OHIO LOTTERY COMMISSION. Dean DePiero Anne Bloomberg Rudy Stralka Robert White. Agency Review for Governor Strickland and Incoming Lottery Director

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Winifred Griffin
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1 OHIO LOTTERY COMMISSION Dean DePiero Anne Bloomberg Rudy Stralka Robert White Agency Review for Governor Strickland and Incoming Lottery Director MAJOR ISSUES Budget Issues Decreasing Sales and Transfer Payment for Education Lottery revenues decreased from $2.455 billion in FY 1996 to $2.255 billion in FY Even more alarming is that comparing the same fiscal years, there was an $81.4 million decrease in transfers to the state s education fund. This is a significant issue since the Ohio Lottery Commission was established to generate revenues for education. (Appendix A & B) Ohio also has a low level of net profit transfers as a percentage of gross sales when compared to neighboring states with similar populations (Illinois, Michigan, New York and Pennsylvania), as shown on the North American Association of State and Provincial Lotteries (NASPL web site: Appendix C) Illinois, with a population of 12.7 million transferred $551 million on sales of 1.7 billion in FY 04; Pennsylvania s profits on their $2.4 billion sales were $819 million. Michigan s profits were $645 million on sales slightly lower than Ohio s transfers that year, while Ohio s profits for education that year were only $648 million. Repositioning Employee Base As of December 2006, the Ohio Lottery employed 345 employees. The Lottery Transition Report prepared by the current OLC (Ohio Lottery Commission) administration reflect budgeting for an extra 16 positions in FY , increasing the total employee base to 361 positions. Of note, there are an estimated 50 employees who are retirement eligible. The Director could increase flexibility by restructuring the Ohio Lottery Commission s employee base. Strategically repositioning reclassified vacated positions along with newly budgeted positions could offer the new Director the desired flexibility without adversely impacting morale. 1

2 It is recommended that a cost benefit analysis be conducted for an early retirement incentive program to determine possible cost savings, and increased efficiencies for the Commission. Additionally, the Lottery has a personnel category known as "policy staff". These are individuals whose pay is in the range of Deputies, but are neither called Deputies nor do they perform work comparable to those in a Deputy Director status. The new Director may wish to consider a review of these positions, and their continued relevance to the organization. Consolidation of Regional Service Offices The OLC Transition report recommends the consolidation of selected regional Lottery Service Offices. Although on the surface the more centralized approach reduces operational costs, it may have a significant adverse impact on revenues. Traditionally, Lottery Regional Offices anchored specific regional goals, both in sales and agent recruitment. This decentralized approach was previously designed to provide increased customer satisfaction, for agents and lottery players, as well as operational and marketing/sales efficiencies. If the Director wanted to continue with a consolidation approach, it is recommended that a cost benefit analysis be conducted to evaluate regional operational cost vs. a state-wide marketing/sales strategy to show potential revenue growth. Inordinately high percentage of prize payouts Based upon the data provided by the current OLC on page 41 of its Comprehensive Annual Financial Report for the Fiscal Years Ended June 30, 2005 and 2004, Ohio s prize payouts for FY 2004 were $1.3 billion or 59.2% of sales. Michigan s sales for the same year were $1.98 billion and their prize payouts were 56% of sales. Pennsylvania s sales of $2.5 billion provided 55.5% in prizes back to its players. While some instant games often have a high payout percentage overall, Lottery payouts should be much lower so that the profit for education can increase proportionately. The Ohio Lottery should consider prize payouts that are more proportionate to similar state lotteries as a means to increase monies for education. Low per capita sales in comparison to neighboring states with similar populations: In comparing Ohio (11.5 million residents) and neighboring states including Michigan (10.1 million residents), and Pennsylvania (12.4 million residents), Ohio s per capita sales were $188 versus $195 and $190 for Michigan and Pennsylvania, respectively. The incoming director should examine these other states, possibly with a focus group, and try to emulate the positive aspects of their marketing strategies. 2

3 It is suggested that the incoming Director meet early in his/her tenure with the Executive Director of NASPL, headquartered in Greater Cleveland, to gain perspective on why the Ohio Lottery is no longer a leader in innovation, sales, profitability and productivity. Failure of instant ticket game Make Me Famous, Make Me Rich This ticket went on sale in August During the 20 weeks of its life, sales of the two tickets, $1 per play and $2 per play, have declined from a sales high of $1.94 million in the third week to a disastrous low of $520,000 for the week of December 9 th. While the show is targeted to a younger demographic, a recent viewing reflected virtually no such change in player age. In addition, it is a confusing game not broadcast in its totality. Players need to trust that Lottery games are being conducted openly and fairly. Not being able to see everything that takes place with regard to a drawing, game, etc. leads to a lack of player confidence and understanding which seem to be reflected in the slumping sales of this new game. In addition, the combined sales of the two games total $56,256,800 and prize payouts for these sales are $37,545,604: an incredible 67% payout. The incoming Director should address this failing game and decide to replace the game or attempt to revamp it. Video Lottery Terminals (VLT) Regulatory The incoming Director should seek an opinion as well as guidance from incoming Attorney General Marc Dann on the legality of Video Lottery Terminals. Additionally, since Ohio is in a multi-state lottery system, it is important to consider how Ohio will be affected if it s the partner states allow VLTs. Employment and Contractors Screening Currently the Ohio Revised Code offers guidance for employment screening at the OLC. Below is the current language. No person shall be employed by or continue employment with the state lottery commission who has been convicted in any jurisdiction of a felony, or of a misdemeanor of the first, second, or third degree, involving gambling, fraud or misrepresentation, theft, or any crime of moral turpitude, as long as the record of the conviction has not been sealed pursuant to Chapter 2953 of Ohio Revised Code or pursuant to a statute of another jurisdiction that governs the sealing of criminal records. 3

