The Wyoming Lottery Corporation transferred substantially less revenue back to the state in July than in past quarters.
In April the lottery transferred a little more than $1 million. But in July, the transfer was a flat $200,000. That money is distributed to Wyoming’s towns and counties, who are also struggling with drops in state revenue and local sales tax revenue.
July’s low transfer comes during a year in which lottery staff saw a 3 percent salary increase, and one month after the corporation’s board of directors voted to give the CEO a $25,000 bonus. The board is appointed by the governor and serves as the lottery’s oversight committee.
The low transfer came in the last quarter of the 2017 fiscal year, during which the lottery earned $2.6 million for the state. It is the first full fiscal year the lottery corporation has provided revenue back to the state since the lottery’s creation in 2013. In fiscal year 2016, the corporation transferred $2,035,865 over two quarters, according to documents on the Wyoming State Treasurer’s website.
Wyoming Lottery CEO Jon Clontz says the drop in revenue transfer came as a result of a “true-up” to balance the corporation’s books, done in conjunction with an audit by accounting firm McGee, Hearne & Paiz, LLC of Cheyenne. The company saw some unexpected expenses from launching a new game during the last year, and also made an ambitious transfer to the state in April.
“I probably should’ve transferred $700,000 instead of $1 million,” Clontz said. The corporation is still fine tuning its accounting processes, he said, and growing its business. It has spent significant funds adding new games to the Wyoming lottery every year since its beginning.
“It was a learning experience, a learning process,” he said. “Getting that [accounting] down to a science, it’s a part of developing the company.”
Even before the audit, Clontz said, the July transfer would have been lower than past transfers, at around $500,000. He said the drop came following a period of the lottery’s worst sales ever.
But Pete Obermueller, the executive director of the Wyoming County Commissioners Association, who represents the interests of the counties before the Legislature, worried about the lottery’s trajectory.
“The Wyoming legislature was crystal clear that the Lottery wasn’t created just for entertainment, it should also be managed in a way that maximizes revenue,” Obermueller wrote to WyoFile. “But when operating expenses climb toward 60% of gross profits as they did this last year, something isn’t working as planned. It may be time for Wyoming to consider capping expenses at WyoLotto the way several other states already do.”
Clontz’s bonus came as a result of his meeting various performance goals set in his employment contract, he said, and pay increases to the eight lottery staff were made in accordance with meeting cost of living increases and in line with performance. In an interview, a member of the lottery’s board praised Clontz’s role in growing the lottery.
“If this were a bonus based on that one transfer, then yeah I would be worried about it,” Clontz said when asked about the perception of his bonus’ timing. “But people have to realize it’s based on a whole culmination of things.”
“Particularly valuable” money
Statute dictates that revenue from the lottery is directed to Wyoming’s cities, towns and counties.
The city of Casper receives one of the larger shares of lottery revenue. In April, the city received $85,691. In July, the drop in revenue meant Casper received only $17,604.
The lottery money goes to the city’s general fund and is not marked for specific purposes, unlike grants from the state or federal government. “That kind of money is particularly valuable,” said Pete Meyers with Casper’s finance division. “It’s very flexible and we can use it for any kind of expense we might have.”
The drop is unfortunate, but city officials are hopeful they’ll see larger payments over the course of the new fiscal year, Meyers said. He anticipates receiving $227,000 in lottery revenue this year.
Like other cities, counties and most governmental entities in Wyoming, Casper’s city government is in a revenue crunch. The current budget calls for spending $4 million of the city’s reserves, Meyers said, and a hiring freeze has been put in place. “Everyone is looking for ways to cover two or three jobs at the same time with just one person,” he said.
Wyoming Lottery Corporation financials
During the 2017 fiscal year, the Wyoming Lottery Corporation earned more than $25 million in total revenue, according to financial documents released in response to a records request from WyoFile. Of that, a little more than $14 million was paid out in prize money. Another $4.5 million went to vendor expenses and gaming retail commissions.
After those expenses, the lottery corporation was left with around $6.6 million in profit. After expenses, the amount left to be transferred to the state was whittled down to $2.6 million for the fiscal year.
