Georgia General Assembly House Lottery Oversight Committee

Georgia General Assembly House Lottery Oversight Committee
This report is submitted pursuant to the oversight role of the House Regulated Industries Committee
Chairman Alan Powell, Dist. 32 Date: January 14, 2020

2019-2020 History of the House Lottery Oversight Committee
The House Regulated Industries Committee was tasked with oversight duties of the Georgia Lottery Corporation upon its' creation in 1995. The Regulated Industries created The House Lottery Oversight Committee as a subcommittee in order to carry out oversight duties of the Georgia Lottery Corporation. The House Lottery Oversight Committee met four times during the 2019-2020 interim to effectuate these duties. The Committee met on 5/22/2019 to take a tour of the Georgia Lottery Corporation facilities and participate in a question and answer session with the purpose of gaining an understanding of the current operation of the Corporation. The Committee met on 5/23/2019 in room 606 of the Coverdell Legislative Office Building with the purpose of having a further question and answer session with the Georgia Lottery Corporation. The Committee met on 11/14/2019 in room 606 of the Coverdell Legislative Office Building with the purpose of concluding the oversight process of the Georgia Lottery Corporation. The final meeting occurred on 1/8/2020 in room 606 of the Coverdell Legislative Office Building with the purpose of reviewing and approving the Committee's recommendations regarding the Georgia Lottery Corporation.
House Findings of Lottery Oversight Committee Relating to Traditional Lottery
1. Background and Possible Future Modifications. Over the past 24 years, the Georgia Lottery Corporation has operated an efficient enterprise to conduct a lottery and fund critical programs such as the Hope Scholarship and Pre-K education programs. This has been accomplished by requiring integrity of the Lottery games and having a retail network that permits the public to easily participate if they so choose. While successful, the financial results are continually requiring more net revenue to fund this popular scholarship program and the Pre-K developmental education module. To continue its support of these programs, the GLC must further improve its financial model and strive for greater innovation of its existing sales programs of Lottery products. In addition, there may be a need for legislative changes in the Hope program to cap the amount of money that a university can charge for tuition for a Zell Miller Hope Scholar. By this modification, the ever-increasing target and revenue projections for Zell Miller scholars will be abated and addressed. If Zell Miller recipients are truly the best and the brightest, it may be time for the university system to tighten its belt and help Georgia keep the best and brightest students in our state for their secondary education without busting the funding mechanism for secondary education scholarships.
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2. Monitoring Accomplishments and Goals. A review of the salary structure for the GLC personnel clearly illustrates that these quasi-governmental employees are by and large earning higher salaries than most other counterparts in the state system. These quasigovernmental employees do not receive state benefits (i.e. Employee Retirement System and State Health Benefit Plan). While this group of state employees does perform a regulatory function, their duties also include a for-profit or entrepreneurial side that requires innovation and creativity of marketing and making the pie bigger for the programs such as Hope and Pre-K activities. Simply put, the GLC and its leadership should implement goals and expectations for its employment force that measures results on an annual basis. Because of the hybrid nature of its activities, the GLC should inspect what it expects of its staff. Such goals and measurements should be shared with the oversight committee so that we can clearly determine the tangible goals and results that the Lottery should be attaining.
3. Introduction of Sports Betting. Based upon an opinion letter from the Office of Legislative Counsel, it appears that the GLC under the current law has the authority to institute limited sports betting as part of the GLC ticket programs. This obviously would be a significant increase in net GLC revenues for Hope and Pre-K programs. Several other state lotteries have already added sports betting to their current lottery offerings. It is assumed by many that sports betting conducted by the GLC through its current master license and location owner network would result in an increase of Lottery retailers as well as attracting a new set of consumers who are not necessarily interested in the traditional lottery no-skill games. Just as the COAM games have added to the GLC's revenues, the introduction of sports betting would also complement the existing base of GLC products games. Other legal opinions suggest that the Georgia constitution should be amended to specifically remove all doubt and reference sports betting as another game conducted by the GLC, the legislature should consider such an action. This is especially true if the legislature is going to allow casinos and horse tracks to allow sports betting at their premises in future years.
4. Paying Lottery Winners and Concomitant Litigation. The integrity of the Lottery's games is clearly an important objection. At the same time, it is equally important for winners of lottery games to be paid in a prompt manner and not unnecessarily have delays occur which have resulted in litigation which the GLC has lost. It appears that GLC has modified is procedures to ensure that no one person delays the payment of a winning ticket just because there is a suspicion of wrongdoing without the requisite evidence to back it up. The committee applauds the current director of GLC in promptly responding and instituting a new protocol that respects the need for oversight without being punitive or creating the impression that the GLC is targeting certain demographic groups. The House Lottery Oversight Committee finds no need
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to modify existing law with regard to target percentages and further finds that the Georgia Lottery has performed exceptionally well providing funds for education.
