ALC-Lottery Oversight Subcommittee

Yes a good afternoon I am going to go on the assumption that less seeds will give it a motion in time we need to go. I was just getting your attention that's all right for us to to be a go ahead and and get our meeting started and before we get to the end of this I I I really want to hear at the very beginning I guess making a when we get the new director to come to the table to do his reports I would like him to just take a little time Mrs some of us have not met him and the public has not Eric if you would take a little time just tell us a little bit about yourself we don't need to know your whole of biography tests in those areas we're working with and welcome to our meeting today everybody I thought I was looking for cochair rushing but I don't know if she's going to make it a not so you get me bless your hearts. If if you will introduce yourself and to this court you may proceed. I'm sorry yes yes thank you tried again yeah my name is Eric Adler yeah I'm a little rock native I was born and raised here I graduated from Parkview high school proud patriot also graduated from the university of Arkansas Fayetteville with a degree in management economics and then obtained a juris doctorate at the university of Arkansas at little rock I started my career as a lawyer as a deputy prosecuting attorney I served for seven and a half years and then entered private practice ultimately was appointed a magistrate judge in Benton county Arkansas in two thousand one served until two thousand and two in two thousand and three I was appointed as a special associate justice to the Arkansas Supreme Court by then governor Mike Huckabee then I moved to California with my family my wife and three children and served as a corporate general counsel and the president of an independent broker dealer in Los Angeles in Newport beach California that I served as a consultant as well in California consulting with that family offices in the area of opportunities owns and commercial real estate. When the opportunity arose to move back to Arkansas that my wife and I were thrilled to so we're we're empty nesters and this was something that we had always hope to do so I'm appreciative for the opportunity and I'm also appreciative to be here before you today and I appreciate your time well we like it and it's time somebody can return home and we will I'm sure we'll do the best we can to feel that mess that you now have empty just getting started I'm sure a lot of that has happened Mr Hagler we will just start to write down the agenda the first item on the agenda is review what we're down to items see review of the a lottery activities and when I when I talk to you about the report that we have the end but we've not had a chance to look at that we would normally do in December I've checked the calendar and we do have a time in December December seventeenth we can meet and and take care of business then so we would just go strictly by the agenda today very good just like you know okay section all right so you're recognized thank you. we on item C. one we are yes in item C. one thank you. This is the lottery oversight report. And if you look you will see I have a few items here that I have picked out of note if there's anything that I miss that you have an interest and I'd be happy to address that as well in exhibit C. one that's the comparative income statement you'll note October twentieth twenty twenty verses October twenty nineteen this is simply a year over year review of the lottery total revenues increased nine point five percent total operating expenses also rose ten point eight percent. The rise in expenses was primarily attributed to prizes commissions and gaming contracts that G. are triggered by increased sales excuse me Mister Mister work do you have the power point or is that just to this not supposed to be with his power appointed that's just a cover that's on our screen I am not sure We all have a copy of it so it's not that I that would just be for the public I believe it is power point but unfortunately my my technical abilities are not our staff people please help because this will be important I thank and FOR I apologize that's okay just hold it for one minute. We give you lots of latitude especially for the first meeting of it better thank you. It is around here comes help. Right here. Thank you and we're all looking at page two that that's. Thanks to. Alright so on page two this is the year over year review that we were discussing and you'll notice that the far right you'll see the nine point five percent increase in the instant games you'll also see the draw games increased as well. I would draw your attention to the to the totals and that is the total revenues increased by nine point five percent as well so when you look down and you see the instigating the draw games the retailer fees and others that shows you the growth of the lottery year over year if you drop down operating expenses you'll also see them broken down by instigating prizes draw game like Senator except or a the net effect of that was total operating expenses increasing by ten point eight percent largely that's a factor of gaming contract cost you'll see the fifteen point eight percent the line on the fourth one down. The contracts with the gaming providers are such that when sales increase and certain benchmarks are met then there are bonus payments these were contracts that were executed I believe back in twenty sixteen there was one as well and twenty twenty but but that that is what explains the total operating expenses and you see the rise there. Operating income increased by two point nine percent. And the net proceeds which is an important number for us that the lottery and I'm sure for you as well increased by thirty three point seven percent that's a number that we use on a daily basis when we do business of the lottery and we're having internal discussions our goal is always to increase net proceeds everything we do is designed to to increase net proceeds that something that we jealously guard and all decisions are driven around around that that figure. If there are no questions with regard to page two a move to page three I don't have anybody in the queue if if you have a question I'll go ahead and and dial in. Of I do have C. eighty four. This may okay we trigger more we're your left. Just just quick I'm glad to see it but I want to see is it is there a reason the Jenner is inducted general administrative cost decrease by seventeen percent. Is that is that something that we can continue to city or was that just the. Something that was with Nick within this month or do you know it fluctuates and it's a question that I always ask our CFO Jerry Fetzer image driven by a lot of different things some of it could be temporary help that's brought and some of it our our events that happened on the general and administrative side but they do they we see billing on a quarterly basis so in the interim months you'll see that reduce it can't pop back up the two things that we can control of the lottery and I split and when I say control I guess the more proper word would be impact is marketing and advertising in general and administrative we can determine when we hit the button on marketing and advertising and and by the same token one of the things that we're trying to do with the lottery currently is we're trying to identify additional efficiencies so rather than than as we grow as a