Lottery’s revenue up in April

Net proceeds for scholarships rise, total $7.8 million for month

The Arkansas Scholarship Lottery’s revenue in April inched up over yearago figures, according to the lottery’s reports.

The lottery’s revenue totaled $38.6 million in April — up from $37.5 million a year ago — because scratchoff ticket revenue increased, the lottery reported this week in its monthly report to Gov. Asa Hutchinson and the Legislative Council’s lottery oversight subcommittee.

The lottery’s net proceeds for college scholarships totaled $7.8 million in April — up from $7.3 million a year ago.

“Obviously the increased sales helped with the increase in proceeds. We also had a month where we did not have a huge prize expense which was also helpful in increasing the amount we returned for scholarships,” lottery Director Bishop Woosley said in a written statement issued late Thursday afternoon.

Earlier Thursday, Woosley defended the lottery’s contract with consultant Camelot Global Service to state lawmakers, after a legislative auditor questioned the contract as part of an annual audit of the agency.

Deputy Legislative Auditor Jon Moore said the terms of the Arkansas Scholarship Lottery’s contract “are not as advantageous to the state as they are for Camelot,” given the lottery’s mandate under state law to maximize net

proceeds for college scholarships.

But Woosley told a legislative subcommittee “the three months of negotiation were such that it was very difficult to try to convince the other party in the middle of a contract negotiation that I am going to make more than you think I’m going to make when I really didn’t have any statistical information to back that up.” At the time of the negotiation, the lottery’s revenue dipped for three consecutive fiscal years.

The lottery has helped finance more than 30,000 Arkansas Academic Challenge Scholarships during each of the past seven fiscal years. The lottery’s revenue declined in 2013, 2014 and 2015 after peaking at $473.6 million and $97.5 million, respectively, in fiscal 2012.

Total revenue and net proceeds rebounded to $456.3 million and $85.3 million, respectively, in fiscal 2016, which ended June 30, with the help of a $1.6 billion Powerball jackpot in January 2016.

During the first 10 months of fiscal 2017, the lottery’s revenue totaled $373.2 million — down from $382.8 million in 2016 — and the lottery’s net proceeds were $65 million — down from $67.5 million in 2016 — according to the lottery’s reports. Under state law, the lottery transfers its unclaimed prize reserves, minus $1 million, to college scholarships at the end of the fiscal year. The reserve totaled $6.5 million as of April 30.

Woosley has projected by the end of fiscal 2017, the lottery’s revenue will be $463.4 million and net proceeds at $80.9 million. Asked if the lottery is on track to meet its projections, Woosley said, “At this point, we are up more than $2.7 million versus budget for proceeds. If that trend holds, we should exceed our projected proceeds budget for this fiscal year.”

For fiscal 2018 starting July 1, Woosley projected revenue at $459 million and net proceeds at $83.6 million. A year ago, Camelot’s self-described ambitious business plan projected 2018 revenue at $517 million and net proceeds at $93 million.

Asked whether the Camelot business plan’s projection for 2018 was unrealistic, the company’s vice president of commercial operations, John Skrimshire, said, “Our research initially showed an optimal number of about 2,700 lottery retailers for the state of Arkansas, which is 780 more retailers than are currently active.

“The budget projections in the business plan are based on an estimated 600 [new] retailers being in place by the end of this fiscal year. Given the reduction in viable retailers following further research our budget projection was reduced accordingly,” he said in a statement issued through Woosley. “We are working diligently to increase the number of retailers, which we believe will help the Arkansas Scholarship Lottery improve sales and send more kids to college. We haven’t hit the numbers we’d prefer, but we are still focused on growth and plan to add between 100-150 retailers in the coming months.”

The lottery’s contract with Camelot was signed in 2015, for five years with an option for two one-year extensions. The firm was hired to help the lottery improve its operations.

During a meeting of the Legislative Joint Auditing Committee’s subcommittee on state agencies, Moore said the contract is skewed to Camelot over the state in part because the company may receive up to $650,000 in annual base compensation “for income-enhancing consulting services, totaling a maximum $3.25 million over the initial five-year term, regardless

of whether the lottery’s operating income or net proceeds improve.”

As for Camelot’s incentive compensation, which is 12.5 percent or more of the lottery’s adjusted operating income exceeding $72.3 million, that income threshold is lower than the lottery has reported, Moore said. “With the baseline for tiered performance compensation set so low, Camelot is almost guaranteed an annual performance bonus with or without improved lottery sales.”

Rep. Andy Mayberry, R-East End, said, “It wouldn’t seem that it’s to the state’s benefit to offer a performance incentive based on amounts that the low bar on that is the least that the lottery has ever taken in in a given period of time.”

Woosley said the lottery “was about to finish our worst

The lottery has helped finance more than 30,000 Arkansas Academic Challenge Scholarships during each of the past seven fiscal years.