5. Cost of GLC Administration. The GLC should provide the Oversight Committee on a semi-annual basis with the total amount of GLC revenues used for administration and enforcement. These figures should be compared with the cost of other governmental agencies to determine the reasonable cost of running the GLC itself. In addition, it would also be helpful to review the cost of other state-run lottery operations and see how Georgia compares to these operations as to a cost benefit analysis.
6. Monitoring Disputes. The Oversight Committee should, in the future, receive on an annual basis, the number of individuals who were denied their lottery prizes and the amounts of prizes that they were denied.
7. Lottery Game Terminations. The Oversight Committee should be provided the number of scratch-off games terminated before the winning ticket is sold and the amount of prize money that was advertised but not awarded. This report should be submitted on an annual basis.
8. New Lottery Retailers. On an annual basis, the GLC should provide to the Oversight Committee the number of new GLC lottery retailers. Sufficiently detailed data should include retailers who are not owned or operated by the GLC (e.g., Atlanta airport location) and locations where the lottery retailer was merely changed due to a change of ownership at the business location. This information should be used by the GLC to determine whether the GLC footprint of retailers is truly expanding or contracting in Georgia.
9. Fantasy Sports Option for GLC. In addition to considering sports betting as another offering, the GLC should explore the value of offering fantasy sports leagues as a business opportunity which could attract new customers to the Lottery's customer base. Just as the private sector has been forced to revise its product lines and approaches to salesmanship, the GLC needs to strongly and seriously evaluate how it can improve and expand its offerings and the way it sells its products. In recent years, the Lottery has used its sales network of private sector retailers and through its use of the GLC app has changed its medium for its sales. As the GLC matures, it should not be too timid in its offerings. It must innovate and be creative in its product offerings and the way products are sold. The demands of funding the Hope and Pre-K programs require it.
10. Maximizing Sales and Marketing Efforts. The GLC should utilize its COAM master license partners to work in tandem with the GLC marketing and sales staff to develop
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more traditional lottery retailers. The merging of the strengths of these two groups should create a symbiotic relationship that enhances lottery revenues.
11. Age Old Debate. There is a constant debate as to whether the GLC should be evaluated as to the percentage of dollars that it brings to the bottom lines based upon its gross sales as compared to the actual dollars that it in fact brings to that bottom line. What is clear is that the support of Hope and Pre-K is done by the existence of dollars and not percentages. It is the total new dollars received that will determine if the Hope and Pre-K programs have enough dollars to fund its efforts. Thus, maximizing all forms of revenue available for these programs is essential. Simply put, one can only spend dollars not percentages. It is for this reason that the GLC must certainly respect the percentage goals set forth in the law, but must always strive to maximize the amount of dollars to the bottom line to support the worthy programs that the public has become accustomed to utilize for the children and students of this state. Maximizing dollars can help expand the educational mission and the financial aid programs that exist in this state.
12. Future Testimony Before Oversight Committee. In the future, in addition to the Lottery personnel that appeared before the Oversight Committee, it would also be helpful to hear from a member of the Lottery Board of Directors, a representative of the COAM Advisory Board, and representatives of the individual businesses that are either contracted with or are regulated by the GLC. These presentations should help the Oversight Committee secure a better understanding of the various facets of this operation.
13. Litigation Report. Another presentation of the GLC in the future should include a summary and review of the active litigation that the Lottery is experiencing. This may reveal certain systemic problems that should be addressed.
14. Retailers' Commissions. Retailers' commissions were cut in 2011 with HB 326. At the time, stakeholders recognized the importance of the retail partnership. As such, they set in statute an allowance that when the lottery was on solid financial footing, as evidenced by a successful transfer of at least $1B, the lottery would be authorized to provide retailers with bonuses and incentives. The Lottery has met that minimum requirement and should therefor institute a robust bonus and incentive program. Toward the achievement of this goal, the GLC should annually report the percentage of retailers receiving a bonus or incentive, as well as the value of the bonus or incentive.
15. Lottery Personnel Employment Contracts. There is some concern involving the issue of employment contracts for GLC personnel which have a term longer than one year.
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These concerns include handcuffing future administrations and unnecessarily limiting the flexibility to create new positions or add different personnel to the GLC operation. Overall, it is advised that the Legislature review the practices that occur in other states and evaluate what would be best for Georgia and its lottery operation. Most state personnel do not have long-term employment contracts and before one is proffered, there should be a compelling reason to do so.