lottery instead of just relying on more expenditures what we're trying to do is make sure that there's no fat that every every move the lottery makes forward that general and administrative expenses are are not only online but very very tight so that number will fluctuate again that number turn red than than that then that's gonna be shame on me Sir sure in by that and that's what I'm saying I'm glad to see it so I don't I don't want that to be misinterpreted but I what I was wondering is that something that has been done because of something that you've already initiated because that is a large You know a larger number there seventeen percent again I like Senate but I wondered if it was something that we have done internally already I wish I could take credit for that senator it it actually was largely a function of covert in this particular instance a lot of our general and administrative expenses are related to our MSR as our marketing and sales reps that are out in the field and during the pandemic they were brought in from the field and essentially work remote from home only going out into the field in an emergency basis so a lot of those expenses are expenses that we see when we're we're operating at normal in a normal environment and currently we're not so we we have seen a reduction in expenses so by way of example reimbursement of mileage and things of that nature you you that number is largely impacted when our emisoras or on the road you'll see those expenses rising when they're off the road to go down that's very interesting with the increase in net proceeds we had been then what you're saying there with the decrease in the expenses of. Just seems a little bit odd to me we would have actually been thinking that it would have been the other way so I think I like seeing it yes Sir I think in a normal environment you're you're you're you you would be right in your assumption we're operating an in kind of an in an unchartered waters right now so when we when we look at the numbers and it's much like forecasting what we expect to see isn't always what we see but then we dig more deeply and we look and and and kind of get into the weeds we find that we very much have been affected by cove it in a positive way in many ways in negative ways other ways as well but I do think that that the Arkansas scholarship lottery has performed very very well during the code when I speak with the sister states that that many of them are not as in as good a shape as we are. Thank you madam chair are you well good and so on Senator Hickey would probably gonna do well of ours to remember when things go back to quote unquote normal whatever that is that when that cost about got we can explain to people what actually happened you need a little bit of history here to remember that right all right you if they're not I don't have anybody else in the queue so you may proceed thank you we're on page three now all right. Page three this is the compared of income statement this is October twenty twenty actual verses budget this there again in my earlier comments just now to senator Hickey war that you know work for operating an uncharted waters so we look at budget and we look at performance in normally that would that would be it a tremendous guide for us but right now budget doesn't mean a whole lot were out performing budget by leaps and bounds and and I'll explain later why have been reluctant to go in and revised the budget because I don't think anybody really can can can forecast up correctly so we the budget was set very conservatively the the lottery out performed beyond anyone's expectations but we we are now starting to see a little bit a tail off we're seeing some had wins I think it the the future remains to be seen and so I I have been reluctant to adjust the budget so when you look at it page three you're going to see that the lottery has has out performed the budget by great measure I'm not sure I'm not really sure what to take from that there again I think I wasn't around when the budget was was set I have reviewed the budget and debt if there are things that I probably would have done differently but but hard to say that's Monday morning quarterbacking so when you look at this actual verses budgeted you'll see were up fifteen percent and many areas twelve percent the numbers speak for themselves if anyone has any any particular Question regarding the October twenty actual verses budget I'd be happy to answer it I will tell you that we're not we watch the budget we compare but it's not something that's currently driving decisions it's more real time right now in this uncertainty. I don't have anybody in the queue Sir will go on to page four thank you. Page four this is year to date October thirty one twenty twenty. Verses October thirty one twenty nineteen. This is an important benchmark I think this is where you could really this is where you can really gain some insight as to where the lottery currently is you'll see total revenues increased twenty point five percent. It's a hundred and eighty nine point five million in twenty twenty and twenty nineteen it was a hundred and fifty seven point two that that's a huge jump and and and and when you're dealing with numbers it obviously begs the question again I think that the Covin environment has has largely benefited the lottery I know that strange to say it's taken me awhile to get my arms around that actually under those words but we can in in in a very odd manner we have been the beneficiary of of this this current environment if you look at total operating expenses does it does increase as well by twenty three point one percent that's really in the world of the lottery what I have come to find out is that it's that's not uncommon so as you see sales increase your expenses are also going to be attendant there with we're at a hundred and fifty nine point six million in twenty nineteen that was a hundred and twenty nine point seven I guess the only upside to the increase in expenses is is that it was also accompanied by an increase in sales some would say that's a good problem to have I can a few it is a challenge as sales go up the challenge is to keep your expenses down and and I understand the realities of that but I do think that still up that's a noble goal and it's something that that needs to be at the forefront of our minds of the lottery. there again you saw general administrative expenses increased ten point one percent we've got our MSR is back on the road so I think back to senator Hickey is point you will be seeing general and administrative expenses rise back up closer to the level that they were at is our emisoras are back on the road with with numbers spiking we have we have a pulled our MSR is off the road but we have asked them to be extremely careful and we're cognizant of the fact that we could be asked to pull them off the road at any time we're prepared to do that but I think that explains the rise in general and administrative you'll notice that marketing in an advertising was reduced by fifteen percent. A Donna Bragg is our director of marketing and advertising and she and her team came back in and in essentially said that they believe that it was imprudent and irresponsible to flood of a marketing initiative during these times and and I agree with that and and so that explains the the decrease in marketing and advertising we simply didn't feel that we should be taking advantage of the situation by trying to