Arkansas lottery vendor Intralot playing hardball on contract UPDATE | Arkansas Blog

Sunday, November 16, 2014

Arkansas lottery vendor Intralot playing hardball on contract UPDATE

Posted By on Sun, Nov 16, 2014 at 8:37 AM

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I heard last week that Intralot, a major contractor of services to the Arkansas Lottery, was playing hardball in negotiations on a new three-year contract.

Intralot is currently paid 2.45% of all instant and online ticket sales. With a half-billion in ticket sales in a year, Intralot's share in the most recent year was worth $56 about $11 million. (CORRECTION: My original figure was the cumulative amount for the five years of lottery operation.) The lottery, through director Bishop Woosley, initially proposed after reviewing charges in other states, to lower the rate to 1.75% That's a 28 percent reduction. Subsequent negotiations have moved the state up to 1.95%, but Intralot then made a final "best/firm" offer of 2.17% 

In an e-mail Friday explaining the status of negotiations to lottery commissioners, Woosley said Intralot's last offer would save $1.1 to $1.2 million a year, a net gain for scholarships. The savings would even be greater at the lottery's proposed rate.

Arkansas should hold the cards. Intralot isn't the only lottery vendor in the world. While this plays out, a legislative committee will hear next week from a British lottery operator — represented by Republican lobbyists who've been working with Republican Sen. Jimmy Hickey, a critic of lottery operations. Hickey was the leader of legislative opposition that derailed a lottery plan to move into video terminal games with more action to spur lagging revenue.

For now, the British operator, Camelot, is just reviewing the lottery under a legislative contract. I could envision a scenario where Intralot has no Arkansas business at all if the review encourages the legislature to press for a new lottery operator, say, oh, who knows?, maybe Camelot.  Nobody has proposed that yet, but it doesn't take a weatherman.

Intralot would be wise to make a deal that Arkansas could tout as a huge money-saver and a product of tough bargaining. Otherwise, somebody just might say, hey Intralot, you can take your 2.17% of nothing back to Greece (the company's home).  More details:

Intralot has its defenders, by the way. It was the only on-line bidder for example in 2009. It had front-end startup costs to serve all the retailers in the state.

UPDATE: Some of Intralot's defenders like to note that it takes a higher percentage in other states, but that isn't necessarily a direct comparison from an article written in 2012 by Lindey Millar:

Take for instance the lottery's other major vendor contract with Intralot, a Greek company that provides and services the lottery with the technological infrastructure to administer both instant ticket and so-called draw games, like Mega-Millions and Powerball, where winners are selected after players purchase their tickets. Arkansas pays 2.45 percent of its total sales to Intralot. In the minutes to a legislative oversight committee hearing on Aug. 11, 2009, then Lottery Commission Chair Ray Thornton notes that Intralot's rate is "extremely low and beneficial to Arkansans." He cited the 2008 La Fleur's World Lottery Almanac listings of the rates paid by all of Arkansas's neighbors as higher — aside from the rate Tennessee pays — than Intralot's bid to the Arkansas Lottery. But apparently Thornton — and the lottery commission and legislative oversight committee — failed to read the fine print. Arkansas Lottery staff doesn't still have a copy of the 2008 almanac, but Freedom of Information requests and the 2011 edition of the almanac show that Arkansas, by virtue of paying a percentage of total sales, pays far more than its neighbors, which largely pay a percentage of only online draw game sales. For example, last year Louisiana had online sales of $236.38 million and paid Intralot a total of $10.65 million. Meanwhile, Arkansas had online sales of $73.9 million and paid Intralot $11.4 million. That's the cost difference of 4.5 percent and 15.43 percent of online sales, respectively.

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