Lottery scholarship lift seen; state forecasts $12M-$13M increase in fiscal ’16 proceeds

State Lottery Director Bishop Woosley is shown in this file photo.
State Lottery Director Bishop Woosley is shown in this file photo.

Arkansas lottery Director Bishop Woosley said Thursday that he expects the lottery to raise about $84 million to $85 million for college scholarships in the fiscal year ending June 30 "if things hold pat and we don't have any big prizes or surprises" in the next two weeks.

That would be a $12 million or $13 million increase over the previous fiscal year, in which the lottery raised $72.4 million for college scholarships, and would exceed Woosley's own projection of $79.4 million for fiscal 2016, Woosley told the Legislative Council's Lottery Oversight Committee.

Without the record Powerball jackpot run in January, the lottery "would probably be somewhere around the $78 million to $79 million range" in net proceeds for college scholarships in fiscal 2016, said Woosley, who has been the lottery's director since February 2012.

Last week, the Arkansas Scholarship Lottery reported revenue of $421.3 million and net proceeds of $74.1 million for college scholarships during the first 11 months of fiscal 2016. Those figures exceeded the totals for all of fiscal 2015.

It also reported an unclaimed prize balance of $5.9 million as of May 31. State law requires the unclaimed prize money, minus $1 million, to be transferred to the state Department of Higher Education's scholarship account on the last day of each fiscal year.

Fiscal 2016 will be the first year since fiscal 2012 in which lottery revenue and net proceeds haven't dipped from the previous fiscal year. Revenue peaked in fiscal 2012 at $473 million and net proceeds at $97.5 million.

The state started selling tickets on Sept. 28, 2009.

Along with $20 million a year in general revenue and a $20 million lottery reserve account to cover temporary scholarship funding shortfalls, 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 the scholarships for future recipients three times over the past several years because proceeds fell short of initial projections and more students than initially projected received the awards.

Despite the lottery's rebound in sales and net proceeds in fiscal 2016, the lottery oversight committee's leaders haven't talked during their meetings in recent months about increasing the scholarship amounts in the 2017 regular session. They have said they want to make sure the lottery's rebound isn't just a one-year bounce-back.

"The main thing is I just want to make sure that, with everything we have been through, that we stabilize [the lottery] ... and that we remain solvent from the scholarship side," subcommittee co-chairman Sen. Jimmy Hickey, R-Texarkana, said after the panel's meeting.

"With where we are at, I hope that we always maintain where we are at [with scholarship sizes] and then we can just increase or decrease on a year-to-year basis for that particular class," he added.

The Higher Education Department handed out about $96.5 million in lottery-financed scholarships in fiscal 2016, according to department Director Brett Powell.

In February, Powell told lawmakers that the scholarships awarded will be about $84 million to $85 million in fiscal 2017, largely based on changes in eligibility requirements and the sizes of the awards during future recipients' first year in college. The changes were enacted by the 2015 Legislature.

In fiscal 2017, the lottery's budget projects $463.4 million in revenue and $80.9 million in net proceeds for college scholarships.

Fiscal 2017 net proceeds are projected to decline from fiscal 2016 and "obviously this year is a little bit of an anomaly because we had a [record] Powerball jackpot [in January]," Woosley told lawmakers. "We will probably start seeing a lot of the changes that we have implemented starting to take effect."

Woosley said the lottery expects to sell $383.3 million in scratch-off tickets in fiscal 2017, about $30 million more than what it expects in fiscal 2016, and $79.4 million in draw-game ticket revenue in fiscal 2017, which the lottery probably will exceed in fiscal 2016. The lottery's other revenue includes fees paid by retailers.

An official representing lottery consultant Camelot Global Services told lawmakers that the firm has decided to give $760,000 from its incentive compensation back to the lottery in fiscal 2016 for the additional sales and proceeds resulting from the record Powerball run in January.

"Our view on that we are absolutely committed to a five-year relationship," said John Skrimshire, vice president of commercial operations for the consulting firm, which has offices in London and Philadelphia. "We wanted to make sure that we returned some money to the state."

In response, Hickey told Skrimshire, "It is a breath of fresh air that you have a company that would just do that and they aren't contractually obligated to do it."

Woosley said that most, if not all, of the $760,000 from Camelot would go for scholarships.

Rep. Andy Davis, R-Little Rock, told Skrimshire that he doubts many vendors would return money to the state that they aren't required to do so under their contracts, "so I want to thank you very much for recognizing that those additional revenues were due to luck."

The $760,000 contribution would fund more than 50 scholarships of $14,000 each over four years, Davis noted.

No lawmaker asked during the meeting how much Camelot would be paid by the lottery in fiscal 2016.

After the meeting, Woosley said he expects the lottery to pay Camelot $650,000 in base compensation, plus about $50,000 in expenses and, if the lottery makes budget in June, about $1. 45 million in incentive compensation for a total of $2.15 million in fiscal 2016. The $2.15 million excludes Camelot's $760,000 contribution to the lottery, he said.

In November, lottery officials signed a contract with Camelot Global Services to develop a business plan and help implement it.

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.

Woosley told lawmakers that the budget for fiscal 2017 projects the lottery would increase from 66 to 69 positions.

"At this point, we are only filling two of them," he said. One new position will be the retail liaison to chain stores, including Wal-Mart Stores Inc. and Kroger, and the other new position will be a sales analyst job, he said.

The third new position is a public relations job and "we have an experienced advertising director who has a background in PR ... and it seems like we won't need that," he said. In March, Donna Bragg of Fort Smith -- who had worked since 2010 as the marketing and communications director for Sparks Health System -- started work as the lottery's advertising and marketing director at a salary of $88,968 a year.

The lottery's advertising budget will increase from $5 million to $6 million in fiscal 2017, and "that's still within industry standards," Woosley said.

The lottery will seek seek qualifications from advertising and marketing companies before awarding a contract for those services in January, he said. The subcommittee reviewed a proposed six-month extension until Jan. 8 for a supplemental advertising, marketing and media services contract with Mangan Holcomb Partners.

The lottery's fiscal 2017 budget includes $750,000 estimated for Camelot's base and travel expenses, plus $1.55 million for Camelot's incentive fees, $555,000 for research recommended in the business plan, and $375,000 for retailer support, according to a proposed budget.

A Section on 06/17/2016

Upcoming Events