artificially inflate a people's demand for lottery you'll notice that operating increase income increased eight point four percent there again that's just a part of the the general upward draft that you driving all of these numbers we're happy to have that and and again operating income is is is a measure of your efficiency and so that's a number that we pay a lot of attention to. Net proceeds increased forty five point eight percent. That's a huge jump we we were at is stunned by that as probably many of you are there again it's unchartered waters and and every day is a new day in an exciting day when you're watching retail sales right now it's it's unlike anything that that I've ever personally experienced you'll also see the year to date. I'm sorry I'm moving on page five well I've got some other questions official I have one about the marketing and advertising has that monied that been put aside for use further down the road is a carry forward or is it it has okay yes senator in fact what we've done is is we took the opportunity We and I give credit to to the marketing and advertising department at the lottery they came back and said look these are and on chartered waters these are in certain times what we would like to do is is we would like to enhance our our our our visibility with regard to responsible gaming. and so we've taken a piece of that and and we're going to drive an initiative that begins in March with regard to responsible gaming. But the department also came back and recommended that we do something in the month of December as well and went on that and we budgeted for that as well internally okay I have a question a senator garner you and seat eighty eight. Are you on. Okay. About now bail out there. A first question going back to the Increased sales during covert nineteen is it. Any correlation to whatever the federal government through the unemployment gave the six hundred dollar bonus as well as the state's unemployment or is that something that we've seen continued throughout the pandemic is forced the increase in sales sept question make sense it does yes Sir I I that I think a month ago I would have not been able to answer your question I think we've seen enough numbers come through since then to actually answer that question I I do believe that that had some impact on sales week we were saying we're seeing work we're still increase our numbers are increasing but it at a decreasing rate when you go back and you look at when this all started on the calendar it appears to me that there was a little bit of a drop off a little bit of a I had when when the additional stimulus package failed and when when there was no no go forward for a time frame for with regard to a second stimulus. It's just my opinion but from looking at the numbers I do believe it was impacted by that how much would be. Pretty much impossible for me to say I'm sure we'll see some studies after the fact that will come out There's white papers that I'm sure being written as we speak regarding that but I do believe that it impacted the sales in a positive way. It's a question I am a matter chair sure this may be. Thirty being relatively new the job my to be able to answer this but the vice industries and non offices of vice industry seems to go up there recessions is kind of how old axiom that whenever that happens people tend to turn to thanks distracted sales from a recession is that typically housed in a lottery sales or is it is it is that not a something that typically happens that makes sense it does I can't speak from personal experience but I have research the issue and I do believe that's true the reasons can be many but but I do believe that in this particular instance one of the things that benefited the lottery was the fact that you know people were essentially locked down and and and so entertainment options became very very limited and we we started doing a little bit of a survey with regard to how many of the players were first time players during this period of time and I think that would be responsive to your question and hopefully I'll get that result and be back back to you and and have a definitive answer that be interesting because typically during recessions well as you know more people go back to school because they lost their job or trying to you know up their career field and if our lotteries doing better in our town it's probably a good a measure to get off thank you Sir. Representative Dotson. How about their regular okay thank you madam chair So I was just looking down at your net proceeds and Increased by forty five point eight percent is that mean that the amount toward scholarships has increased by forty five point eight percent. What what that number means is that the amount that was that was attributed to net proceeds for the period that's being measured so that's. What you see is is an at the actual in year to date in twenty nineteen was twenty two million we're doing thirty two point five million that's your increase net proceeds we measure on a monthly basis but they can be they can be impacted the lottery is a little bit of a strange animal I've learned in that there is a a a cruel to cash a bookkeeping entry that takes place and so a lot of times you'll see a spike in that proceeds and when you go back and you look for the period it really you can't fully understand how that happened you have to go back into the accounting side and see the previous month and how that was a carry over so some months you'll be disadvantaged by that other months you'll see that spike so what what is the percentage of money going to scholarships verses total sales. I don't have the I don't have a percentage for you here to that I would want to go on the record with so I that would be something that I would have to check I can get that figure for you and I certainly could deliver that back to you and you do that on a monthly basis could could you go back and get that on a monthly basis over the last well I mean year as well as as the last several years I guess probably you can go all the way back to the beginning lottery that be great we cut thank. I it does anybody else want that report is let me know ray what waiver hand or something so normally we would send it to everybody but that's a big ask and I don't want to overload people. What. That's nobody talking to me I take it so would you be if you just send the that report then to to Mister Smith and then he'll get it to pretended Dotson if anybody else wants it please contact with Mister Smith otherwise we won't and and that you with that at all right so we were about to finish up this first report and the members we that unnoticed at sea has five you know there five things are that not or necessary can take up a lot of our time but we need to take our time on this one so if you want to carry on with page five absolutely will get this finished thank you. Page five. This is your to date October thirty one twenty twenty actual verses budget again this is a figure that in an ordinary year would would bring great value to us I'm not sure how much weight to put into this particular metric currently you will see total revenues over budget by twenty seven point one percent and there again I just point out that it was a conservative budget that was that that that was created and it was created in and in the face of enormous uncertainty I believe that budget was finalized in April of twenty twenty if I'm not mistaken and so