by Byron La Fleur
Update: After this article was published, Representative Leslie Osborn has been removed from her position as chair of the House Appropriations and Budget Committee by Speaker Charles McCall. McCall suggested Department of Human Services were to blame for program and service cuts. Osborn and two other House appropriations subcommittee chairs disagreed. You can read more about it here.
Every action (and some inaction) taken by a lottery can be subject to severe criticism from players, non-players or state officials. Regardless of the integrity of the criticism, the results can lead to the termination of jobs. Therefore, lottery executives and directors are conservative in the degree of autonomy they tend to give their staff. Yet Oklahoma Lottery Executive Director Rollo Redburn took a chance in 2015 by empowering his staff in the fullest entrepreneurial sense of the word. The result? A successful legislative initiative that will increase Oklahoma Lottery’s contributions to their beneficiary by over $110 million during the next five years.
The origins of this story truly begin, not in Oklahoma, not even in the United States, but in Saudi Arabia. After the oil market bottomed out in 2008 at $40 a barrel, prices steadily climbed to between $100 and $125 until 2014. New private companies in the U.S. began extracting oil, and Canada began extracting oil out of the Alberta oil sands. The influx of competitors left Saudi Arabia, which is in control of one of the largest oil reserves in the world, with a decision to either cut back production of oil (so that oil barrel prices would stay the same) or maintain their current production and have oil prices fall. They chose the latter option, a long-term decision intended to force their new competitors out of the market with unprofitably low oil prices.
The results were drastic in Oklahoma, which relies on the oil and gas sector for employment and tax revenues. “In 2014, the collapse of oil prices contributed to a massive $1.3 billion budget deficit, which led the state to declare ‘revenue failure’ in 2015, which triggered automatic across the board spending cuts,” journalist Rory Carroll reported in Reuters.
Oklahoma’s total revenue estimated by Gov. Mary Fallin in 2015 was around $7 billion, so a $1.3(billion) budget crisis represented nearly 20% of the state’s total revenue. For the 2017 legislative session, the budget crisis had not been solved. This resulted in continuous cuts to state agencies, including education. Many districts considered moving to a four-day school week to save money.
The Oklahoma Lottery was going through its own crisis. Lottery sales have never exceeded their 2007 revenue record of $215.1 million. Recent years have been unkind to instant sales, which went from $102 million in FY11 to $66.8 million this past fiscal year, a decrease of over 34%. For comparison, the national average of instant sales has increased by nearly 40% over the same period.
The reason for the flat or decreased sales over time can strongly be linked to Oklahoma’s 35% profit mandate. By law, the Oklahoma Lottery’s net proceeds must equal 35% of gross proceeds. This has required instant tickets to have an average payout of 57.6%, which was the lowest payout in the U.S. in FY17.
The Oklahoma Lottery had been trying to liberate itself from the profit mandate almost since its inception. “We started trying for law changes after 2007 and every year after. Even before that, we were talking with other state lottery officials that the 35% general profit mandate process was going to do nothing but hurt our ability to be profitable. In 2007, we started trying to get legislation passed,” Redburn said.
Now, 45% of Oklahoma Lottery proceeds mostly go to elementary and secondary education, and another 39.5% goes to higher education. The removal of the profit mandate seemed naturally beneficial to everyone, particularly during a budget crisis. But politics was playing a factor. The Oklahoma Legislature is made up mostly of Republicans, most of whom do not want to see any unnecessary expansion of gambling.
It is also worth noting that the lottery was implemented by a Democratic governor, which probably added a partisan element, particularly in the early efforts to change the lottery legislation.
Regardless of the specific reason, the results were clear. The Oklahoma Lottery never had any success removing the profit mandate. They never had a hearing on their bill until 2013. In the first hearing, they pulled the bill because it was going to be voted down. In January 2015, a year into the budget deficit, they got to meet with legislators, and their bill missed passing a house subcommittee by one vote.
“In January 2016, I decided they must be tired of seeing my face,” Redburn said. “I don’t know if you have ever seen a Southwest Bible reference book salesman, but I tried that one summer . . . and one of my most vivid memories is you’d be walking down the street carrying this big old case holding Bible references and you would look down and you would see three or four people on their porch talking. They would notice you coming and they would scatter, go to their own houses and shut their doors. That’s how I felt about this. When legislators knew you wanted to talk about the lottery and they saw you coming, they would shut their doors.”
So Redburn turned to four members of his staff: Jay Finks (Director of Marketing & Administration), Mary Martha Ford (Director of Sales & Operations), Brandie Reisman (Marketing Manager) and Scott Moulton (Sales Manager). “I started dragging down four of my staff people who are younger, more energetic, different faces, and signed them up as lobbyists that year, got them down there, and made assignments: go talk to this person or that person. They made relationships that we didn’t have before, and they were able to get into a few doors that were closed to me, or who had already made up their minds about what they were going to say when they saw me,” Redburn said.
