Seven-year, no-bid lot­tery deal sought

Firm’s pro­posed con­tract ex­ten­sion into 2026 ex­pected to save $2.1 mil­lion

Northwest Arkansas Democrat-Gazette - - FRONT PAGE - MICHAEL R. WICKLINE

The Arkansas Schol­ar­ship Lot­tery wants to ex­tend its con­tract with a Greece­based com­pany by seven years with­out seek­ing bids, a move that lot­tery Di­rec­tor Bishop Woosley es­ti­mates would save the lot­tery about $2.145 mil­lion over eight years be­cause the com­pany is of­fer­ing to re­duce the rate it charges.

The lot­tery’s cur­rent con­tract with In­tralot Inc. ex­pires Aug. 14, 2019. The pro­posed ex­ten­sion would stretch that to Aug. 19, 2026, but the com­pany’s re­duced-rate of­fer would take ef­fect the first of next year.

In­tralot is of­fer­ing to re­duce the rate it charges the lot­tery on scratch-off and draw-game ticket sales from 2.165 per­cent to 2.11 per­cent.

If the Leg­isla­tive Coun­cil ap­proves the pro­posal,

it would mark the sec­ond con­tract ex­ten­sion and rate re­duc­tion since In­tralot was first awarded the lot­tery’s busi­ness in 2009.

The coun­cil’s lot­tery over­sight sub­com­mit­tee has placed the con­tract ex­ten­sion pro­posal on its agenda for Thurs­day of next week.

Sub­com­mit­tee co-Chair­man Sen. Keith Ingram, D-West Mem­phis, said he fa­vors the pro­posal partly be­cause “I think it is go­ing to save the state some money to put to­ward schol­ar­ships.”

Lot­tery of­fi­cials have told him that they are pleased with In­tralot’s work and that the com­pany has been re­spon­sive to the lot­tery’s needs, he said.

“I have not heard from any leg­is­la­tors who ques­tioned the wis­dom on mov­ing for­ward on this. There might be one or two who maybe want to ques­tion go­ing seven years,” he said. “There might be a time we look to bid it, but now is not the time.”

Sub­com­mit­tee co-Chair­man Rep. Chris Richey, D-He­lena-West He­lena, and Rep. Mat Pitsch, R-Fort Smith, said they plan to seek ad­di­tional in­for­ma­tion about the pro­posal be­fore mak­ing up their minds.

Sen. Jimmy Hickey, R-Texarkana, said he doesn’t like the pro­posed ex­ten­sion but that the sav­ings may be large enough to be jus­ti­fi­able un­der cer­tain con­di­tions. He said he’s just “glanced a lit­tle bit” at the pro­posed con­tract.

The lot­tery has been sell­ing tick­ets since Sept. 28, 2009, and has helped fi­nance more than 30,000 Arkansas Aca­demic Chal­lenge Schol­ar­ships dur­ing each of the past seven fis­cal years.

The Leg­is­la­ture has cut the size of fu­ture schol­ar­ships

three times dur­ing this pe­riod partly be­cause net pro­ceeds fell short of ini­tial pro­jec­tions of about $100 mil­lion a year.

The lot­tery’s net pro­ceeds for col­lege schol­ar­ships peaked at $97.5 mil­lion in fis­cal 2012 be­fore drop­ping each of the three sub­se­quent fis­cal years. In each of the past two fis­cal years, the lot­tery’s net pro­ceeds for col­lege schol­ar­ships has re­bounded to $85.2 mil­lion.

ALIGN­ING CON­TRACTS

Woosley’s es­ti­mate of sav­ings to the lot­tery from the con­tract ex­ten­sion is based on last fis­cal year’s an­nual ticket sales of about $450 mil­lion. In­for­ma­tion on how much the lot­tery has paid In­tralot in the past few fis­cal years wasn’t avail­able Wed­nes­day night.

Asked why the lot­tery doesn’t plan to seek bids for this con­tract ex­ten­sion, Woosley said the lot­tery’s busi­ness plan, de­vel­oped with the help of lot­tery con­sul­tant Camelot Global Ser­vices, “re­quires that we align our lot­tery ven­dor con­tracts so that they end at or near the same time.”

In De­cem­ber 2015, “we took the first step in that process by ex­tend­ing the Sci­en­tific Games con­tract for 10 years un­til 2026,” Woosley said. “The next step was to be­gin ne­go­ti­a­tions with In­tralot in hopes of car­ry­ing out the plans set forth in our busi­ness plan.”

Sci­en­tific Games In­ter­na­tional holds one of the other ma­jor lot­tery con­tracts, pro­vid­ing in­stant games and other ser­vices.

“In­tralot has made an ex­ten­sion of­fer that pro­vides the lot­tery with new equip­ment along with a re­duced rate that is ef­fec­tive Jan. 1, 2018, which is over 19 months prior to the end of the cur­rent con­tract,” mean­ing more sav­ings to the

lot­tery, Woosley said.

“By ex­tend­ing this con­tract as we are propos­ing, we achieve the goal of align­ing our ven­dor con­tracts and as­sure that we will have con­ti­nu­ity of our cur­rent sys­tem,” said Woosley, who has been the lot­tery’s di­rec­tor since Fe­bru­ary 2012.