that was really when we were starting to see what we now know to have existed as far as is this virus so we're total revenues over budget by twenty seven point one that sounds great however the budgeted number was low to begin with total operating expenses twenty eight point three over budget. All that's consistent with the real reported numbers that you're seeing today as well operating income twenty one point one over budget net proceeds forty four point seven over budget. There again I would just I would caution you to to put a whole lot of weight in value and actual verses budgeted I think if we could if we could if we could have adequately forecasted the future the budget would those budget numbers would be higher and I don't want to overstate our performance I do believe the lottery is performed very well but I don't want to take credit and I don't want it and I'm sure my staff would would insist that we not take credit for something that was just a a an estimate of forecast. Operating income I did mention that proceeds also mentioned there again I'll answer any questions on page five but in these times the the actual verses budget really is not a true read I don't have anybody in the queue so get in if you want me to recklessly if not then the week but Google proceed to a page six. Thank you. Eight six these are the transfers to the Arkansas department of higher education and and I would like to preface these comments by by saying that I did travel over and meet with secretary key and members of his staff we had a wonderful wonderful introductory meeting we we we discussed some big picture items and and I would like to assure this subcommittee that that we are one hundred percent committed to working hand in glove with the Arkansas department of higher education our missions are very very similar and we're we're thrilled to to be supporting them in in their mission to advance education in the state of Arkansas you'll notice that in July of twenty twenty the total transfer was eight point seven million dollars the budget was five point eight million and as you track down you'll see in August of twenty twenty the total transfer was eight point five million there again with the budget amount of six point seven million September we have a little bit of a drop off you see seven point eight million versus the budgeted six point three million and then in October we re back to eight point five million versus versus a budgeted six million so the total here which I did not put I don't believe it may be on here the total was thirty three and a half million thirty two point five nine four four five. Was the unclaimed prizes gives us thirty three six forty three five thirty seven so your totals thirty three and a half million your monthly average right now the lottery is eight point three seven five million that's a number we can live with and and that's a number that will try to maintain obviously that subject to a lot of factors but you always want to try to better your game so that's that's the average that we currently shoot for and and we hope to continue to see. I don't have any questions that a unless somebody. Thousand here real quickly so we can go on I remind members we have these these next month reports si two three and four. than one more item in the city on the C. agenda. Add Senator Elliot I I noticed that these other reports are not set that currently set up in in power point going forward in the future would you like for these reports also be tender to the subcommittee and power point form as well well I don't know what I'm talking with my coach here about that my instinct is that is not because what not to do that because people can find them online let's be sure they can at it if they can't right now and but we have the all of us have copies here Sam very good but I'll let you know about that okay thank you. With regard to exhibit see to this is the monthly disclosure report ended July thirty first twenty twenty I would just point again out for the record that I joined the lottery on August the eighth so these numbers are I can only speak to you forensically by looking back in reviewing these numbers and also the comments of my staff who have provided me with additional information you'll notice that the Camelot contract was went into its first extension when Camelot contract was originally executed there were two extensions that were also built into the contract in July of twenty twenty the the the first amendment I think it's this arc or the first It's not an amendment but it's a a first extension there are two extensions was actually triggered the base comp for that was six hundred and fifty thousand dollars there is a one thousand dollar per day reduction for any any work that they don't do so if there's a day that they don't assistance the lottery does receive a one thousand dollar per day reduction in that amount. For fiscal year twenty twenty one you'll note that Camelot is entitled to eleven point seven five percent of net operating income for amounts between seventy eight point two million and eighty eight million. Twenty percent of net operating income for amounts of eighty eight million and above and four percent of gross profits for Powerball and mega millions jackpots over four hundred million. in the contract provides that the gross profit consider is considered thirty nine point forty three percent for power ball and forty percent for mega millions how those numbers were calculated I cannot tell you I was not present but but that is what is set forth in the contract. There's also a provision that provides that prior to launch of any instant to kick sitting twenty dollars the office of the Arkansas lottery in Camelot will agree to incentive compensation to be paid we haven't done that so that conversation has not occurred. For fiscal year twenty twenty to the Arkansas office of the Arkansas lottery in Camelot will agree upon incentive compensation plan by April first of twenty twenty one. And that's something that I will begin working on shortly after the first of the year. The value of the contract in total is eighteen million nine hundred and fifty thousand dollars. That was the term contract that that was entered into in July of twenty twenty and I'll entertain any questions and answer them to the best of my ability. Any questions anybody. I I don't have any so thank you no question feel also notice an exhibit to that That is there was zero retailer losses this was a figure that really caught me off guard coming from the business world I I always look for for losses in you expect to have those on your counter party side retailer losses were zero the lottery is done a fantastic job and I speak forensically because I this is my look back on on data that that was made available to make it's really an amazing job of keeping retailers in line and and collecting the debts that they owe to the lottery I I think that. Too many times that's exhorting when I see is zero in the loss column that's something that gets me a little bit motivated to continue in that direction so I do point that out to you retail sales by county this is something that I refer to as the Big Five there there are five counties in Arkansas who consistently rank among the top five counties in in lottery sales Pulaski County had sales of nine point six million Jefferson County had sales of two point three million Washington County had sales of two million Craighead county had sales