Finks and the rest of the staff split the entire House of Representatives into quarters. They began to individually meet with people. “There was a concerted effort on all of our parts to go down there and keep up with our people. We would sit in their offices waiting for them to come back. If there were developments with our bill in committee we would go tell our people. We just worked it.”
Unfortunately, in 2016, the effort to pass a bill with a Democratic author, Representative Mike Shelton, would ultimately end in failure. The chairman of the Appropriations and Budget Committee held the bill. But the success of the 2016 legislative session should not be judged by the bill’s failure. It created invaluable relationships which began to change minds. But one relationship stood out above the rest.
State legislator Leslie Osborn has had an interesting path with the lottery. In 2010, Osborn authored House Bill 3161 that would cause a lot of problems for the Oklahoma Lottery. HB 3161 prohibits the Oklahoma Lottery Commission from using any advertisement or promotion that utilizes minors or illustrates the educational benefits of the lottery.
At the time, the Oklahoma Lottery had a beneficiary ad showing how many buses, books and other items could have been bought with the money raised by the Oklahoma Lottery for public schools. The point of the ad was to show the lottery proceeds were going to education. In the ad, school children were shown. Many people, including Osborn, had a problem with that.
Osborn’s bill passed successfully through both the House and Senate, but then Gov. Brad Henry vetoed the bill. A year later, the same bill was brought up again, this time by a different author, and was passed by current Governor Fallin.
“It wrecked $100,000 worth of assets that I had in the market to help promote the brand. At the time, I don’t think [Osborn] was a lottery supporter, but I took on the challenge of getting her to change her mind. I just continuously visited her office, made our pitch, asked for advice on the best way to move forward and just focused on keeping a line of communication going” Finks said, then added with a chuckle: “I even asked her if she wanted to get on the bill two years ago and she kicked me out of her office.”
“It may have started us off on a tenuous relationship,” Osborn said.
During and leading up to the 2016 legislative session, the Oklahoma Lottery had worked primarily with Representative Shelton to author their bill. Shelton, in turn, in his final term, asked Osborn if she would help him pass the lottery’s bill. “The last year he had the bill before he termed, he asked me if I would help him with it. I tried to help him in his last year by getting a hearing in the Appropriations and Budget Committee that it was not going to receive, but it never made the floor,” Osborn said.
As the 2016 session ended, Finks reached out to Osborn. “I sent an email to Osborn that said ‘I just want to thank you for your time and your guidance. I would be remiss if I didn’t ask if you wanted to author a bill next year.’ I took a shot. And she said, put together your business case, let me know when you’re ready and we’ll meet.”
The Oklahoma Lottery team put together their case. But one issue needed to be carefully clarified: how to convey that removing the guarantee of 35% return in profits would guarantee more money to good causes. Legislators might have trouble understanding the relationship between sales, prizes, expenses and profit. So they came up with a workaround. “What if we guarantee what we have been giving the legislature ($50 million) and then we’ll point the incremental funds (above that $50 million) into something unfunded for education. Osborn loved the idea,” Finks said. “She agreed to carry the bill.”
“After he termed out, I worked with Jay, we tweaked the bill and added some things and ran it a little differently,” Osborn said. “…We put the money in kind of a lockbox for common education through the state department of education to spend on Science, Technology, Engineering and Math (STEM) initiatives in the classroom. Things that we aren’t normally able to fund through basic formula dollars.”
Now, after the meeting with Osborn, the Oklahoma Lottery hired a strategic services firm, which included lobbying support. They debated whether to use lobbyists. The chairman of their lottery board was the strongest proponent for it. He accentuated the need for people with expertise in legislative policy, as well as a keen understanding of the dynamics of the relationships between members.
It is important to note that lobbyists play a critical role in state legislatures. “I spent 29 years down there in the capital and around the legislature and executive officials a lot, and it was always interesting to me how officials fuss about anyone who used a lobbyist, but the facts are, those lobbyists play a key role for the legislature. If you look at the workload of the legislature, and probably any legislature is the same, when they are in session, it is just crazy . . . They don’t provide them staff around here, they have committee staff they can rely on a little bit, but if they’re trying to find something out they can call on agencies and then lobbyists,” Redburn said.
The lottery was still concerned about hiring them. After all, people rarely conjure up positive connotations when they think about lobbyists. It could result in negative press, which ultimately would hurt their chances to get a lottery bill passed. They prepared themselves for the seemingly inevitable backlash. “We just decided to say it straight and be direct, if we spend $100,000 to make you all aware there is $110 million on the table in the next five years, then it was money well spent,” Finks said.
It’s hard to argue with those numbers. To spend 0.1% on additional potential revenue is trivial. But the lottery never needed to use the argument. “You know how many times they asked? Zero … It was never brought up.”
On the other hand, the lobbyists quickly went to work for the lottery.
