In its strategic plan for the next five years, the Arkansas Scholarship Lottery says it will be necessary for the Arkansas General Assembly to strongly consider authorizing the lottery to launch an iLottery digital platform to sell tickets to remain competitive and current with consumer demand.
Of the 46 lotteries currently operating in the United States, Georgia, Illinois, Kentucky, Michigan, Minnesota, New Hampshire, North Carolina, Pennsylvania, Virginia and Washington, D.C., have some form of iLottery, said Eric Hagler, director for the Arkansas Scholarship Lottery.
In addition, there are about seven other state lotteries "in queue" for deployment and the line for development by external vendors will assuredly grow, the lottery said in its strategic plan through fiscal 2027.
Arkansas' surrounding states of Louisiana, Missouri, Mississippi, Oklahoma, Tennessee and Texas do not currently offer iLottery, Hagler noted.
Arkansas Scholarship Lottery is currently authorized to distribute lottery games through a single distribution channel of brick-and-mortar retail establishments, the lottery said, in what its management identified as one of four material weaknesses.
"Increasingly, the retail landscape is shifting towards digital distribution whereby consumers can place and receive orders through engagement with the Internet," according to the lottery. "Increasingly state lotteries are implementing secondary distribution channels that allow consumers to conduct lottery transactions in a touchless environment that does not require them to leave home."
The lottery is prepared for any contingency, said Hagler, who has been the lottery's director since August 2020.
"If there is no desire for iLottery, then we have a forward path in the mono-channel," he said in a written statement. "If iLottery is authorized, then we will execute on that mandate, as well."
The lottery's major term contracts expire in calendar year 2026, Hagler said.
"If iLottery is desired, the ideal timing would be to align the launch with the implementation of new term contracts in 2026," he said. "This would mean that Lottery would need approval in 2025 in order to prepare for launch sometime in [calendar year] 2026-2027."
Hagler said the important takeaway is the "Lottery intends to foster and grow our support in the mono-channel, regardless of iLottery."
"Brick and mortar is the keystone to the success of the Lottery, while iLottery is a convenience platform that can serve to support retailers through cross-promotion and incentives," he said.
Asked whether Gov.-elect Sarah Huckabee Sanders has any thoughts about whether the state should eventually authorize an iLottery digital platform to sell lottery tickets, Sanders spokesman Judd Deere replied, "No comment."
In March 2020, the lottery started a pilot program with Jackpocket Inc. to offer sales of lottery games through a mobile app, but a physical ticket generated from a licensed lottery retailer is required, according to the lottery.
"This pilot program served as proof of the concept that the consumer market desired such a purchase option," the lottery said in its strategic plan. The lottery is seeking to amend its rules to allow qualified licensed retailers to contract with registered financial couriers and "all sales will be conducted through and captured on the counter terminals of licensed retailers in the form of a physical ticket."
"This is an important distinction from digital play of lottery games, which is commonly [referred] to as 'iLottery' and is considered a second distribution channel requiring authorization," the lottery said.
Only draw tickets may be purchased through Jackpocket, but Winners Corner in Little Rock is Jackpocket's licensed retailer and the store sells instant tickets on site, said Scott Hardin, a spokesperson for the state Department of Finance and Administration.
In the 2021 regular session, state Rep. Aaron Pilkington, R-Knoxville, introduced legislation that would have created the Arkansas Lottery Keno and iLottery Act.
But officials for the lottery, Oaklawn Racing Casino Resort in Hot Springs and Southland Casino Racing in West Memphis said they opposed the bill, which died without fanfare in the 2021 regular session. In April 2o21, Hagler said that keno is not a fit for the lottery's current operations and the iLottery language in House Bill 1869 was "merely a second avenue for the distribution of keno, and related 'numbers' games."
The lottery has nearly 2,000 retailers that sell tickets.
The Arkansas Scholarship Lottery has sold tickets since Sept. 28, 2009.
It has raised $6.29 billion in revenue through July 2022, and raised $1.18 billion for college scholarships through July 2022, according to its strategic plan.
In fiscal 2022, the lottery collected revenue of $580.2 million and raised $99.7 million for college scholarships. They are the second-largest amounts that the lottery has reported in any fiscal year, trailing only fiscal 2021 when the lottery collected revenue of $632.5 million and raised $106.6 million for college scholarships.
Lottery officials have attributed fiscal 2021's record numbers in part to factors brought on by the covid-19 pandemic.
Hagler said state lotteries can expect to see a 7% to 10% increase in the first years of an iLottery based on what other states have experienced.
"Regardless, each lottery operates differently, so comparison requires some inquiry," he said in a written statement. "It [iLottery] is intended as a supplemental distribution channel, as brick-and-mortar remains the primary channel."
During the Legislative Council's lottery oversight committee meeting Dec. 14, Hagler noted that state Rep. David Ray, R-Maumelle, inquired about the lottery's latest strategic plan and he sent a copy of the plan to Ray through the Bureau of Legislative Research.