of one point nine million and Faulkner county had sales of one point eight million what I have noticed is that Pulaski County will always trend just by virtue of population and assess ability at the top of that list Jefferson County is consistently number two on that list Washington County is consistently three and cricket county in Faulkner county go back and forth don't know rank Ford five intermittently but always among themselves so it's very clear to determine where the appetite for lottery currently is and that would be these five counties. With regard to active retailers as of July thirty first twenty twenty there were one thousand nine hundred and fifty nine retailers that's a number that has remained fairly consistent if if if my look back is correct you'll lose a few you'll gain a few but there seems to be we seem to have hit a ceiling at two thousand just below two thousand that that seems to be our resistance level with regard to retailers we have utilized Camelot services and and their their ability to what I call mine data and and the in the they've taken our data and we're trying to to determine where were under served and how we can go about getting into those markets as well. The statement of net position is simply a balancing position it was a hundred and sixty eight point eight million. I think what I would want to know if I were looking is you drop down the statement of revenues and expenses budget comparisons again it's a budget comparison but if you look at the actual numbers I think that's where you derive the value of this particular McCollum you'll see that instance sales were forty two point nine million that's that's a that's a that's an enormous amount and on line is eight point eight so those would be your draw games retailer fees forty six thousand in total operating revenues of forty nine million operating expenses were forty two point two million you'll notice that it was twenty nine point seven on the budget side there again in the lottery world when you see an increase in sales you're also going to see an attendant increasing expenses. And when you hit certain levels you're going to see an outsized increase because you're triggering these benchmark bonus payments to your gaming vendors so that two was something that's a little bit different than the average business world but my research indicates to me that that's entirely consistent with the way lotteries operate nationwide. Up you look at operate our income before transfers seven point five eight million and net proceeds transfer to education trust net proceeds were eight point five nine million academic challenge scholarship trust was it fifty six point two eight million and the workforce challenge scholarship trust was at sixty four point two four million. Unclaimed prizes for one point one three million unclaimed prizes after a certain time go to net proceeds. So anyone that winds and doesn't claim it within a particular time those winnings will go into flow into net proceeds. Our diversity compliance report is set out there as well. The diversity report at the lottery is there these will be consistent numbers that you'll see throughout the reports that you have in front of you today so the total employees of the lottery or sixty five that does include twenty individuals who live remotely around the state and are on the road is our MSRC which again stands for marketing sales representatives that's our acronym internally by gender the office is forty eight percent female fifty two percent male. By race seventy percent Caucasian twenty four percent black and point four percent other. we are committed to increasing diversity both among our vendors and also with our staff and and and so those are numbers that that I pay attention to. Audit reports you'll see that there were two the instant ticket reconstruction were no findings and with regard to instant ticket quality one ticket out of three tickets that were tested were deemed to be of fair and and a fair rating is a passing score but it's certainly not something that we would like to see on a go forward basis we have reached out to our vendor and discuss that with them and and we believe that that we have resolution to that and our internal auditor is satisfied with that as well. instead in fast play games are listed there as well any any questions on exhibit see to be happy to answer. I have no questions and and Mr Hagler on if it's okay with the body I will just ask people to take a quick perusal of C. for to see if you have questions because you're doing a thorough job and I I wanna make sure we don't miss something that somebody needs to talk about otherwise I won't ask you to do to be as thorough as you as you have been on the other to I do appreciate your your Terrel report now thanks to its anybody anybody I have an issue with giving you time to take a look at this to see if you have questions I would say you know look at those pages again be bottom lines if nothing else. I'll give it a minute. And also if there's any particular that thing and here was to have what you want us to pay attention to because I've got your pattern of how you're doing it which I appreciate there's any particular thing and if you want us to know if we don't have a question you're free to do that as well otherwise we will move on to exhibit dot C. five thank you okay if anybody sees something later you want to come back to it just let me know we'll move on to C. Fite then thank you very much. C. five is a housekeeping matter again I speak forensically on this topic this was something that was done prior to my arrival I have done in depth research on it I have discussed with staff and I believe that I have an adequate understanding of of what transpired if in fact you have questions that I can answer also have present with me today our our controller at the lottery Mister Terry Williams who also can speak to the granular with regard to any any numbers are are perhaps even the sequence of events that led to our being here. Exhibit C. five is is a discussion of contract review what is happened is is the. The the office of the Arkansas lottery when it was migrating over to the asus system there was some confusion on the part of A. L. staff as to how they were to enter the amount of these contracts into the asus system the asus system expects term contracts to be just that term contracts what it doesn't account for our contracts that have a floating amount and I believe the lottery with and the only other exception perhaps economic development the lottery is perhaps the only state agency that that in the ordinary course of business enters into what are known as floating contracts floating rate contracts so you have a term amount and then of certain benchmarks or our team through sales than those vendors are entitled to additional compensation. When you entered into the asus system I believe that there was confusion at the lottery with regard to how much to enter into the system so the internet in an amount that was on the face of the contract without accounting for two things they did not account for the benchmark bonus payments the honestly I I think didn't expect it to happen that quickly and perhaps they just didn't understand but it was one of the two and and the other thing is is the extensions so when you have a contract and you have to extensions in the asus system you need to accommodate both of those extensions because you don't have to go to asus