The lottery’s lobbyists had expertise in education, so they were able to broker a meeting with education officials to pitch this new funding idea. Finks attended the meeting to help get across the message of how beneficial this would be for the education officials—“This is an opportunity to continue to get the money that you have been getting as well as start driving incremental money to something that isn’t currently funded,” he said.
The lobbyists also helped with strategic decisions. “There were times, we wanted to act, and they would say ‘Don’t do anything. We are laying low for a week. The lottery being mentioned this week wouldn’t do us any good.’ And looking back, those were key moments that we acted on intel we would have never had without someone down at the capital on a daily basis,” Finks said.
The final, and perhaps most critical moment, was Osborn’s promotion. At the time, Finks and the entire Oklahoma Lottery staff had no idea Osborn was being promoted to House Appropriations Chairman. Previously, the Appropriations Committee was a graveyard for Oklahoma Lottery bills. But once she was promoted to a leadership role, everything changed. “She was helping drive a leadership effort to create a funding opportunity. It just created a whole new level of support that we had never had before,” said Finks.
Osborn reached out to the Senate Appropriations chair, Kim David, to get the Senate on board. Together, they authored the bill that would pass through committee, then through the House with a vote of 70 to 25. After that, it was sent to the Senate, where David navigated it successfully with a vote of 36 to 10.
“Everything rolled together. We were able to get a coalition built of education officials, Republicans, Democrats, and the petroleum marketers association and we were able to get the bill passed through the House of Representatives and the Senate. It went straight to the governor,” Redburn said. “The governor had committed a couple years earlier to sign the bill if we got it passed. We did, and she kept her word.”
But how easy will it be for other lotteries to emulate the empowerment and lobbying strategy Redburn and the Oklahoma Lottery employed?
“Anyone can do the first part, which is pray a lot. So much of it depends on how the process works in their state. In our case, the key factors were that we got a few fresh faces involved, we tried to build a few more relationships and we used lobbyists,” Redburn said.
Those relationships made a big difference. When asked whether Osborn would continue working with Finks and the Oklahoma Lottery, she responded: “Absolutely …. Jay and I met a couple of weeks ago so we can look at what is the next step. As we see these dollars start to flow in, do we want to delineate a little more how they spend it on STEM? So yes, I expect to continue the working relationship, because we had a great one working together this year.”
“There is a lesson in plugging in more people,” Finks said. “…The legal counsel for the House of Representatives would call me saying, ‘Ok, explain this language.’ Then I’d call Rollo (Redburn) in because he has a good grasp on this particular line in the bill. We tag teamed when the situation called for it. And that worked, but it wouldn’t have worked if Rollo hadn’t said: ‘You guys go down there and help me.’”
“Now, do you have the right people? You can’t just send anyone down there. You have to send people that can answer questions and speak to things that cover [a wide range of topics] from bill language to the economic impact, or whether the math works for the state to the impact on gambling addiction. You need someone who can talk through not only the positive but also be prepared for the negative,” Finks stressed.
“You have to have the right people, but the more dialogue that happens, [the better]. Somewhere in all that dialogue, we built some momentum to get us where we are. Last year, they wouldn’t hear the bill, not even in committee. This year, we had over 100 yes votes out of the House and Senate. Legislators remembered talking to [us],” he added.
Now, every lottery has a different legal situation. Some can hire lobbyists and others can’t. Some can push their staff into becoming liaisons. But for those that legally can—and choose not—it may be worthwhile to rethink their strategy. “Those year and a half of meetings in the making, staying diligent, spending a lot of hours down there sitting in offices waiting for representatives to go by. Asking them, ‘Do you have 5 or 10 minutes to talk?’ It was about investing the time. We’re not going anywhere, we want your support. Without that, we would had never gotten out of committee,” Fink observed.
And it may have played a role in changing the way the Oklahoma legislature perceives the lottery. “The first few years that Representative Shelton ran the bill, the lottery still had [a political] stigma attached to it. There is also that stigma of anything regarding gambling. Does anything that promotes the lottery just increase more people having a gambling addiction? I believe that this was the first year that it became more of a non-issue. It was really seen more as a tool for raising education dollars than it was about [if a legislator is] personally opposed or not opposed to gambling,” Osborn said.
“There’s one side of thinking that says, ‘don’t poke the bear,’ but the right thing is to do the best thing for the lottery, which ultimately is best for the state,” Finks said. “…We, as the lottery industry, sometimes operate under a cloud of ‘don’t make waves,’ but our goal was something bigger than a six-month expense [to hire a strategic firm]. Our goal was [increase sales by] millions of dollars. I think overall, it is about your level of aggression, build those relationships, don’t be afraid to get down there and make some noise, if you’re doing it for the right reason.”
Certainly, there is a risk of going to the capitol and getting the attention of state legislators, particularly when employing a new political strategy. But, lotteries constantly ask their players to take a chance when purchasing a ticket. Perhaps it’s time for lotteries to take a chance themselves.