Recruiting lottery sellers a tall order

Adviser plans 600 more over 5 years

Arkansas lottery Director Bishop Woosley
Arkansas lottery Director Bishop Woosley

Back on May 2, Arkansas lottery Director Bishop Woosley was puzzled about how consultant Camelot Global Services would help the agency accomplish a goal of signing up 100 new retailers to sell tickets in May and June.

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Arkansas Democrat-Gazette

Graph showing Arkansas’ lottery retailers

"What is the secret sauce you have to get this done?" Woosley wrote to a Camelot executive in Little Rock.

The Arkansas Scholarship Lottery had arrangements with 1,904 retailers as of the end of April; that number was roughly consistent with what the lottery had during the past seven fiscal years.

Camelot's five-year business plan for the lottery calls for adding 600 retailers over a five-year period, as well as gradually increasing the annual advertising budget from $5 million to $7.9 million, hiring five more employees, and taking other measures to help increase revenue and net proceeds. Net proceeds go toward college scholarships.

The consultant was hired in November because the lottery's revenue and net proceeds, after peaking in fiscal 2012, dropped in each of the next three fiscal years. But even before Camelot completed work on its five-year business plan for the lottery in March, the lottery's revenue and net proceeds had seen some improvement. With the help of a world-record Powerball jackpot in January, revenue and net proceeds rebounded in fiscal 2016, which ended June 30.

Emails between Camelot officials and Woosley, obtained through the Arkansas Freedom of Information Act, shed light on their private discussions about increasing the number of lottery retailers.

John Skrimshire, Camelot's vice president for commercial operations, told Woosley in a May 2 email that "from a business plan perspective the biggest retail initiative being worked through is the retail expansion."

"I know [lottery sales manager] Mitch [Chandler] put out a note to the team with the quick win 100 new terminals by the end of June objective," Skrimshire wrote. "This exercise is about the quick wins and is separate to geo-mapping, which is a far more detailed and scientific approach and the way we can best understand which areas and outlets to target."

Woosley explained recently that "geo-mapping is an assessment of the existing and potential retailer network and presence across the state to help construct a database of retail channels in the state. This will help us understand the optimal number of lottery retailers and prioritize the under-served areas."

In response to Skrimshire's May 2 email, Woosley, who has been the lottery's director since February 2012, told Skrimshire in an email on the same day, "I am curious as to what support we will be getting on retailer recruitment."

"Not to short sell my team," Woosley said in his email, "but to be honest, if we knew how to recruit 100 retailers in 2 months we would not need your services." Woosley said: "What is the secret sauce you have to get this done?"

In response, Skrimshire said the first phase is a target of 100 new retailers "based on using all the current data at our disposal, including the knowledge of the sales team about their areas."

He wrote that it "seems reasonable" to have each of the lottery's 20 marketing and sales representatives sign up an average of five new retailers by the end of June, "granted that some may not go live until July."

Skrimshire wrote that he has recommended "that time be made available every week for retailer recruitment as this improves the focus from the team. ... There is also the excellent new sales leaflet that the team [is] now using that shows the value of being a lottery retailer."

He wrote that "we also need to document" what retailers have been approached to sell tickets and the outcome of these discussions "to better understand what the barriers are when they occur."

"If we are getting some common themes, we can review to see what can be done to overcome these," Skrimshire wrote. "I fully understand that any changes to the process may require some form of legislative approval, but once we have the information we can put together a good argument. But as a first landmark getting to 2,000 lottery retailers will be a great start when achieved."

Changes in numbers

Woosley said Thursday that 60 new retailers have been added since May 1. That figure doesn't factor in the number of retailers lost during that period.

"It was our goal to recruit 100 new retailers in that period [of May and June]," he said.

According to the lottery's monthly reports, its number of retailers increased from 1,904 on April 30 to 1,917 by May 31, before dipping to 1,910 by June 30 and then increasing to 1,917 on July 31.

The lottery had 1,912 active retailers as of Thursday morning, Woosley said.

Before the Arkansas lottery began selling tickets on Sept. 28, 2009, then-Director Ernie Passailaigue said lottery officials had asked vendors to be prepared to handle up to 2,500 retail locations because "we want to have enough cushion in case there is a flood of applications."

The lottery has never reached that 2,500. When it began, it had about 1,500, according to lottery officials.

Earlier this month, Woosley told the Legislative Council's lottery oversight subcommittee that most of the retailers are convenience stores.

"We don't have very many liquor stores. They are generally a challenge," he said in response to a question from state Sen. Joyce Elliott, D-Little Rock, about retailers not selling lottery tickets. "They are more interested in selling what they sell as opposed to having somebody come in and buy a lottery ticket," he said.

Woosley said each year, roughly 200 to 225 "lapsed retailers" stop selling tickets.

"The challenge is to go out and find those people, and if they had a bad impression or had a bad experience to change that," he told the subcommittee.

For and against selling

Woosley said some liquor stores in some counties have agreements with one another not to sell lottery tickets.

"You just have to go out and try to convince them to stray from that, and that it's a good proposition," he said.

A lottery retailer is paid a 5 percent commission on all lottery sales and a 1 percent commission on winning tickets that it cashes, according to Woosley. In addition, a retailer gets a 1 percent commission for selling winning tickets with $10,000 prizes and above.

Some retailers in Arkansas "just do not want" to sell lottery tickets," and "there is the moral objections some people may have about not participating in the lottery," Woosley said.

