Consultant: Tenn.-Ga. lottery “most attractive”

Amber McDowell

Wednesday, Aug. 20, 2003 | 9:29 a.m.

NASHVILLE, Tenn. -- A cooperative venture between the Tennessee and Georgia lotteries would be "most attractive," garnering up to $248 million over seven years that Tennessee would not make going it alone, state lottery officials were told Monday.

Officials with North Highland Co., a consulting firm hired by the Tennessee Education Lottery Corporation to assess a proposal from the Georgia lottery, were entirely positive in their report about the proposed deal -- which calls for Tennessee to join Georgia in its upcoming lottery vendor contract.

"A joint venture with Georgia would be the most attractive route financially for Tennessee," North Highland management consultant Gerry Wexelbaum told lottery board members. "... The numbers would be above and beyond what you would have been able to achieve in a startup from scratch."

Tennessee lottery officials have been considering the potential benefits and liabilities of mingling its new lottery with Georgia's established games since Rebecca Paul, Georgia lottery CEO, first proposed such a partnership last month.

The additional net proceeds, which take into account money Georgia would receive from the savings, would come from an earlier start date for Tennessee ticket sales -- as early as Dec. 1 -- and the leveraging of Georgia rates on its two major gaming vendor contracts.

Board Chairman Denny Bottorff refused to elaborate on what percentage of the savings Georgia would receive through the deal, saying those figures were being kept private pending negotiations later this week with Georgia officials.

"My guess -- and it's just a guess -- is it might be as much as a fourth" of the savings, Bottorff said of Georgia's take.

"But you have to think about it this way, this is a bigger pie. This is money nobody would have had. Tennessee would get three-quarters of it, and Georgia might get as much as a quarter," Bottorff estimated.

Wexelbaum said that as a startup lottery going it alone, Tennessee could not secure gaming vendor rates comparable to Georgia's 1.28 percent of online and instant-ticket sales.

That's because of Tennessee's smaller population -- which translates into smaller sales -- and the "considerable capital investment" vendors must make when first moving into a state, Wexelbaum said. Typical startup rates, he said, range from the high 1 percents to the high 3 percents.

"Tennessee on its own would have to achieve unprecedented rates on the open market," he said. "... The bottom line is an innovative joint venture has the potential to yield considerably more in net revenues and savings."

After Wexelbaum spoke, board members voted unanimously to continue exploring the partnership. Georgia has said it would like a decision by Sept. 1.

"In light of the numbers, it's prudent to certainly take a look further," board member Marvell Mitchell said. "If in fact on the shy side (Tennessee would get) $100 million, and on the high side $200 million, we have a responsibility to take a look at it.

"It almost compels us to go down this path further."

In other lottery developments, Bottorff said the search for a Tennessee lottery CEO continues, but a final selection will not be made until a decision is made on whether to partner with Georgia.

"It's just not practical. It will have to come after," he said.