House Findings of Lottery Oversight Committee Relating to COAM Industry
1. Background and Status of COAM Industry. Due to legislative change, the Coin Operated Amusement Industry came under the GLC's purview in 2014. In addition, a portion of the net revenue (presently 10%) became dedicated funds that help finance the Hope Scholarship and the Pre-K program of which many Georgia children and students have benefitted. This past year, over $60 million was added to these programs from the playing of these machines. Based upon partial revenue figure for the current year, this revenue may increase to over $88 million. This revenue is further supplemented by payments of license fees and decals from both the owners of the machines and the locations where these machines are placed. These regulatory fees exceed $15 million which is greater than the entire cost of regulating this industry by COAM division of the GLC. All these monies collected is further supplemented by these business owners (master license owners and location owners) who pay state income tax, personal property taxes and sales tax on the noncash redemption generated from certain prizes won by successful players of the COAMs. The COAMs are always a part of a larger business and can be seen in convenience stores, bars, restaurants, fraternal groups, American Legions, VFWs, and in such amusement centers as Six Flags, Dave & Busters, Andretti's Speedway, and Chuck E. Cheese. This industry has existed in Georgia since the early 1900's. The present law governing this industry is more advanced than our sister states and is more tightly governed. The COAMs must have "some skill" in their operation and the industry exists across all counties in Georgia.
2. Current Regulation of COAM Industry. The relationship between the GLC, the regulatory body governing the industry, and the private sector businesspeople has matured over the past few years. The growing pains associated with a change in law has moved all parties to a place where regulation of largely small businesspeople has to be balanced by fair regulation and marketing the play of the machines by the public. It appears that the playing of the machines has provided an amusement feature that also has helped the sale of lottery tickets as a form of noncash redemption relating to the machines. Based upon past history, we find that a GLC COAM gift card (see item three below) would only further serve to increase lottery revenues for the Hope and PreK programs.
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3. Past Practice and GLC COAM Gift Card. In past years, under previous law, the successful players of these machines were able to redeem their noncash redemption vouchers for lottery tickets, merchandise and gift cards for use at various merchants across the state. This resulted in the purchase of a large amount of gift cards by master license holders and location owners which also created an easy system to collect ancillary sales tax on the items purchased with the gift cards. Based upon testimony and questioning by the Oversight Committee, it appears clear that a GLC COAM gift card that could be used across the state would not only aid in sales tax collection, but also result in a profit center for the lottery in creating and selling these gift cards to COAM location owners for prizes for their customers who play the COAMs. Such a program would be a significant step forward for the GLC and it is strongly urged by the Oversight Committee that such a gift card and any variations thereof be instituted as soon as possible. Changing most of the noncash redemption to either the purchase of lottery tickets or these gift cards would be a boon to new lottery revenues, as well as sales tax collections. It is this kind of out-of-the-box thinking that can propel the Lottery to continue to easily fund such worthwhile programs as Hope and Pre-K. Furthermore, the implementation of the gift card would produce more businesses interested in having the games because the gift card is a simple, acceptable and easy form of the awarding of prizes associated with the playing of the COAMs. Various businesses with multiple locations could provide a lawful and straightforward means of awards for their customers. At the same time, the GLC could develop other marketing opportunities that would increase their profits and help small businesses make ends meet. The GLC will not miss the opportunity to further anchor its successes with this supplemental lottery product, which it is already authorized to do under current law and will implement a gift card program and report back to the House Lottery Oversight Committee by 12/31/2020.
4. Administration Cost of COAM Program. As with the traditional lottery program, the GLC should provide the Oversight Committee on a semi-annual basis the total amount of revenues for the administration and enforcement of the COAM program. The cost benefits analysis and the need to readjust any priorities for the program should be carefully reviewed. One specific concern is the minimal amount of marketing funds dedicated to the COAM program.
5. Enhancement of COAM Sales and Marketing Efforts. The GLC should redouble its efforts to have its master license holders and location owners work more diligently with the Lottery's sales force to increase the number of locations in the state for lottery retailers and COAM locations. If the goal is to increase lottery revenues and to help the small businessperson, more places to play is a sure-fire way to reach this goal.
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6. Compliance with Noncash Redemption Law. As noted in Item 3 above, the implementation of a GLC COAM gift card has many financial benefits to the Lottery Program, especially the increase in revenue for Hope and Pre-K programs. In addition, the use of such a new lottery product would, in our view, create even greater compliance with the existing noncash redemption which bans the proffering of cash to successful players of the COAM machines. By having this card, location owners could easily train their employment staff to provide such a gift card to the players of the machines. This will result in greater compliance to the existing noncash redemption law and enable the GLC and the Revenue Department to help small businesses easily comply with the amusement and existing sales tax law relating to the COAM industry.
7. Clarification of Coin Operated Amusement Machines. In order to be certain that new technology or any deceptive practices occur which are developed to circumvent the current COAM law, it is recommended that the definition of a coin operated amusement machine be clarified to include a "some skill" game on any such machine that is commercially available for play by the public. This clarification will ensure the integrity of the COAM license system and will prevent tax and regulatory avoidance of the same.
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