and pull that money so if you don't trigger an extension there's no harm no foul but if you do go into an extension and you don't have it in the asus system then on the asus system you're sitting at zero and it appears as if though you don't have the funds to pay your vendor in reality we do have the funds to pay our vendors and we have paid our vendors but it's not reflected in the asus system so when I first joined the lottery this was brought to my attention and I began to to research it and and I visited with Mister at Armstrong with the office of state procurement and there were two there were two potential avenues are passed to take one would be to come back and approach the legislature and ask for an amendment to the process that would allow for aces to accommodate the lottery as an exception to to to to deal with these floating rate contracts the other option was to continue to come to the subcommittee and ask for approval to open the asus portal to accommodate those extensions. My personal opinion is a risk manager and with my background and in my career has largely been in the corporate world one of risk management and and one of the one of the biggest one of the biggest things that you can do is a risk manager as you engage in transparency and so when I look at those two options very quickly I realized that if I were in your shoes I would want the lottery sitting here at this table explaining to you what I'm going to explain to you today I'm not seeking legislative amendment to how the asus process works with regard to the lottery there should be no problem on our part to come in here and explain exactly what's taking place and it gives all the members of the body an opportunity to evaluate that comment on that and and we're always open for instruction as well so with with that being said when you look at the scientific game contract this was reviewed by LOC on October fifteenth of twenty fifteen. It's scheduled to expire on August eighteenth of twenty twenty six. Currently asus reflects the value of that term contracted sixty three million one hundred and fifty three thousand nine hundred and thirty seven dollars. In fact we have now triggered the bonus payment amounts because of the outsides performance of the lottery and and so it's kind of a good thing on the one hand. I'm kinda happy to be here to tell you this because it means that we're doing very very well and funding scholarships on the other hand These are eye popping numbers and and so they should get your attention just as they got mine but I want you to be comfortable with it because I finally got my arms around and I'm comfortable coming to you today and explaining that the amount that's currently in asus on the scientific games contract needs to be increased within the asus system by thirty five million five hundred and seventy seven thousand five hundred and ninety six dollars this would mean that the asus entry for scientific games term contract would be ninety eight million seven hundred and thirty one dollars seven hundred and thirty one thousand five hundred and thirty three dollars. And I want to point out again that does not necessarily mean that ninety eight million seven hundred and thirty one thousand five hundred and thirty three dollars will be paid to scientific games what that means is is that when we look at the contract we look at the bonus tears we look at what our exposure is what is likely to happen what's the total baked in value of this contract if everything goes according to plan then that would be the values and so on the scientific game contract we're requesting approval to increase the amount an asus by thirty five million five hundred seventy seven thousand five hundred and ninety six dollars I'll stop briefly to see if there any questions with regard to this scientific game contract before I move on to the intro on track. Are there any questions. So I want to be sure I'm I understand this the thirty the stuff from the thirty five million that's the exposure that that's that's the exposure that the ninety eight thousand million was exposure correct and this is the increase that we could possibly have that has been earned by virtue of I guess performance correct senator okay it we just need to open the portal I have the money we just need to be repealed and earning using the the portal is that correct okay any questions anybody. I don't I don't have anybody in the in the queue so Thank you I'll move on to the contract this was reviewed by LOC on August seventeenth of twenty seventeen it's scheduled to expire on August fourteenth of twenty twenty six asus currently reflects the value of this term contracted forty four million nine hundred and eighty nine thousand four hundred and forty dollars. Asus should reflect eighty seven million three hundred and fifteen thousand five hundred and forty nine dollars we're seeking approval to increase the amount in aces in the amount of forty two million three hundred and twenty six thousand one hundred nine dollars. It's the same concept as I explained with regard scientific games and I'll entertain any questions on the interlock on tract as well yeah it and and then these are indeed eye popping numbers and but it is a function of the process we set up so check and see if anybody has any questions about this one seat eighty four that's me okay your record re recognized Senator no no questions on this and probably corrected to you were staff. Should we just go ahead and send this send this over to lake audit with an explanation because the individual that does this I think you would be better if they knew what was transpiring just so that it doesn't run to be red flags with them and we can. Get them in the loop yeah that's probably a good idea because we're looking at it and as I popping for us during the seat is going to be I popping for them as well thank out what we'll do that and Mister six Smith that we will just get those I'm talking to our staff personnel how do you get those numbers we get it to let you got it we can talk about off line to make sure that got the so that they will have this information thank you Mr you're welcome Senator no it's been center but the Dotson thank you madam chair I just want to say thank you for the effort at transparency on this and and bring it before us so many times we find about these things after the fact and the. Although these are certainly eye popping numbers. Understanding the process by which it happens really helps to alleviate a lot of the concern a legislative side my opinion thank you thank you Representative yeah it's good to see the food before it fed thank you so all right I don't have any other questions and what what's next on the agenda the next one is the Camelot contract reviewed by LOC on June eighteenth of twenty twenty it's scheduled to expire on June thirtieth of twenty twenty two there is a thirty day opt out on that contract by either party. Currently asus reflects a remaining amount of three million seven hundred and seventy three thousand and thirty five dollars. The actual amount that should be reflected in asus based on our forecasting of the total value of this term contract is eight million four hundred thousand dollars. We're asking for approval to increase the amount and asus by four million six hundred and twenty six thousand nine hundred and sixty five dollars. The rationale is the same as the previous to. I I have no questions will make sure leg audit has his