The Arkansas Scholarship Lottery gambled and lost about $284,000 on its Jan. 2 Million Dollar Raffle.

Lottery Director Bishop Woosley told the Lottery Commission on Wednesday that because of the loss and a decline in instant-ticket sales, the projected net proceeds for college scholarships - previously set at $90 million - will be lowered before the commission’s February meeting. The commission voted to ask a subcommittee to determine why the raffle flopped.

The lottery’s overall December revenue of about $35.5 million fell almost $4.3 million, or 10.8 percent, below what the commission had budgeted for the month.

Year-to-date revenue was also down about $6.8 million compared with revenue for the same months in fiscal 2013. The lottery had collected $199.4 million by the end of December, compared with $206.2 million collected through December 2012.

Total scholarship proceeds during the first six months of fiscal 2014 totaled $36.7 million, down from $40.5 million during the first half of fiscal 2013 - a drop of about $3.8 million.

“We still do better than other states our size, even though we are down,” Woosley said. “We had such a great launch, a great first two years, that in some respects it’s difficult to go up.”

Woosley said the lottery had modeled this month’s drawing on a successful raffle endeavor from previous years when tickets sold out. He said the lottery tried to learn lessons from player feedback on that raffle and incorporate those comments into the Million Dollar Raffle, including setting a drawing date and sticking to it. The previous raffle drawing date moved three times to allow for tickets to sell out.

“It is a game that has a … life span, and the risk when you set a date for a drawing is that you don’t sell out, or you don’t sell enough tickets to make a profit,” Woosley said.

“I went on TV and talked about it. We did different promotions, but it didn’t take. Players didn’t buy tickets. It’s disappointing.”

Woosley said he spent New Year’s Eve checking sales numbers on his phone, hoping they would improve before the $1 million drawing. In all, the game gave out $1.7 million in prizes because of early-bird drawings and other incentives. Raffle ticket sales totaled less than $1.5 million, meaning once the prizes were awarded, the lottery had lost money even though the raffle was projected to generate $500,000 in profit when it was launched.

“We’ll review it and we’ll go back and try to see what we did right and what we did wrong and analyze whether or not we even run a raffle again,” he said.

Woosley said the lottery would likely cut out some of the lower-tier prizes if it ran another raffle, and he questioned whether the winter drawing date was part of the problem.

“Maybe the lesson in this is that you may not be able to bolster sales during that time,” he said, noting that the best sales months are generally February, March and April.

In addition to the raffle loss, which will be reflected in the January financial report, the lottery’s instant-ticket sales also caused some concerns for the commission.

At the end of December, instant-ticket sales were more than $6.8 million or 21.4 percent below the 2014 fiscal budget projections and more than $13.5 million below 2012 sales during the same period.

Commissioner Mark Scott of Bentonville asked why the director was not more concerned about the shortfall in sales.

“That’s 21 percent less than what we expected to make on instant tickets. How do we look at February and March and not come in here and think … how do we offset that?” he asked.

Woosley said it’s hard to project what kind of sales the lottery will have for individual games because a lot depends on economic factors. He said the lottery looks at sales during that month in previous years as well as sales in preceding months to predict sales.

One bright spot is the lottery’s fiscal 2014 online sales between July 1 and Dec. 31, which increased above projections by more than $2.5 million and have exceeded the same months’ sales in fiscal 2013 by about $6.7 million.

Woosley also said Wednesday that the lottery will look into ending its contract with the multistate game Decades of Dollars, which is performing “significantly below” the annual $9 million sales projections. He said the lottery will consider a contract with a multistate New England-based game called Lucky for Life.

“We’ve had hundreds of $10,000 winners in Decades of Dollars but no grand prize winner here in three years,” he said. “We believe we’re fairly more likely to see a grand prize winner here with this new game.”

In other business, the commission voted 5-4 Wednesday to increase the mileage reimbursement rate for lottery employees effective immediately from the state standard of 42 cents per mile to the Internal Revenue Service determined rate, which was56 cents per mile as of Jan. 1.

The move was made as part of an incentive plan for the lottery’s 22 marketing and sales representatives, who are being urged to boost the number of retailers carrying lottery tickets. If the representatives maintained the same number of miles in 2013 as 2012, the increase will mean an additional $66,000 in expenses - about $3,000 per employee.

Lawmakers were reimbursed 56.5 cents per mile, while state employees were reimbursed 42 cents per mile last year.

In addition to mileage, the commission also briefly discussed another IRS-related matter Wednesday. The federal agency has slapped the Arkansas Scholarship Lottery with $9,500 in fines because of misreported tax ID and Social Security numbers for its winners.

For every prize worth more than $600, the lottery is required by federal rules to record a tax-ID number and other information from the winners. But winners don’t always provide the information to lottery officials and the lottery doesn’t withhold prizes when the information hasn’t been provided unless the prize is more than $5,000, officials said. Jerry Fetzer, the lottery’s chief financial officer, said the majority of the fines were for prizes between $600 and $5,000, and it would take an additional employee to be able to verify all of the prize-winner information.

The lottery has appealed the IRS fines, but paid them to avoid any interest or penalties if the appeal fails, officials said.

Front Section, Pages 1 on 01/16/2014