4 The Director of the Commission should investigate adopting internal management rules to include certain vehicular offenses. Mega Millions Interagency Projects The multi-state collaboration includes: California, Georgia, Illinois, Maryland, Massachusetts, Michigan, New Jersey, New York, Ohio, Texas, Virginia, and Washington. Changes in the game, as decided by the other states, may directly impact Ohio s lottery sales. The new leadership at the Lottery Commission should consider ways to increase participation in multi-state offerings, perhaps by joining the Power Ball collective, in addition to remaining in the Mega Millions game. These multi-state games attract the greatest play when jackpots become very large as a result of rollovers. Charitable Gaming The Ohio Attorney General entered into partnership with the Ohio Lottery Commission stating that the Lottery would be responsible for administering charitable gaming. The Attorney General currently still has oversight. The Attorney Generals Office is coordinating with the Ohio Lottery Commission for the purchase of additional web based software, such as Charitable Organizations Information Network (C.O.I.N), to monitor charitable gaming operations. The new OLC Director should review the current process for charitable gaming in Ohio, and determine whether to absorb the office as originally intended or have it remain with the Attorney General s Office. The Director should keep the following in mind, however, during his/her deliberation. 1. OLC has the structure in place to assume this role. It understands gaming, has a security department that has a good knowledge base and is paid an administrative fee to administer this oversight responsibility; 2. Should statewide casino gaming be revisited, the Ohio Lottery might be considered the appropriate home for all gaming in the state, possibly becoming the Ohio Gaming Commission. STAKEHOLDERS The stakeholders in the Ohio lottery are comprised of nearly every Ohioan. This includes those who sell tickets, those who buy tickets, and the students, teachers, administrators, and parents involved in the primary and secondary education system. 4

5 Also, it is imperative that lottery employees, lottery agents, and non-profit organizations be seen as key stakeholders as well. Without these groups, the Ohio lottery cannot run as effectively as it should. The Commission needs to be open to this group as much as the others. Lastly, there are the businesses that contract with the Ohio Lottery. Again, it is important to be responsive to their needs. The incoming Director needs to evaluate the current relationships and services provided by these companies. It is recommended to utilize Ohio companies as much as possible when contracting in the future to foster job growth in the state. QUESTIONS TO CONSIDER What can the Ohio Lottery do to Increase Sales and reduce their Operational cost? Which games work and which games do not? Look at Make Me Famous, Make Me Rich as well as the Classic Lotto game scheduled to launch January 22, Sales support the notion that large jackpots are what make individuals play, not the multitude of prizes, which is the concept behind Classic Lotto. Should Ohio expand its participation in other multi-state offerings such as Power Ball? Should a statewide media tour be conducted to introduce the new administration as well as reintroduce the lottery to new and returning players in all 88 counties, meeting with local media outlets including local newspapers and radio stations? What is the current job of a field representative? The role of these employees has significantly changed due to the utilization of new technologies, but has anyone examined how these upgrades affected these positions? It may be necessary to alter duties of Lottery Field Reps. to make for a more effective organization. Do we retreat from a declining market or take a proactive approach to reclaim a market? The commission should consider embracing the regional offices and use them for regional marketing. Additionally, a SWOT Analysis is commonly used with formulation of a new or revised Strategic Plan. Can the executive staff identify / provide recommendations: S - Internal strengths of the Ohio Lottery W-Internal weakness of the Ohio Lottery O- External opportunities for the Ohio Lottery T- External Threats for the Ohio Lottery What can the Ohio Lottery do to reclaim or gain new players? Instead of diverting lottery profits for education into the large general fund, should portions of the money be earmarked for specific educational purposes? This may provide a better way for Ohioans to understand how lottery dollars are used. 5

6 Should Ohio problem gamblers be calling a hot-line that directs them to a Louisiana based organization? Is this subscription cost-effective? How many calls are being handled? How many of those come from Ohioans with problem gambling issues? Could these calls be handled by Ohioans? How does the Ohio Lottery attract younger players? Should new prize structures be offered that have appeal to a younger market? These could include plasma TVs, computers, digital media players, etc. While Lottery profits are targeted solely to primary and secondary education, offering a game with a top prize that may even offer college tuition at an Ohio college or university might help to underscore the Lottery s commitment to education. Can and should a system of playing the Lottery via the Internet be utilized? Many young players will not leave the house to purchase a ticket, but may be apt to play if they could do so online. o If concerns exist over compulsive play, perhaps players can only cash tickets bought from a physical agency on the computer and their winnings be put into an account. This account could be created through a new relationship with an already existing and trusted account system such as PayPal. Players could purchase online scratch-offs, play other games, or make purchases of products through online shopping using this money. o The digital scratch-off could mirror a traditional scratch-off, except players would use a mouse to scratch in place of a coin. If a player wins big on one of these online tickets, they could cash out at a regional lottery retailer. 6

7 Appendix A Ohio Lottery Dollars to Education (in millions) over the Last 10 Fiscal Years $ $ $ $ $ $ $ $ $ $ $ Education

8 Appendix B 8

9 Appendix C 9

10 Appendix D 10

STATE LOTTERY DEPARTMENT REPORT ON APPLYING AGREED-UPON PROCEDURES FOR THE PERIOD APRIL 1, 2007 MARCH 31, 2008

STATE LOTTERY DEPARTMENT REPORT ON APPLYING AGREED-UPON PROCEDURES FOR THE PERIOD APRIL 1, 2007 MARCH 31, 2008 July 30, 2008 Members of the Virginia State Lottery Board 900 East Main Street Richmond, Virginia