numbers as well. And and just by edification I would point you to Arkansas code annotated section nineteen dash eleven dash two sixty five. Which codified ACT four seventeen of the twenty nineteen regular session this requires review for any material change and at this adjustment in pricing is what triggers the review and and that's was the genesis for our original request to be on the agenda today all right thank you. If there if there are not any objections will consider this reviewed. Think Senator. All right. Are you have to break the. Not yet. Okay. Senate. So the next item on our agenda item D. did you have anything else on item city of your finished I do not own a moving his or my gender okay is the review of the how you read and forced amber reimbursements see you have that I do okay. On the October fourteenth of twenty twenty I received a request from doctor Markham to transfer over as reimbursement the amount of five hundred thousand three hundred and thirty four dollars and seventy four cents this was reimbursement for administrative direct costs associated with the scholarships that are awarded with the net proceeds of the Arkansas scholarship lottery we did make that journal and transferred that money over to them the report that was provided to us reflected that that five hundred thousand three hundred and thirty four dollars and seventy four cents the breakdown was regular salaries two hundred and eighty nine thousand three hundred and thirty nine dollars and sixty cents personal services matching was sixty seven thousand three hundred and sixty eight dollars and twenty eight cents and the operating expense was a hundred and forty three thousand six hundred and twenty six dollars and eighty six cents and that gives you your total of five hundred thousand three hundred and thirty four dollars and seventy four cents thank you any questions anybody. If not. this their question of just see eighty four did you happen to have compare bills what what that has been in the last year to if not we can we can go back and get all Senator I I don't have that with me but I can provide that to you okay just always like to make sure that they're not. Increasing it. I'll I'll have a run in fact I can I can go back to inception if you'd like to report going that far back I don't just the last three years is fine very good I'll have that to you thank you Sir thank you all right thank you senator Hickey. All right that's all I have subcommittee today I do appreciate the opportunity to appear not and I say that on behalf of everyone at the office of the Arkansas lottery and also wish to invite you down we we do run a transparent agency and we're committed to doing that if you've never seen the lottery would love to see you in our offices if you've never seen a draw happen would like you to like you to come down and and and sit for one of the draws and you can actually see the process and I'm always available to you by phone or email are in person as well I thank you so much and welcome to the committee in welcome welcome back home thank you it's a healthy. doctor Markham The a on next to items doctor Markham and company of the deck. You're recognized as introduce yourself please. Thank you madam chair Maria Markham director the division of higher education. For me assistant director for finance at the division of higher education alright you're recognized. I thank you madam chair we have several exhibits for you today that includes reports for your review the first exhibit E. one which is a review of the workforce challenge scholarship program this will be our second year to administer of the workforce challenge of I did want to point out that in comparison to fiscal year two thousand nineteen we have more than doubled the uptake for students and increased the expenditures by almost double as well so year over year. We're beginning to see more participation in this. And I would like to answer any of your questions well I just want so that's good because when the thing to worry about are people paying attention to this scholarship so that's very encouraging anybody have any questions about this report. Okay number one I will say all that it has almost doubled it's still a relatively. All times that we've had some conversations about widening the lanes for this one as well adding more five categories of programs so that students were students have the opportunity to participate so definitely that's why he's yeah right we're doing well but we always do better offer more opportunities to our state exhibit eighty two. This will be a status report or the academic challenge scholarship. Of the first page there is the year over year expenditure for awards. The second page I'm gonna go ahead and and walk through what some of these current status is the definitions are because there's usually some question around that of the completed rose does your students who have completed their eligibility for the scholarship either through graduating and obtaining their credential or maxing out there there that number of hours that they can be eligible for those those are suited to the exit the program successfully dropped from scholarship these are students who did not completes the appropriate number of hours or make satisfactory academic progress to maintain eligibility so those transfer dropped from the program and then eligible our students who are still receiving the award so they received in previous semesters they've not completed their eligibility nor fail to maintain as a P. and they are persisting in receiving that scholarship. Of the first several sheets are all cohort so that everyone currently participating in the program. Of I will point out women are succeeding at higher rates than man sorry it's just the finance. And we get to first time entering how hordes of about halfway through your packet I don't have these numbers as far as pages four page And these are students who are first time entering our for two thousand nineteen twenty there's a low number of complete errors but obviously there's gonna be for shorter term credentials to the students entered and completed successfully in one year. For that haven't made any other significant notes there but if you have any questions I'd be happy to answer those. Dr Martin for those students who have dropped I don't remember we had any way of tracking them and find out what the issues are for their dropping but do you is there anything that we do with but that or is there any capability of doing something like that yes we know if they dropped because of academic GPA board if it was because of failure to complete their court number of hours so they dropped courses during the semester that put them under the threshold. For the required number of the drop is all about their academics not about some other issue it's all academic okay all right okay thank you. Anybody I don't see our students may be still participating in higher education but not or just don't have scholarship yeah okay all right all right then. I don't have any other questions. Okay I will that will take us to exit the F. exhibits at the first one exhibit F. one of this is the administration of the academic challenge scholarship and it's much like the report that you just heard from Mr Hagler the five hundred thousand three hundred and thirty five dollars that was requested for reimbursement from of lottery and to answer a question how does this compare with previous years it in