CLARKSVILLE -- The Arkansas Lottery Commission on Wednesday weighed whether to extend lottery vendor Intralot's seven-year contract by three years, with the lottery director projecting cost savings of more than $1 million a year.
The savings would be helpful -- lottery ticket sales have fallen the past two years, and scholarship proceeds are down. Commissioners learned Wednesday that the downward trend had continued so far in fiscal 2015, as ticket sales have fallen compared with the same period a year ago.
After the commission debated for about an hour about whether to accept Athens, Greece-based Intralot's latest contract extension offer, Intralot and lottery officials said the company misunderstood the lottery's last offer to extend the company's contract by three years. An Intralot official said he would confer with company officials about whether they could further reduce the cost of its proposed contract extension.
Afterward, Lottery Director Bishop Woosley said the commission is aiming to meet Monday by way of a teleconference to consider its options regarding the Intralot contract.
The lottery started selling tickets on Sept. 28, 2009, and sales and the amount raised for college scholarships have declined during both fiscal 2013 and fiscal 2014. The lottery's net proceeds have helped finance Arkansas Academic Challenge Scholarships for more than 30,000 students a year during the past four fiscal years although the size of the scholarships for new recipients has been cut twice in recent years.
Dipping sales and net proceeds for college scholarships prompted the Legislative Council in September to approve a $149,500 contract for Camelot Global Services of Philadelphia to study the operations of the lottery and make recommendations on how to increase scholarship revenue.
TICKET SALES
During the first four months of fiscal 2015, the lottery's revenue dropped by $6.5 million (4.9 percent) from the same period a year ago to $126 million, Woosley reported to the commission during its meeting at the University of the Ozarks.
Sales of scratch-off tickets increased by $1.1 million during the first four months of fiscal 2015 from the same period a year ago to $103.1 million.
"The good news is for four consecutive months we've been up [in scratch-off sales], and that's the lion share of what we make," Woosley said. "With what we have got planned for the rest of the year, that's only going to increase."
But ticket sales for draw games, such as Powerball and Mega Millions, decreased by $7.6 million (25.1 percent) during this period from a year ago to $22.7 million, Woosley reported.
"We are really kind of at the mercy of the jackpot beast," he said, and "every single bit" of the decline in draw-game ticket sales is because Powerball sales are waning.
Woosley said Powerball jackpots seldom go above the $150 million to $175 million range -- levels that lead to spikes in ticket sales.
Dozens of other lotteries have a similar problem, he said.
"There's 44 lotteries that are really relying on it, and it is a huge problem nationwide," he said. "You count on those jackpots to be cyclical, and the only problem is we just haven't got to where we need to be in Powerball from a jackpot standpoint."
The lottery's net proceeds for college scholarships also dipped, by $2.6 million, during the first four months of this fiscal year from the same period a year ago to $21.4 million.
The $7 million decline in Powerball sales in the first four months of fiscal 2015 has reduced what they might have contributed to net proceeds by about $3.5 million during this period, Woosley said.
"I think we are still making progress, and if we can get Powerball and Mega Millions games cooperating a little bit, it is going to make up quite a bit of ground," he said.
In fiscal 2012, net proceeds peaked at $97.5 million. They dropped to $90.2 million in fiscal 2013 and to $81.4 million in fiscal 2014. The lottery projects its net proceeds will be $78.2 million in fiscal 2015, which started July 1.
INTRALOT CONTRACT
In 2009, the commission and the Legislature's lottery oversight committee signed off on a seven-year contract with Intralot Inc., the only bidder for the contract.
That contract provides for Intralot to be paid 2.45 percent of the lottery's ticket sales and for the firm to provide "online game services and lottery gaming systems and services," which includes 2,500 retailer terminals for the lottery start-up and games settled through drawings.
Intralot proposed cutting the rate to 2.17 percent of ticket sales in exchange for a three-year contract extension in what Intralot President and Chief Executive Officer Tom Little called "its best-firm offer" in a Nov. 13 email to Woosley. The firm made the 2.17 percent offer after the lottery proposed cutting the rate to 1.95 percent of sales in exchange for the extension.
Woosley said Intralot initially proposed cutting the rate to 2.349 percent and the lottery countered with a 1.75 percent rate.
He said the lottery pays Intralot roughly $11 million a year, depending on ticket sales, and Intralot's proposed 2.17 percent rate would save the lottery about $1.1 million or $1.2 million.
During a wide-ranging, hour-long debate about the proposed contract extension, Commissioner Bruce Engstrom of North Little Rock said Intralot's last offer indicated "this is bottom line, that's it, we are not going any lower," and "our ability to reach some common ground had been lost."
He said he's not in favor of accepting Intralot's offer and "we ought to hold off for a while to see if they want to change their mind or if we want to go ahead with the bidding process."
Commissioner Dianne Lamberth of Batesville discussed what would happen if the Lottery Commission didn't accept the 2.17 percent offer from Intralot Inc.
If it requested proposals from all lottery vendors, she wondered, would they receive no bids or a few and would the cost of the new contract increase or decrease for the lottery?
Engstrom said that "the only thing we gain by going through the [request for proposals] is the assurance that we give the people of Arkansas that we let everybody have a chance to make sure that we got the best deal that we could.
"Could there be a situation in which we look back and say, "Ooh, I wish we would have taken that other offer.' That's a chance. But at least we are crossing t's and dotting i's with respect to the people of Arkansas," he said.
Commissioner Julie Baldridge said she worried about the possibility that the lottery would lose ticket sales and retailers if the lottery hired another vendor that installed its terminals and equipment rather than extending the contract with Intralot Inc.
Eventually, Lamberth pressed Steve Beck, Intralot's regional director: "Have you closed the door" on further contract negotiations and "that's it?"
Beck said that, "I don't think there is a line in the sand.
"We were asked for the best and final offer, and we came in at 2.19 percent. Y'all were asking for 2.15 [percent], and I think we were hitting a common ground again at that 2.17 [percent]," he said in describing the path of negotiations.
But Engstrom said that "we were at 1.95 [percent]."
Bishop added, "There might have been a little bit of miscommunication."
Engstrom said that "there is no 2.15 [percent] offer from us on the table at all, never has been."
Beck reiterated that he doesn't believe that there is a line in the sand in contract negotiations.
"I am very happy to hear that," Engstrom said.
Beck said, "I'm not sure how much leeway we'll [have]."
Commission Chairman John Campbell of Hot Springs asked Beck to go back to Intralot CEO Little "within a week and see if there is some way to move off this number [2.17 percent], since there was a miscommunication."
Beck said he would call Little and "talk one more time."
A section on 11/20/2014