Ex­tend­ing the con­tract also avoids a year­long sys­tem con­ver­sion that would come with a new ven­dor and lets the lot­tery “avoid dis­rup­tion and in­con­ve­nience to our re­tail­ers,” Woosley said.

“In ad­di­tion, this ex­ten­sion gives us a rate re­duc­tion, a new back of­fice sys­tem and new equip­ment, which is not a cer­tainty should this con­tract be re­bid,” he said.

In­tralot has held the lot­tery’s con­tract for “on­line lot­tery game ser­vices and lot­tery gam­ing sys­tem and ser­vices,” in­clud­ing 2,500 re­tailer ter­mi­nals, since 2009.

The firm was the only bid­der in 2009. Lot­tery ven­dor GTECH Corp. of Prov­i­dence, R.I., opted against sub­mit­ting a bid, call­ing the bid process flawed.

The ini­tial seven-year con­tract, with an op­tion to re­new for three years, pro­vided for In­tralot to be paid 2.45 per­cent of the lot­tery’s net sales.

In late 2014, the con­tract was ex­tended for three years un­til Aug. 14, 2019, and In­tralot re­duced its rate from 2.45 per­cent of ticket sales to 2.165 per­cent, ef­fec­tive July 1, 2015.

In­tralot has sim­i­lar con­tracts with the lot­ter­ies in the District of Columbia, Ge­or­gia, Idaho, Louisiana, New Hamp­shire, New Mex­ico, Ohio, Mon­tana, South Carolina, Ver­mont and Wy­oming, ac­cord­ing to an In­tralot spokesman.

Woosley said Wed­nes­day that GTECH, which is part of In­ter­na­tional Game Tech­nol­ogy, and Sci­en­tific Games

In­ter­na­tional “have in­quired” about the con­tract.

“We see ven­dors at lot­tery events sev­eral times a year, so we get in­quiries all the time re­gard­ing all of our [con­tracts] and their terms,” he said.

A spokesman for Sci­en­tific Games In­ter­na­tional said the com­pany would con­sider sub­mit­ting a bid for the con­tract held by In­tralot if the lot­tery sought bids, but it’s not protest­ing the lot­tery’s de­ci­sion not to seek bids at this time.

“We are proud to be a sup­plier for the Arkansas Lot­tery, pro­vid­ing in­stant games and our Co­op­er­a­tive Ser­vices Pro­gram, and the fact that we are gen­er­at­ing 80 per­cent of the schol­ar­ship funds for the stu­dents of Arkansas,” Su­san Cartwright, vice pres­i­dent of cor­po­rate com­mu­ni­ca­tions for Sci­en­tific Games, said in a writ­ten state­ment.

A spokesman for GTECH could not be reached for com­ment by tele­phone Wed­nes­day af­ter­noon.

CON­TRACT TERMS

Un­der the terms of the pro­posed con­tract ex­ten­sion, In­tralot would pro­vide 2,200 new ter­mi­nals and prin­ters to ac­com­mo­date “the rea­son­able needs of the re­tailer base.” The ter­mi­nals would be de­ployed on a mu­tu­ally agreed-upon stag­gered ba­sis that would be­gin in Au­gust 2019.

At the end of last month, the lot­tery had 1,934 “ac­tive re­tail­ers” and about 2,060 ter­mi­nals in use, Woosley said. The cur­rent con­tract calls for 2,500 avail­able ter­mi­nals.

Among other things, the con­tract ex­ten­sion calls for In­tralot to pro­vide 1,600 new player ad­ver­tis­ing dis­plays to be de­ployed start­ing af­ter Jan­uary. Woosley said the lot­tery cur­rently has 600 player ad­ver­tis­ing dis­plays.

The pro­posed ex­ten­sion also in­cludes an op­tion for “a com­pan­ion mo­bile app and in­ter­net play with­out the abil­ity for real money gam­ing.

“Once al­lowed, and at the lot­tery’s re­quest, ad­di­tional func­tion­al­i­ties will be agreed for a mo­bile app and in­ter­net play with the abil­ity for real money gam­ing at pric­ing to be agreed,” ac­cord­ing to the pro­posal.

Asked whether that would open a door to on­line gam­bling for the lot­tery, Woosley said “the eas­i­est way to ex­plain that is it is gam­ing on a lot­tery app for fun. We cur­rently have that in our play­ers club.”

“It’s just an op­tion in the con­tract, if we ever choose to

ex­er­cise it. It does not al­low us to do any­thing above and be­yond what we are al­lowed to do to­day,” he said.

The pro­posal also al­lows an op­tion for elec­tronic scratch-off tick­ets that Woosley called “dig­i­tal in­stant tick­ets.” He said they are com­mon in the lot­tery in­dus­try now.

“We al­ready have this equip­ment op­tion un­der our cur­rent con­tract … for the use or pur­chase of equip­ment which could be used if on­line gam­ing were ever al­lowed,” Woosley said.

“This clause of the con­tract is sim­ply an op­tion that al­lows us to use the most up­dated, state-of-the-art equip­ment if we ever un­der­take such an ini­tia­tive.”

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