The corporation’s biggest expenses, according to the financial documents, were salaries, marketing and development of new games. Salaries, wages and benefits came to $1,137,568. The corporation spent $1,038,854 on marketing and $814,158 on developing a new game.
Clontz said marketing costs have been going down as the corporation begins to saturate the market with its brand. He also said the transfers to towns and counties aren’t the only way the corporation contributes to Wyoming. The vendor expenses mean more money going into Wyoming businesses that offer the lottery, he said. The corporation’s financials said a little more than $3 million was spent on vendor expenses in fiscal year 2017.
On top of that, Clontz said, prize money can be won by Wyoming residents.
Little legislative oversight
The Legislature authorized the lottery’s creation in 2013. Opposition to the bill was stiff, particularly from more socially conservative lawmakers, said Senate Appropriations Committee Chairman Bruce Burns (R, SD-21, Sheridan). “People were reading bible verses on the floor of the House,” he said.
Ultimately, the possibility for a new revenue source for towns and counties won out over fears of gambling’s evils, Burns said.
In 2013, when the bill to legalize the lottery passed, supporters estimated it could generate up to $6 million a year for towns and counties, according to the Casper Star-Tribune. The estimate was based off North Dakota’s lottery.
Statute dictates that once a quarter the lottery corporation must deposit all its net proceeds — minus what’s paid out in prize money — into an account with the Wyoming Treasurer’s office. Net proceeds refers to all revenue left after the lottery corporation’s expenses for marketing the lottery and paying staff.
But the statute is silent on what can be considered an expense. It’s up to the corporation to set marketing budgets and salaries. The lottery corporation is not a government agency. Statute describes it as “a body politic and corporate operating as an instrumentality of the state of Wyoming, with authority to adopt an official seal.” The distinction left the corporation in a neutral ground between being a public and a private entity.
State agencies must present their budgets to the Legislature’s Joint Appropriations Committee. The lottery corporation’s budget however is approved or disapproved by its board of directors.
Beyond that, statute gives the corporation wide latitude to manage it’s own affairs, giving it decision making powers “generally exercised by corporations engaged in entrepreneurial pursuits.”
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While the board of directors appoints the chief executive officer and sets his salary, other staff salaries are set internally. In 2015, after a protracted public dispute where the Casper Star-Tribune hired Cheyenne media attorney Bruce Moats to make a case that the lottery’s internal corporate machinations were public info, the corporation released a list of compensation for its staff. That year, CEO Jon Clontz made $181,000, according to the documents provided to the Tribune.
WyoFile requested updated documents related to employee compensation and bonuses last week. The Wyoming Lottery Corporation is working on delivering them, officials said.
The lottery’s board of directors receives a comprehensive version of the corporation’s budget, vice-chair Jim Whalen said. Whalen is the Teton County Sheriff and was appointed to the lottery’s oversight board by Gov. Matt Mead.
“We’ve always approved the budget,” Whalen said, “but certainly there have been times when we’ve questioned things on the budget.”
According to minutes from the board’s June meeting, the board retreated into an executive session, closed to the public, to discuss Clontz’s compensation. The board voted unanimously to approve the bonus upon returning from the executive session.
The lottery is succeeding for the state, Whalen said. He attributed that success to the lottery corporation’s leadership.
“Starting from the ground up we have been able to build it into a successful organization and I think that has been due in large part to Jon Clontz,” Whalen said. “He’s in large part responsible for the success of the lottery.”
Thus far, the lottery has sent a total of $4.6 million back to the state, according to numbers posted by the Wyoming State Treasurer’s office. The transfers began in April of 2016, said Jeanne Hartman, an accountant with the Treasurer’s office. There have been six transfers total.
The Wyoming Lottery Corporation plans to add at least one more game, Keno, Clontz said. He estimated adding that game could bring the transfers up to almost $6 million a year.
“We’re doing everything we can to keep these games exciting and fresh,” he said. The next transfer to the state, which comes in October, should be at least $600,000, he said.
The Wyoming Lottery Corporation posts quarterly financial documents on its website up to the fourth quarter of 2015. WyoFile obtained statements for the following years via a records request, and has uploaded them below. -Ed.