$85.2 million goes to lottery scholarships

Fiscal 2017 sees rise of $2,403; net proceeds above forecast, but revenue below 2016

The Arkansas Scholarship Lottery raised $85.2 million for college scholarships in the fiscal year that ended June 30, narrowly exceeding the amount raised the previous year by $2,403.

The total raised for scholarships also beat the lottery’s forecast of $80.9 million for the just-ended fiscal 2017, according to its annual report released Monday.

The lottery has helped finance more than 30,000 Arkansas Academic Challenge Scholarships during each of the past seven fiscal years, but the Legislature has cut the size of scholarships three times in recent years because net proceeds lagged initial projections and more students than initially expected started getting scholarships.

Although net proceeds exceeded the forecast in fiscal 2017, lottery revenue fell by $6.4 million from fiscal 2016 to a total of $449.9 million, about $13.4 million short of projections, according to the written report to Gov. Asa Hutchinson and the Legislative Council’s lottery oversight subcommittee.

Lottery Director Bishop Woosley said revenue fell short of projections because “we had a $1.6 billion Powerball” in January 2016 that skewed that fiscal year’s gross receipts.

Draw-game revenue in fiscal 2017 dropped by $14.9 million from the previous year to $80.6 million, the lottery reported.

Lottery revenue comes

from draw games like Powerball, Mega Millions and Natural State Jackpot and from scratch-off instant game tickets. It also receives revenue from retailer fees.

Woosley said the lottery’s net proceeds for college scholarships exceeded the lottery’s forecast for fiscal 2017 because “we started up in proceeds with an incredible July and were able to hold that trend for the rest of the fiscal year.”

“We finally saw the changes that we made to Play It Again [second-chance drawings] fully implemented, [which] resulted in a savings of over $4 million,” Woosley said in a written statement.

“Our operating costs were lower than last year, and our staff worked tirelessly on our game development, advertising and retail execution to make this year a success.”

Fiscal 2017 marks the second consecutive year in which the lottery’s net proceeds have increased after declining for three consecutive years.

The lottery’s receipts and net proceeds were bolstered in fiscal 2016 by the record $1.6 billion Powerball jackpot in January 2016, when the lottery reported revenue of $58.7 million and net proceeds of $13.8 million, both a record for any month for the state’s lottery operation.

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

Before voters in 2008 approved a constitutional amendment authorizing the Legislature to create a state lottery, the state Department of Finance and Administration estimated that the lottery would raise about $55 million a year for college scholarships. At that time, then-Democratic Lt. Gov. Bill Halter of North Little Rock projected the lottery would raise about $ 100 million a year for college scholarships.

During the lottery’s seven full fiscal years of operation, the amount raised for college scholarships has ranged from $72.6 million in fiscal 2015 to $97.5 million in fiscal 2012.

Sen. Keith Ing ram, co-chairman of the Legislative Council’s lottery oversight subcommittee, said Monday that the lottery’s net proceeds have leveled out.

He said he initially thought the lottery would raise only about $50 million to $55 million a year for college scholarships, “so actually the net is higher than what I thought it would do originally.”

“I think the people tend to get anesthetized to win small pots. They want to win big pots, and your big jumps are just going to correlate with when you have a huge Powerball,” said Ingram, a Democrat from West Memphis.

“We are going to keep studying it and tweaking it and see if we can’t certainly make it as efficient as possible so we can put as much money as we can to scholarships,” he said in an interview.

In addition to net proceeds, the scholarships are funded by $20 million a year in state general revenue and $20 million from the lottery reserve fund, which is used to cover temporary cash shortfalls in the scholarship program before it’s replenished with net proceeds.

Arkansas Academic Challenge Scholarships totaling $86.1 million were paid out in fiscal 2017, down from $96.4 million distributed the year before, said Tara Smith, deputy director at the state Department of Higher Education.

“We are projecting a 3-5 percent increase in expenditures, which equates to a range of $88.9 million to $90.5 million” in Arkansas Academic Challenge Scholarships for the fiscal year that started July 1, Smith said in an email.

The largest amount of Arkansas Academic Challenge Scholarships distributed in a year was $132.9 million in fiscal 2012, Smith said.

This year’s Legislature and Gov. Asa Hutchison enacted Act 613 of 2017 — sponsored by Sen. Jimmy Hickey, R-Texarkana — to create the Arkansas Workforce Challenge Scholarship program. The program will use any excess lottery proceeds to fund scholarships for students enrolled in higher education programs leading to the students being qualified to work in high-demand occupations.

Eligible students would have to be in a program of study at a state or private higher education institution in Arkansas leading to an associate degree or a certificate program in industry, health or information technology and resulting in the student being qualified to work in an occupation identified by the Department of Workforce Services under Act 613.

Smith said she hasn’t figured out whether she expects these new scholarships to be funded in fiscal 2018, “but we will have an update on that at the August lottery oversight meeting.”

In fiscal 2017, the lottery paid consultant Camelot Global Services $3.63 million, Woosley said. That included $2.9 million in incentive compensation, base compensation of $650,000 and expense reimbursements of $61,301.29

In November 2015, lottery officials signed a contract with Camelot to develop and help implement a business plan. The consulting firm has offices in London and Philadelphia.

Under the contract, Camelot receives base compensation and expense reimbursements up to $750,000, but also is 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 2016, the lottery signed off on the consultant’s five-year business plan, which called for the lottery to sign up about 600 more retailers in fiscal 2017 and increase its marketing budget from $5 million to $7.9 million.

The lottery ended fiscal 2017 with 1,934 retailers selling tickets on June 30, up from 1,910 on June 30, 2016, the lottery reported Monday. The lottery spent $5.7 million on marketing, advertising and promotions in the most recent fiscal year, up from $4.8 million in fiscal 2016.

“Obviously, we fell short of [the additional retailers] goal, but we made great progress in defining the retail universe. We will use that information to continue our efforts to expand our retail network as we go forward,” Woosley said.

Retailers may begin selling lottery tickets with debit cards starting Aug. 1 under a law enacted by the Legislature during this year’s regular session.

“We are unsure how many retailers intend to sell lottery using debit cards. We are hopeful that many of our retailers will accept debit and that the change in the law will have a positive impact on sales,” Woosley said.

For fiscal 2018, Woosley has projected the lottery’s revenue at $459 million and net proceeds at $83.6 million.