Tennessee officials seek tips on lottery startup

Bobby Ross Jr

Wednesday, Dec. 18, 2002 | 9:29 a.m.

ATLANTA -- Dub it Lottery 101.

Tennessee lawmakers received a crash course Tuesday in how to start a $1-billion-a-year enterprise -- a state lottery -- from scratch in just a few months.

Rebecca Paul, president of the Georgia Lottery Corp., played the role of professor as the House-Senate lottery information and recommendation committee convened in Atlanta.

"We've got our work cut out for us," state Rep. Chris Newton, R-Cleveland, said after the meeting. "It kind of reminds me of the 'Smokey and the Bandit' song: 'We've got a long way to go and a short time to get there."'

The story of how Georgia's lottery has exceeded all financial projections -- hitting $2.5 billion in sales last year -- excited state Rep. Larry Miller, D-Memphis. But he said Tennessee must be careful in writing its enabling legislation.

"I can see an uphill, very complicated beginning for us, and we want to do it right," Miller said during the meeting. "That's why we're here speaking with you all because we know the Georgia lottery, if not the best, is one of the best."

Paul, who managed lotteries in Illinois and Florida before she was hired to start the Georgia lottery in 1993, said initial projections called for $459 million in sales the first year.

Georgia more than doubled that, selling $1.1 billion in lottery tickets in the first 12 months -- and that number has risen every year. This fiscal year, which began July 1, sales are up $60.4 million.

"We've had a rate of growth that's averaged 11 percent a year," Paul said.

That's unusual in the lottery industry, as most states experience a revenue decline within the first two or three years, she said.

State Sen. Steve Cohen, the Memphis Democrat who pushed 18 years for a lottery and heads the House-Senate committee, said he hoped the meeting persuaded lawmakers that Tennessee should model its lottery after Georgia's.

Cohen said the secret of Georgia's success is that individuals see the benefits in college scholarships, preschool programs and school technology improvements.

"The money doesn't just go to big government and get swallowed up," he said.

The committee is developing a lottery bill after Tennessee voters last month overwhelmingly lifted a constitutional ban on a lottery. The referendum's passage cleared the way for lawmakers to create a lottery to raise funds for scholarships and other education programs.

Today the 15 or so senators and representatives who traveled to Atlanta will explore the operations of Georgia's two major lottery vendors: GTECH Corp. and Scientific Games.

Paul said Georgia's lottery legislation put accountability measures in place, including open meetings, open records and regular independent audits. At the same time, though, the law gave the lottery freedom and flexibility to operate as an entrepreneurial business, she said.

For instance, Georgia Lottery Corp. employees don't fall under the state employee pay system. Sales representatives earn commissions comparable to those in the business world.

The lottery started in temporary office space with two small rooms and no telephones, desks or computers. In less than five months, a staff of 300 was hired and thousands of retailers were licensed. All had to pass extensive credit, tax and criminal background checks, Paul said.

"On top of that, the vast majority of our retailers had never seen a lottery ticket, much less sold them," she said. "So we had to train them."

Besides the main office, seven satellite offices were set up throughout the state so no retailer or prize winner would have to drive more than two hours to meet with a lottery official.

Prizes between $600 and $250,000 can be redeemed at those offices.

"Now, if you win over $250,000, you've got to come see me, and that's OK," Paul said.

The lottery also had to develop games and a marketing strategy. Unlike most businesses, which can start small and build, a lottery must be ready to flourish the first day.

"More people will play your lottery the first day than will ever play it again," Paul said.