Hagler said in a written statement that "To be sure, the Plan is conservative, as we are currently seeing excellent performance in our mono-distribution channel.
"Also, it is important to note that the strategic plan is fluid and subject to revision. It is merely a view of where we are, where we would like to be, and sets out any obstacles associated with completing various initiatives," Hagler said.
Ray said he began attending the Legislative Council's Lottery Oversight Subcommittee meetings earlier this year because he has developed an interest in this subject matter.
"As I have learned more, I'm continuing to develop my ideas about the lottery and how it can best serve Arkansans," he said. "At this time, I am not ready to share proposed changes or recommendations, but I am continuing to learn more and study this issue."
Asked about allowing the lottery to become a digital iLottery, Ray said, "As a general rule, I oppose state-sponsored gambling, which is different from private gaming.
"The state shouldn't sell products that we know harm our own citizens, particularly the poor, even if we try to make ourselves feel better about it by spending the proceeds on scholarships," he said. "So I can't imagine that a digital lottery would be a good idea. The only way I would entertain a digital lottery would be if the legislature used a digital lottery to replace the $20 million in annual general revenue that is used to subsidize the lottery. That would allow the legislature to further expedite the tax relief we have worked hard to provide to Arkansas families."
Amendment 87 to the Arkansas Constitution -- enacted by voters in 2008 -- authorized the Legislature to create a lottery to raise net proceeds for college scholarships. In 2009, the General Assembly enacted legislation to create the state lottery and use the net proceeds for college scholarships.
Lottery Oversight Subcommittee Co-Chairs Sen. Ron Caldwell, R-Wynne, and Rep. Gary Deffenbaugh, R-Van Buren, said Tuesday they haven't read the lottery's five-year strategic plan.
ARKANSAS SCHOLARSHIP LOTTERY APP
A lottery-branded mobile app is a significant opportunity identified by the lottery's managers under the lottery's strategic plan.
The lottery has used a Scientific Games International-provided mobile application branded the Players Club for the limited purpose of allowing customers to enter the Second Chance Drawing as well as the Points for Prizes program, where customers can enter non-winning tickets for a second chance to win and/or obtain points that are redeemable for merchandise, according to the lottery.
"...it was determined that consumer sentiment in the lottery sector was moving towards enhanced mobile applications that allow users to check their tickets for wins via mobile app," the lottery said in its strategic plan. "Furthermore, due to the move by consumers toward digital engagement, it also was determined that the mobile application should be branded as the Arkansas Scholarship Lottery mobile app."
Hagler said "we are targeting a February 2023 roll-out to our players.
"The facing of the app will be branded around Arkansas Scholarship Lottery with familiar fonts, logos, winning numbers, and access for members of our Player's Club," he said. "Apps are ever-developing, but our research revealed that our players wanted to be able to check their tickets to determine if they win a prize. Our previous app did not offer players this convenience, and we believe it will enhance player satisfaction."
MAJOR VENDOR CONTRACTS
One of the lottery's material weaknesses identified by the lottery's management in its strategic plan is that the lottery is currently operating under a set of vendor contracts that "include significant deficiencies both to value add (Intralot) and bonus compensation (SGI)." SGI is Scientific Games International.
Additionally, the Science Games International contract renewed in 2019 provided the vendor with an exclusive right to provide instant tickets for sales through Arkansas Scholarship Lottery sales, the lottery said in its strategic plan.
The central gaming system contract with Intralot was executed in 2019 and does not provide at vendor expense for the immediate deployment of technology and/or equipment developed mid-contract, according to the lottery.
"Likewise, the Intralot contract does not provide for, at vendor expense, the periodic refreshing of retail equipment," the lottery said in its strategic plan. The lottery said it "is effectively 'locked in' to the terms of this contract without consideration for the technological and equipment advancements that logically occur over a seven year ... term."
Retail equipment deficiencies is another of the material weaknesses identified by the lottery's management in its strategic plan.
The instant ticket contract with Scientific Games International executed in 2019 provides for a 4.5% "bonus payment" for all sales of instant tickets that exceed $360 million a year during the contract period, according to the lottery.
"Thus, once sales of instant tickets exceed $360,000,000 executive management must balance top-line sales with a keen eye on delivering normalized ROS [return on sales]. Such should not be the case, as the interest of the vendor (SGI) should be fully aligned with the interest of the client," the lottery said in its strategic plan.
The bonus payment is in addition to the 1.3% payment on all sales of instant tickets during the contract period, according to the lottery.
"Thus, once sales of instant tickets exceed $360 [million], SGI receives 5.8% on the sales of instant tickets."
The expiration of the current vendor contracts in fiscal year 2026 is an opportunity for the lottery management to "correct a current 'weakness,'" according to the lottery.
The lottery management "should take the opportunity to ensure that the upcoming round of multi-year (term) vendor contracts are more carefully tailored to ensure that both parties are aligned with both specific financial goals and overarching business considerations," the lottery said in its strategic plan.