Saying the Missouri Lottery "has some work to do," Gov. Jay Nixon on Thursday replaced four of the five commissioners who oversee the lottery and urged his new appointees to take steps to maximize the money that goes to public education.
Steps that should be considered, he said, include ratcheting down the share of money that goes into prizes for winners and tightening the contract with the company that produces the instant Scratchers games.
"The goal is not how many lottery tickets you can sell," Nixon said in a telephone interview. "The goal is how much money you can get to the classrooms of our state."
To underscore his point, Nixon chose three prominent educators and one businessman to replace commissioners who had served since he appointed them in 2009.
The commission is scheduled to meet today in Jefferson City to elect a new chairman and review the governor's recommendations.
Nixon called for a review of the lottery operation in July after the Post-Dispatch reported that although ticket sales increased to a record $1.15 billion last year, the amount of "profit" after administrative costs, retailer commissions and prize payouts fell $21 million compared to the previous year.
The governor noted that the share of lottery revenue going to education dropped to 23 percent of sales in the budget year that ended June 30, the lowest level in at least a decade.
Nixon's review, which was conducted by state Budget Director Linda Luebbering, zeroed in on increased lottery spending in several key areas, such as prize payouts and advertising.
For example, the review found that among the 44 state lotteries, Missouri's overall prize payout percentage ranked fourth. The Missouri Lottery paid out 66 percent of its total sales in prizes in 2013; the national average was 60.61 percent.
Meanwhile, some expenses have soared.
The lottery's advertising budget has gone from about $1.3 million a year in 2009 to $16 million this year.
Nixon declined to elaborate on why he overhauled the commission.
"I'm not going to be overly critical other than to say I thought it was time for a fresh look," he said.
Asked whether the lottery's executive director, May Scheve Reardon, had his support, Nixon said the new commissioners "should take a clean look at everything, staffing included."
Reardon did not return calls seeking comment on Thursday. A statement released by agency spokeswoman Susan Goedde said officials had just received the report late Thursday afternoon and would discuss it at today's meeting.
The ousted commissioners include Nixon's former law partner, Kevin Roberts of Hillsboro, who has been the lottery commission's chairman since September 2009.
"I serve at the governor's pleasure and certainly understand whenever he chooses to make that decision," Roberts said Thursday.
Also replaced were Gina Hoagland of Ladue, Jacque Land of St. Louis and Stephen Snead of Turners in southwestern Missouri. All had been on the commission since Nixon appointed them in 2009 and were serving despite having terms that expired.
The new commissioners, who will need to be confirmed by the Missouri Senate, are:
--Terry R. Adams of Lake Saint Louis, a retired school superintendent in the Rockwood School District and the Wentzville School District.
--Former Columbia Public Schools superintendent Phyllis A. Chase of Kansas City, director of the Charter School Center at the University of Missouri-Kansas City.
--Paul Kincaid of Springfield, who is retiring after 28 years as an administrator at Missouri State University.
--John Twitty of Springfield, who has spent nearly three decades managing municipal utilities in Rolla and Springfield.
Reardon told a House committee last month that the lottery's $267.3 million payment to education last year wasn't as high as expected because of factors beyond the agency's control. Chief among them: Powerball, the most profitable game, had fewer large jackpots last year, depressing sales for that game.
Meanwhile, Reardon has increased the lottery's profile by beefing up advertising and promotions.
In 2010, Barkley Inc., a Kansas City-based advertising agency, won a four-year contract to develop an advertising program for the lottery. In January 2014, the contract was renewed through June 2015.
Reardon told legislators that "for every dollar we spend on advertising, we generate over $3."
But last year's lottery profit for education was down 7.4 percent despite an increase of 1.5 percent in gross revenue. And the bottom line for schools is what matters, Nixon said.
"We didn't get the concomitant increase in education dollars" from the advertising blitz, the governor said.
The review found that over the past 10 years, the lottery's gross revenue has grown an average of 4.5 percent, while the annual payment to education has grown an average of 2.5 percent. In the same period, prize payouts grew by an average of 5.4 percent.
The review drew no conclusion on whether paying more in prizes had helped, hurt or had a neutral impact on producing money for education. Nixon made that point, too.
People "play the lottery to win, so you've got to balance that" need for attractive prizes with raising money for education, he said.
But given that Missouri's prizes are "some of the highest in the country" and the instant game contractor is paid based on sales instead of net proceeds to education, more scrutiny is needed, Nixon said.
Scientific Games International Inc. of Alpharetta, Ga., prints Missouri's instant Scratchers tickets and helps design the games. The firm was paid $5.6 million last year.
The budget office review recommends that the lottery rebid its contracts more frequently instead of extending them. That point also was made by Auditor Tom Schweich in 2012.
The turmoil comes as the lottery is getting ready to award a multimillion-dollar contract to handle its draw games. Bids were submitted by three companies: the current contractor, GTECH Corp. of Providence, R.I.; Intralot Inc. of Duluth, Ga.; and Scientific Games.
The Post-Dispatch reported this month that Scientific Games pays some lottery employees' out-of-state travel expenses to attend conferences and training seminars. The company spent $21,885 the last three years on air fare for lottery workers. The lottery itself spent $129,881 on out-of-state travel during that period.
Missouri voters authorized the lottery in 1984 and earmarked lottery proceeds for education in 1992.
(c)2014 the St. Louis Post-Dispatch
