For the first time in four years, the Arkansas Scholarship Lottery's total revenue and net proceeds raised in a fiscal year increased over the previous 12-month period, the lottery reported Monday.
Fiscal 2016 revenue totaled $456.3 million, an increase of $47.1 million over the previous fiscal year. Net proceeds -- the amount raised for college scholarships -- increased by $12.7 million, to $85.3 million, over what was raised in fiscal 2015. Fiscal 2016 ended June 30.
In fiscal 2012, the lottery's revenue and net proceeds peaked at $473.6 million and $97.5 million, respectively, and they dipped each of the next three fiscal years. The lottery started selling tickets on Sept. 28, 2009.
The lottery's receipts in the recently ended fiscal year were buoyed by a record $1.6 billion Powerball jackpot in January -- when the lottery reported revenue of $58.7 million, a record for any month, and net proceeds of $13.8 million, also a record for any month.
The lottery has helped finance 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 the past several years because of net proceeds lagging initial projections and more students than initially expected receiving scholarships. In addition to net proceeds, the scholarships are funded by $20 million in general revenue and $20 million from the lottery reserve fund, which is used to cover temporary cash shortfalls in the scholarship program.
According to the state Department of Higher Education, 34,125 college students received Academic Challenge Scholarships totaling $96.5 million in fiscal 2016. The amount for scholarships handed out peaked at $132.5 million in fiscal 2013. The total spent on scholarships is expected by the department to drop to between $84 million and $86 million in fiscal 2017 because of changes enacted in 2015.
State legislators said Monday that they want to make sure the lottery's rebound in fiscal 2016 isn't just a Powerball-induced boost before they consider changes to the scholarship program.
"I just hope we can continue on the trend," said Sen. Jimmy Hickey, R-Texarkana, co-chairman of the Legislative Council's Lottery Oversight Subcommittee.
"One year doesn't make a trend," Hickey said.
The subcommittee's other co-chairman, Rep. Chris Richey, D-Helena-West Helena, said he wants to see whether the increased revenue and net proceeds resulted largely from "the big run in January with Powerball" or whether increased sales will continue.
Lottery Director Bishop Woosley said $12.7 million more was raised for scholarships in fiscal 2016 than the previous year largely because "we had almost $50 million more in sales this year versus last."
"The increase in sales of our more profitable games also helped to increase the proceeds numbers," he said in a written statement.
"In the spring of last year we were moved under the Department of Finance and Administration, which reduced our expenses and personnel and resulted in more money for scholarships. We currently operate with 65 employees, which is 30 less than what our statute allows. We also reduced some of our vendor costs through renegotiations of contracts which means increased proceeds and, as a result, more money for scholarships," Woosley said.
The lottery's employee compensation and benefits dropped from $5.7 million in fiscal 2015 to $4.6 million in fiscal 2016, according to the lottery's reports.
In late February 2015, the lottery went from being an independent agency to falling under the finance department, and the independent, nine-member Arkansas Lottery Commission was abolished as a result of legislation enacted by Republican Gov. Asa Hutchinson and the Republican-controlled Legislature.
Fiscal 2016 is the first full fiscal year in which the lottery has been under the control of the executive branch led by Hutchinson.
"The improved results of the lottery is partly the result of the improved efficiency and reorganization within the Department of Finance," said Hutchinson. "I also applaud the hard work of our employees who deserve much of the credit.
"And I am very proud that the Arkansas Lottery benefits Arkansas students in such a personal way, providing scholarships and opportunity to further their education," he said.
"This is more evidence of the positive that comes from an increased commitment to improving efficiency across state government. Let's keep it up," Hutchinson said.
The lottery's scratch-off ticket revenue increased by $25 million over fiscal 2015 to $360 million in fiscal 2016, while its draw-game ticket revenue increased by $21.9 million to $95.5 million, according to the lottery's monthly report to Hutchinson and the Lottery Oversight Subcommittee. The lottery's revenue also includes retailer fees.
Woosley, who has been the lottery's director since February 2012, cited several reasons for increased scratch-off ticket revenue.
"In late 2014 and early 2015 we made changes to our instant ticket program, which included our Play it Again program and our Points for Prizes programs [and] this allowed us to allocate more cash prizes in the games, meaning players are more likely to win," he said in a written statement. "Those changes, plus changes to our instant ticket mix, resulted in increased sales for instant games over the last 24 months.
"We have also been more mindful of how we execute in our retail locations to ensure that we have the right tickets out for sale and our retailers are following best practices. A new approach to our advertising and renewed emphasis on the students who benefit from lottery scholarships have also been an integral part of the success.
"And obviously anytime gas prices are low, people have more discretionary money for other purchases including lottery tickets. The employees here at the lottery have worked very hard over the last two years to improve our sales and proceeds numbers," Woosley said.
Woosley said the draw-game ticket revenue increased in fiscal 2016 because "the Powerball jackpot in January was a huge boost for our draw game sales. It also introduced new players to the lottery who have never played before."
"In addition to Powerball, we had our best year ever for Powerball, Cash 3, FastPlay and Lucky for Life, and Natural State Jackpot sales improved over last year. Between the Powerball run and the increase in sales for other games, the lottery had a record year for draw game sales," he said.
In fiscal 2016, the lottery paid consultant Camelot Global Services $2,310,775, Woosley said.
That comprises $650,000 in base compensation, $25,181 in expenses and $1,635,594 in incentive compensation, said Jake Bleed, a spokesman for the Department of Finance and Administration.
Last month, an official representing Camelot told lawmakers that the firm has 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.
In November, lottery officials signed a contract with Camelot to develop and help implement a business plan. The consultant firm has offices in London and Philadelphia.
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.
In March, the lottery signed off on the consultant's five-year business plan that calls for the agency to set out about 600 more terminals, hire five more employees and increase its marketing budget from $5 million to $7.9 million, among other things.
For fiscal 2017, 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.
"We cannot expect that there will be another huge Powerball jackpot or other draw-game run like we saw this year," Woosley said when asked why he's projecting increased revenue but reduced net proceeds.
"Sales from those games raise more money for scholarships than sales from instant ticket games. Accordingly, even though our sales may increase in instant ticket games next year, our profit will not be as much as it was this year. That said, we are optimistic for the future and believe the changes made over the past year, combined with the assistance of Camelot, will result in a better lottery and more scholarships for young Arkansans," he said.
Woosley said the lottery is scheduled to implement various recommendations from Camelot in fiscal 2017, such as trying to maximize sales through more than 100 vending machines and launching a retailer recruitment initiative. The lottery reported 1,910 retailers selling tickets as of June 30.
A Section on 07/12/2016