ticket sales.
The Arkansas Legislative Council will consider the oversight committee's recommendations on the two proposed contracts during its meeting this morning in Little Rock.
After 21/2 hours of discussion, the lottery oversight committee voted 8-5 to sign off on the lottery's proposed contract with Camelot Global Services, over the opposition of its co-chairman, Sen. Jimmy Hickey, R-Texarkana.
Committee Co-Chairman Chris Richey, D-Helena-West Helena, initially ruled that the committee had rejected a motion by state Rep. Andy Davis, R-Little Rock to approve the contract. With only eight on the committee voting yes, Richey ruled that the motion had failed because it needed 10 votes to pass.
But Richey reversed his decision after consulting with Bureau of Legislative Research officials. They told him that it only took a majority of the 14 members in attendance to obtain approval and that the motion had therefore passed.
The lottery has helped finance more than 30,000 Arkansas Academic Challenge Scholarships during each of the past six fiscal years.
But the lottery's revenue and net proceeds have declined each of the past three fiscal years. The Legislature has cut the size of the scholarships for future recipients three times, partly because the lottery's net proceeds falling short of initial projections.
In September of last year, the Legislative Council -- at Hickey's request -- hired Camelot Global Services to review the lottery and make recommendations to approve it.
It was a no-bid contract, and the consultant received $169,500 for its work.
The Capitol Advisory Group lobbying firm of Bill Vickery and Mitchell Lowe represents Camelot, according to records in the secretary of state's office.
For the latest contract,the lottery proposed hiring Camelot over two other firms that submitted proposals.
The consulting firm, which has offices in London and Philadelphia, would be paid base compensation of $650,000 in the fiscal year that is to end June 30 and up to that amount in subsequent years.
Camelot also would be reimbursed for up to $100,000 in mutually agreed-upon expenses each year.
Two one-year extensions could be approved, extending the contract beyond 2020.
The consulting contract will benefit the lottery, said Larry Walther, director of the state Department of Finance and Administration. The lottery has operated within the department since late February.
"I feel like it is time for some fresh eyes, and this is what we developed in order to provide additional money to the lottery scholarship," Walther told lawmakers.
"They are going to have probably 15 people in Arkansas working full time with the Arkansas Lottery hand in hand," Walther said.
"The dollar amount doesn't seem that unreasonable because they are going to be here 12 months a year working with us to get things turned around," he said.
Camelot would get a percentage of any "adjusted operating income" above $72.28 million in any fiscal year. The company would keep 12.5 percent of that income between $72.28 million and $80 million; 13.75 percent of that income between $80 million and $90 million; and 15 percent of any adjusted operating income above $90 million.
The proposed agreement defines "adjusted operating income" as operating income before charging any expenses relating to services provided by the state Department of Higher Education, the Arkansas Legislative Audit (formerly the Legislative Audit Division), legal and professional services, and depreciation. Adjusted operating income measures the performance of the lottery without consideration of expenses that are deemed beyond the lottery's control, said Jake Bleed, a spokesman for the Finance and Administration Department.
The proposal says Camelot will help the lottery renegotiate contracts with vendors and the savings will be used to help pay for Camelot's services.
Lottery Director Bishop Woosley said Camelot would help the lottery improve its draw-game sales, expand beyond its 1,910 retailers and make more money.
The lottery originally expected to have 2,200 lottery retailers and "if we just increase by 100 retailers times $4,100 a week, that's $40 million in sales that we can increase," he said.
Richard Bateson of Camelot Global Services said the lottery could increase the amount raised for college scholarships by up to $136 million over five years, or about $27 million a year over that period.
The lottery raised $72.4 million for college scholarships last fiscal year, a $9 million drop from the previous fiscal year.
Hickey said that he's "an advocate for Camelot."
But he said, "I am not an advocate for the way the contract is written.
"Now we are going to come in and pay $650,000, plus up to $100,000, plus with 12.5 percent [of income above certain levels]," he said.
"It is not going to go over well," Hickey said.
Reps. Scott Baltz, D-Pocahontas, Ken Bragg, R-Sheridan, Mary Broadaway, D-Paragould, Joe Farrer, R-Austin, Mark Lowery, R-Maumelle, and David Branscum, R-Marshall, joined Davis and Richey in voting for the contract.
Sens. Uvalde Lindsey, D-Fayetteville, Larry Teague, D-Nashville, Joyce Elliott, D-Little Rock, and Rep. Lanny Fite, R-Benton, joined Hickey in voting against it. Sen. Terry Rice, R-Waldron, didn't vote.
In a voice vote with a few lawmakers dissenting, the committee later recommended that the Legislative Council approve the proposed contract extension with Scientific Games.
The action came after the committee rejected a motion to delay action on the proposed contract extension until its next meeting to allow committee members more time to study the proposal that they received Wednesday morning.
Scientific Games has had the lottery's contract for scratch-offs since the lottery began. The seven-year contract started Aug. 18, 2009.
Under the proposed contract extension, the lottery would exercise its option to renew the contract for three one-year periods, and the lottery and Scientific Games would agreed to extend it until Aug. 18, 2026.
Scientific Games, which is represented by lobbyist Camie Boggess of Heber Springs, would cut the percentage of scratch-off sales that the lottery pays the vendor from 1.81 percent to 1.3 percent.
The lottery and Scientific Games also would agree that the vendor would be paid a one-time bonus equal to 4.5 percent of all scratch-off sales exceeding $360 million in a contract year in which scratch-off ticket sales exceed $360 million.
"If we get to a scenario where we are paying a bonus structure to Scientific Games, we have grown the lottery significantly, and in that instance we are making considerably more money off the lottery operations," said Gov. Asa Hutchinson's aide Carlton Saffa.
Metro on 10/16/2015