line we had a couple of new hires at the very end of the year so it up just just a bit for FY twenty twenty because we did fill a couple of A can positions but it's it's comparable. How long have those positions been vacant the ones that you just feel approximately. well we actually had to create one of because it was. They've they've been vacant at least since I've been at the agency for almost three years now they had been we're trying to to expand that customer service to the students at the time we were down to three okay financially coordinator so expanded up to to the five now to be able to help assist the student okay alright well that's a big issue for students and families of that kind of assistance so I have to say I appreciate that because they ask me questions all the time I have no idea how to answer and then when they get referred with a not we have people there the capacity to answer is is a is a question yes all right. Okay any other questions on exhibit one I don't have anybody else in our queue so you may okay exhibit F. two contains information about our lottery net proceeds trust accounts and then the pages after that or expenditures and budget for all of our higher education grants and fund grant funds and expenditures these non lottery proceeds program so these are programs that are funded through general revenue an ETF funds. Dr Martin can you I'd been thinking lately about how much money when I look at this this complete list of you know what to but this is what's available the kinds of Financial aid of how much money gets left on the table so to speak at the end of a year of we will be doing a pretty good job of people. Of getting it out or or or people seek in it or is there something that could inform us if we could have a maybe an aggregate amount of what's left on the table for comparison purposes okay of the last five years or so is that what you asked that question senator Elliott said you know we've made mention of our budget hearings about certain programs up let's not expending the funds that we expected to right and that's true would you look at individual programs but in the aggregate we actually overspend our general revenue home budget annually so we have a small fund balance that we have that actually got accumulated I believe one lottery changed from one set of criteria to another so hopefully years we did not spend all of our budget so we had a small fund balance now we are expending all of our general revenue ET at and dipping into that fund balance every year so we do not have access for scholarship funds to be given by what we do during the course of the year if we see that there's going to be a demand on one program lack of demand at another we can ship some of those funds between programs but I mean if you look This last year twenty twenty what we actually spent out of our general revenue budget for scholarships versus what our budget is for next year we will spend about six million dollars into the deficit would dips into that fund balance of we have about a thirteen million dollar fund balance as of today so we will roughly cut our fund balance and half. As we've been dipping into the fund balance into the trust fund for every year yeah I'm trying to think you were talking we have not been of late so maybe that and but the for the scholarships that are set up that are not being use the ones we need to concentrate on to the extent that we think they should be other one should take a look at it talk about a our future for example sure that something like we want more students to take advantage of that but at the same time word students taking advantage of over a gram it will be more deficit spending that fund balance for us as well and look and all that we want more students to take advantage of that the lack of uptake is allowed us to cash flow a few of our other programs at the same time that will have to begin taking taking a hard look at how we want to address that if that if that trend continues I'm not an out of my you know the the additional appropriation that you all gave us in the last session for that marketing advertising those programs. The on demand half of it at least has to go to the our future but the rest of that can help them promote those other small under utilized programs that we need to get the word out on okay okay alright thank you I written a Dotson has a question. They'd like to thank you madam chair Looking through this list of very scholarships in FY twenty one budgeted McCollum. We don't have enough money to fund all of those budgeted line items do we do because of our fund balance of that I would get into right now we have sixty one million dollars budgeted will only get about fifty five that we have about thirteen million in a fun ballots that will supplement that do we anticipate using all that sixty one or is that just a little bit of headroom that were were expecting and we carry that every year. It's very little had room. So that we act I don't expect headroom I expect this to expand at least sixty one point eight billion okay so whenever we budget that that's typically what we spend. In its entirety okay and then back on the previous page you had general revenue deposit the twenty million. Lottery net proceeds deposit seventy five million. I'm kind of crossing reports here I think your first report was. Every item the two is that. Was that your is that eighty two was was my number one two two I guess I'm looking at the two on what the lottery said. They put into the education trust fund was seventy three million. In those numbers are not. Jiving. if if you're if you're if you get seventy five million they put seventy three million and the education trust account. Where's the two million dollars separating that. I'm not sure. The seventy three that was put into the trust account the seventy five is what our office had requested of the lottery to transfer into our net proceeds account and that's what you received from the lottery yes this that fiscal year yes Sir. Yes and it will prior to get together any water in any figure it also the knowledge is a balancing goes because if there's any left at the end of any year we have we give that back to the lottery. There's this fund they also have a workforce challenge trust account yes of that they put sixteen not does that go into. That the account money down from that as as we need it so they hold that and what Nick was with indicating on that ninety one or the I. seventy five million we requested that if we any you have some unexpended did funds we return does back to them to hold. And so that's probably trust seventy three versus seventy five we sent some funds that you see on that same page that three point eight million balance on June thirtieth we return that back to the office a lottery. For an expense on the academic challenge program then the workforce challenge trust fund is the prior year net proceeds. So that this amount will go back into into the workforce challenge fund from any excess prior your funds three point eight yes the the academic challenges only funded through current year net proceeds okay so anything from the prior year we're going to workforce I can get with you guys after this just to try to understand it better yes Sir. All right is there anything else from the two of you. anything else from the body. if not thank you all for coming to our party here on a Thursday afternoon and the meeting is adjourned thank you very much.