"We have several challenges, but we are ready to overcome those."

To help the lottery recruit retailers in the future, Skrimshire told lawmakers that Camelot expects to have "geo-mapping results" this fall to "tell us a lot more about what is the overall opportunity [for additional retailers] based on the population and where it is located in Arkansas."

The number of lottery retailers in the 3rd Congressional District has lagged behind the number of retailers in the state's three other congressional districts. With the aim of increasing lottery chain-store retailers, the lottery plans to hire a key account manager to work with the chains.

Other Camelot efforts

In addition to helping the lottery recruit more retailers, Skrimshire said Camelot is having research conducted on the effectiveness of the lottery's advertisements and how to encourage ticket purchases by nonplaying Arkansans who don't have an issue with playing the lottery.

Camelot also is helping the lottery to implement a prize maximization program to best allocate prize payouts and a new game development program, to have retailers each sell at least 10 "core games" in their dispensers and to improve the design of scratch-off tickets, Skrimshire told lawmakers earlier this month.

Skrimshire is Camelot's only full-time staff member in Arkansas, Woosley said last week.

Camelot also is supplying a marketing manager and retail manager, both of whom will be in Arkansas on occasion to provide support in those areas, said Jake Bleed, a spokesman for the state Department of Finance and Administration. Camelot officials often consult with lottery officials by email and over the phone, according to the lottery's records.

The lottery has helped underwrite more than 30,000 Arkansas Academic Challenge Scholarships during each of the past six fiscal years. The Legislature has cut the size of future scholarships three times during that period because of net proceeds lagging behind initial projections and more students than projected receiving the scholarships.

In fiscal 2016, the lottery paid consultant Camelot Global Services $2,310,775, Woosley said.

That consists of $650,000 in base compensation, $25,181 in expenses and $1,635,594 in incentive compensation, said Bleed. The firm decided to forgo $760,000 from its incentive compensation in fiscal 2016 for the additional sales and proceeds resulting from the record Powerball run in January, Skrimshire told lawmakers in June.

State Sen. Uvalde Lindsey, D-Fayetteville, said Camelot officials "are either the luckiest people in the world" -- who signed a contract to help the lottery when the lottery's revenue and net proceeds hit bottom -- or have "done something in their business plan that works."

"I just don't know which it is," said Lindsey, who is a member of the Legislative Council's lottery oversight subcommittee.

A subcommittee co-chairman, state Sen. Jimmy Hickey, R-Texarkana, said, "I am still cautiously optimistic" about whether Camelot will help the lottery.

"I am a 'show me the money'-type of person. I think the telltale sign will be where we will be in 12 to 18 months," he said.

The subcommittee's co-vice chairman, state Rep. Andy Davis, R-Little Rock, said it's too early to judge Camelot's performance.

It seems like they are doing a lot of research to determine why retailers don't want to sell tickets and why Arkansans, like him, don't buy tickets, said Davis.

Under the contract, Camelot will receive base compensation and expense reimbursements up to $750,000 a year, but also will be eligible for incentive compensation of at least 12.5 percent of the lottery's adjusted operating income above $72.28 million in a fiscal year.

The contract also calls for Camelot to help the lottery negotiate contracts with vendors; the savings would be used to help pay for Camelot's services. The contract will run through June 30, 2020, with options for a two-year extension.

For fiscal 2017, which started July 1, Woosley is projecting revenue of $463.4 million -- up from $456.3 million in fiscal 2016 -- and net proceeds at $80.9 million -- down from $85.3 million in fiscal 2016.

In its five-year business plan, Camelot projects lottery revenue at $463 million in fiscal 2017, $517 million in fiscal 2018, $556 million in fiscal 2019, $581 million in fiscal 2020 and then $615 million in fiscal 2021.

It forecasts net proceeds for college scholarships at $81 million in fiscal 2017, $93 million in fiscal 2018, $99 million in fiscal 2019, $104 million in fiscal 2020 and $109 million in fiscal 2021. Camelot says the business plan would deliver net proceeds of $486 million over five years, compared with $369 million in the "base case" without the changes outlined in the plan.

Camelot would be paid a total of $23.8 million from fiscal 2016 through fiscal 2021 if the lottery meets the projections outlined in the business plan, Woosley said.

Camelot's background

The consultant firm has offices in London and Philadelphia. Camelot operates the United Kingdom National Lottery, according to its website. The Ontario Teachers' Pension Plan owns Camelot, Bleed said.

Besides Arkansas' lottery, Camelot also has worked for the California, Kentucky, Massachusetts, New York and Texas lotteries, as well as for Western Canada Lottery Corp., Bleed said.

"Camelot has produced a five-year plan in particular for the New York State lottery. However, Camelot has also served in a variety of consulting roles for all of the lotteries listed above. In some cases, such as with California and Texas, Camelot has assisted in the creation of long-term business plans which are similar in some ways to Arkansas' five-year plan," Bleed said in a written statement.

The Texas lottery "believes the work product generated by Camelot, during their very brief engagement with the agency, was productive and beneficial," said Kelly Cripe, a spokesman for the Texas Lottery Commission.

A spokesman for the New York Gaming Commission said, "Camelot made widespread recommendations, some of which have been implemented, some remain being considered and some have been deferred or rejected."

Assessments of Camelot's work for the California, Kentucky and Massachusetts lotteries could not be obtained from those states' officials last week.

SundayMonday on 08/28/2016

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